Employee share plans in Spain: regulatory overview

A Q&A guide to employee share plans law in Spain.

The Q&A gives a high level overview of the key practical issues including, whether share plans are common and can be offered by foreign parent companies, the structure and rules relating to the different types of share option plan, share purchase plan and phantom share plan, taxation, corporate governance guidelines, consultation duties, exchange control regulations, taxation of internationally mobile employees, prospectus requirements, and necessary regulatory consents and filings.

To compare answers across multiple jurisdictions, visit the Employee share plans Country Q&A tool.

This Q&A is part of the multi-jurisdictional guide to employee share plans law. For a full list of jurisdictional Q&As visit www.practicallaw.com/employeeshareplans-mjg.

Montse Rodríguez Viñas and Raquel de la Viña Rodríguez, BDO Abogados y Asesores Tributarios
Contents

Employee participation

1. Is it common for employees to be offered participation in an employee share plan?

Despite the EU's efforts to encourage their use, employee share plans (ESPs) are less popular today across the EU than in the 1990s or 2000s. However, according to EU information, the popularity of ESPs has recently grown in companies with more than 200 employees: about 50% participate in profit sharing plans and 30% participate in ESPs.

In Spain, ESPs have been less popular following case law from 2001 (Sentence of Social Supreme Court of 24 October 2011, Appeal 4851/00) which established certain rules that are favourable to the employee:

  • Employees can exercise their share options from the plan's subscription date, so from that date share options are demandable, recognisable and quantifiable.

  • Employees can exercise their options after leaving employment in some cases.

  • If the employee is dismissed by the employer providing the plan:

    • any benefit from the share option plan is considered as salary when calculating dismissal compensation;

    • if the dismissal is recognised as unfair and the employee is dismissed before the option's exercise term ends, the employee's right to receive the share option does not expire;

    • if the employee can prove that the reason for the termination was to prevent him from exercising his option right, any option the employee was entitled to but has not exercised must be included in the dismissal compensation.

However, considering the current global economic crisis, and the fact that ESPs encourage employee motivation by converging the interests of both employers and employees, it is a good option for companies to motivate their employees through this type of remuneration.

 
2. Can employees be offered a share plan where the shares to be acquired are in a foreign parent company?

Employees can be offered an ESP under which the shares to be acquired are in a foreign parent company.

 

Share option plans

3. What types of share option plan are operated in your jurisdiction?

Basic model share option plan

Employees can be granted any type of option to buy company shares at a future date at a lower price than the market value. The basic model option plan is one of the most popular. Share option plans can be offered by all companies listed on the stock exchange or any company whose parent company is listed.

However, to receive the benefit of the plan, employees must not leave the company voluntarily before the future date set out in the plan. In addition, the company can insert conditions or limitations into the plan (such as conditions prohibiting the share sale or transfer for a certain period).

Purchased option plan

Employees interested in buying company shares in the near future pay part of the future exercising price on grant and then the balance on exercise. If the option is not exercised, employees do not recover payment. Purchased option plans are no longer popular. They can be used by all types of companies.

Performance-vested option plan (PVOP)

PVOPs are based on motivating and getting the most from employees, by setting certain goals to be reached. Employees can only exercise the option if they reach the prescribed goals (under established conditions such as profitability and timing). If these conditions are not met, employees cannot exercise the option.

PVOPs can be offered by all companies and are usually granted to managers. These plans were very popular in the 1990s and are likely to be again, since they are linked to the performance of the employee and reaching business goals.

Premium option plan

Premium option plans are very similar to PVOPs (see above, Performance-vested option plan (PVOP)). The option must be exercised at a certain price, which is significantly above the price at grant (about 150%) so employees can receive a high and variable payment linked to the capital gained by shareholders.

Premium option plans can be offered by all companies and were very popular in the 1990s. They may be popular again since they are linked to the profitability of the company.

Phantom share option plan

Phantom share option plans grant an employee an amount of cash equivalent to the difference between the share price as set in the plan and the share exercise price (see Question 16).

Re-priceable option plan

Companies can change the exercise price depending on the changing market. If the shares' value drops, employers can lower the exercise price at the option, to avoid employees with options from leaving the company to work for another company which offers profitable share options. Whenever there is a review of share price, employers are provided with a new period during which the option cannot be exercised.

These plans are currently not popular, but can be offered by all types of companies.

Indexed share option plan

The option's price is linked to a specific index or average value of competitors. This is generally to achieve better company growth in comparison to competitors' companies or the markets' average growth.

These can be offered by all types of companies but are not popular at the moment.

Grant

4. What rules apply to the grant of employee share option plans?

The information contained in Questions 4 to 9 relates to all types of share option plans referred to in Question 3.

Share option plan

Discretionary/all-employee. The Spanish Constitution and Spanish Workers' Statute prohibits discrimination on the grounds of birth, race, sex, religion, opinion, or any other personal or social condition, such as civil status, age, language or political ideas or being part of a trade union. However, the grant of share options on a discretionary basis is not considered discriminatory.

Non-employee participation. Share options can be granted to non-employee participants, such as directors or consultants.

Maximum value of shares. There is not a maximum value of share over which options can be granted, either on a per-company or per-employee basis.

Market value. Options are not required to have an exercise price equivalent to the market value at the date of grant.

 
5. What are the tax/social security implications of the grant of the option?

Share option plan

For tax/social security purposes, share option plans can be classified in two ways.

Share delivery plan. Under this plan, the company directly delivers the shares to the employee. As the shares are directly delivered to the employee, tax/social security implications arise on grant for share delivery plans (for details of the tax base calculation see Question 8). However, no tax/social security charges arise on the grant of share delivery plans, if all of the following conditions are met:

  • The shares are delivered to the employee for free or at a lower price than market value, if the value of the shares does not exceed EUR12,000 for the year.

  • The offer is made within the company's general salary policy and contributes to the workers' participation in the company.

  • The employee (and his/her spouse or family members up to the second degree) does not have a joint, direct or indirect shareholding in the company or another company in the group, of more than 5%. Relatives up to the second degree would include a parent, child, sibling, uncle, aunt, nephew, niece, grandparent, grandchild or half-sibling.

  • The ownership of the shares is maintained for at least three years.

Share option plan. Under this plan, the company does not deliver the shares, but provides an entitlement to the shares if certain conditions are met (see Question 6). Tax/social security charges usually arise on the exercise and sale where certain conditions are met (see Questions 8 to 9).

Vesting

6. Can the company specify that the options are only exercisable if certain performance or time-based vesting conditions are met?

Share option plan

Companies can determine that options vest only when certain performance or time-based conditions are met.

However, if an employee is unfairly dismissed, the employee is still entitled to exercise his option and any clause in the plan stating that entitlement to exercise the plan will cease on unfair dismissal is considered void (see Question 24).

 
7. What are the tax/social security implications when the performance or time-based vesting conditions are met?

Share option plans

No tax or social security charges arise on vesting.

Exercise

8. What are the tax/social security implications of the exercise of the option?

Share option plan

Tax. Companies must withhold the relevant personal income tax (PIT) on exercise. If the option is exercised and the price of the shares is below market value, any excess is treated as a benefit-in-kind and is therefore included in the employee's salary for PIT purposes. Certain rules allow for a reduction for PIT purposes (see Question 21). No exemption from tax is available on exercise.

Social security. Social security contributions must be paid on any benefit received by the employee arising from exercise, taking into account the period in which that benefit was accrued. Employees earning more than EUR39,150 (for 2012) already contribute the maximum amount of social security contributions (social security ceiling) (as at 1 August 2012, US$1 was about EUR0.8). Employees that receive amounts in excess of that figure will not be required to pay additional contributions.

How liability is recovered from employee. The company must withhold the relevant PIT and social security contributions from employees.

Sale

9. What are the tax and social security implications when shares acquired on exercise of the option are sold?

Share option plan

Tax. Companies must withhold PIT on sale of shares. Tax is charged as a capital gain as part of PIT, at a rate of 21% for the first EUR6,000, with a ceiling of 27% for more than EUR24,000 for 2012 and 2013.

The taxable base is calculated according to the difference between:

  • The price paid on exercise by the employee to the company (or the shares' market value at acquisition if they were acquired for free).

  • The higher of the transfer price or market value of the shares at the moment of the sale.

Social security. No social security contributions are charged on the sale of shares.

How liability is recovered from employee. The company must withhold the relevant PIT and social security contributions are not payable (see above).

 

Share acquisition or purchase plans

10. What types of share acquisition or purchase plan are operated in your jurisdiction?

Share acquisition or purchase plan

There is only one type of share acquisition or purchase plan in Spain. Under this plan, the employer gives the employee entitlement to acquire shares for free or for a price below their market price.

This type of plan can only be offered by companies listed on the stock exchange, or companies with listed parent companies. This plan is often popular with listed companies.

Acquisition or purchase

11. What rules apply to the initial acquisition or purchase of shares?

Share acquisition or purchase plan

Discretionary/all-employee. It is not considered discriminatory to award entitlement to acquire shares on a discretionary basis (see Question 4, Share option plan: Discretionary/all-employee).

Non-employee participation. Shares can be offered under the plan to non-employee participants, such as directors or consultants.

Maximum value of shares. There is no maximum value of shares that can be awarded under the plan.

Payment for shares and price. The plan can provide that employees are awarded shares for free or below market price.

 
12. What are the tax/social security implications of the acquisition or purchase of shares?

Share acquisition or purchase plan

Tax. If all of the following requirements are met, employees who acquire shares that are free or below market price are exempt from PIT on that acquisition:

  • The gain is less than EUR12,000 per year. Any amount over this is subject to PIT as a benefit-in-kind.

  • The offer is made within the company's general remuneration policy (or policy of the group of companies), or for employees in a certain category.

  • The employee does not directly or indirectly hold more than 5% of the company or company's group's share capital. This includes shares held jointly with the employee's spouse or family members up to the second degree.

  • The employee holds the shares for a minimum of three years after acquisition.

Where PIT is payable, employers must withhold the applicable PIT for any relevant employee when the shares are acquired.

Social security. If the gain is less than EUR12,000 for the year there is no need to include the difference between the share's market price at the time of delivery and the option price. If the gain exceeds this amount, the excess is subject to social security contributions.

Vesting

13. Can the company award the shares subject to restrictions that are only removed when performance or time-based vesting conditions are met?

Share acquisition or purchase plan

Companies can determine that options vest only when certain performance or time-based conditions are met.

However, if an employee is unfairly dismissed, the employee is still entitled to exercise his option and any clause in the plan stating that entitlement to exercise the plan will cease on unfair dismissal is considered void (see Question 24).

 
14. What are the tax and social security implications when the performance or time-based vesting conditions are met?

Share acquisition or purchase plan

There are no tax and social security implications on vesting.

Sale

15. What are the tax and social security implications when the shares are sold?

Share acquisition or purchase plan

There are no tax or social security implications when the shares are sold.

 

Phantom or cash-settled share plans

16. What types of phantom or cash-settled share plan are operated in your jurisdiction?

There is only one type of phantom or cash-settled share plan operating in Spain.

Phantom or cash-settled share plans

Main characteristics. Under this type of plan an employee receives an amount of cash equivalent to the difference between the share price as set in the plan and the share exercise price. Employees are granted unreal or fictional options (phantom options), so are not entitled to receive or purchase shares. Therefore, what employees receive is an amount equivalent to the difference between share price established in the plan and share price on exercise during the validity term of the plan. The employee does not receive any options or shares.

Types of company. This type of plan is available to all types of companies.

Popularity. This is the most common type of ESP and the most popular. These plans are most popular for companies not listed on the stock exchange and are very popular among companies quoted on such a market. They can be offered by all types of company in Spain.

Grant

17. What rules apply to the grant of phantom or cash-settled awards?

Phantom or cash-settled share plan

Discretionary/all-employee. It is not considered discriminatory to award entitlement to acquire phantom share plans on a discretionary basis (see Question 4).

Non-employee participation. Shares can be offered under the plan to non-employee participators, such as directors and consultants.

Maximum value of awards. There is no maximum award that can be granted under the plan, either on a per-company or per-employee basis.

 
18. What are the tax/social security implications when the award is made?

Phantom or cash-settled share plan

There are usually no tax or social security implications when the award is made.

Vesting

19. Can phantom or cash-settled awards be made to vest only where performance or time-based vesting conditions are met?

Phantom or cash-settled share plan

Phantom or cash-settled awards can be made to vest only where performance or certain time-based vesting conditions specified in the corresponding plan are met.

However, if an employee is unfairly dismissed, the employee is still entitled to exercise his option and any clause in the plan stating that entitlement to exercise the plan will cease on unfair dismissal is considered void (see Question 24).

 
20. What are the tax/social security implications when performance or time-based vesting conditions are met?

Phantom or cash-settled share plan

There are no tax or social security implications on vesting.

Payment

21. What are the tax and social security implications when the phantom or cash-settled award is paid out?

Phantom or cash-settled share plans

Tax. Income received when the annual award is paid out is considered salary income. The amount of salary income is equal to the difference between the share's market value at the time of grant and the market value of the company's shares at the time of payment.

Employees are entitled to a 40% PIT reduction if the following requirements are met:

  • The gain has been granted over a period of two years.

  • The gain is not obtained periodically or in a recurrent way (a share plan is not periodic if does not vest on an annual basis).

  • The offer is made within the company's general remuneration policy (or policy of the group of companies), or for employees in a certain category.

  • The employee does not directly or indirectly hold more than 5% of the company or company's group's share capital. This includes shares held jointly with the employee's spouse or family members up to the second degree.

  • The amount received as a result of the exercise of the share plan is held for a minimum of three years.

Social security. Social security charges arise in a similar way to those arising on the exercise of share option plans (see Question 8).

How liability is recovered from employee. Employers must withhold the applicable PIT for any relevant employee when the shares are acquired. The tax-free exemption of EUR12,000 does not apply in this case (see Question 12).

 

Corporate governance guidelines, market or other guidelines

22. Are there any corporate governance guidelines, market rules or other guidelines that apply to any of the above plans?

Any issue or public offer of sale of securities in Spain is subject to prior registration with the Spanish Securities and Exchange Commission (Comisión Nacional del Mercado de Valores) (CNMV) (for the CNMV's website see box, Online resources). Whether an ESP qualifies as a public offering is set out in Royal Decree 1310/2005, which:

  • Defines the rules applicable to the issue or public offer of sale of shares and other securities.

  • Establishes the framework for the listing of securities in the Spanish markets.

To register the issue or offer of sale, the CNMV must be provided with:

  • Documentation proving that the issuer and the securities to be issued are subject to the laws applicable to them.

  • Financial statements of the issuer prepared and audited in accordance with the laws applicable to it.

  • A prospectus (see Question 29).

ESPs are excluded from the prospectus requirement in certain circumstances (see Question 30).

Under the Spanish Corporation Law, remuneration of directors must be expressly authorised by the articles of association. Remuneration consisting of the delivery of shares, share options or based on the value of the shares must be expressly provided for in the articles and their implementation approved by a shareholders' meeting. The Spanish Unified Good Governance Code recommends that the board of directors submit a report on the directors' remuneration policy (approved by the board for the current year) to the advisory vote of the shareholders' meeting. In Spanish corporate practice, the advisory vote allows shareholders to take a stance which, without affecting the validity of the company's remuneration commitments, can result in either a vote of confidence or no confidence in the director.

 

Employment law

23. Is consultation or agreement with, or notification to, employee representative bodies required before an employee share plan can be launched?

Consultation or agreement with, or notification to, any employee representative body is not required before an employee share plan is launched.

 
24. Do participants in employee share plans have rights to compensation for loss of options or awards on termination of employment?

Participants in ESPs do not have rights to compensation for loss of options or awards on termination of employment.

However, in the case of unfair dismissal, if the employee is dismissed before the award or option's exercise term ends, the employee can exercise any unexercised options or awards. In addition, any clause in the share plan stating that the employee's entitlement to exercise his plan would disappear in the case of dismissal will be considered null and void by the Spanish Labour Courts.

 

Exchange control

25. How do exchange control regulations affect employees sending money from your jurisdiction to another to purchase shares under an employee share plan?

There are no exchange control regulations so money can be sent in and out of Spain without limitation. However, if an employee sells shares of a foreign company of the group, he must file a foreign investment form in Spain.

 
26. Do exchange control regulations permit or require employees to repatriate proceeds derived from selling shares in another jurisdiction?

There are no exchange control regulations, so money can be repatriated to Spain without any limitation (see also Question 25).

 

Internationally mobile employees

27. What is the tax position when an employee who is tax resident in your jurisdiction at the time of grant of a share option or award leaves your jurisdiction before any taxable event affecting the option or award takes place?

If an employee is tax resident at the time of granting of a share option or award, but leaves and is no longer tax resident, a tax rate of 24% (24.75% from 1 January 2012 until 31 December 2013) is applied on income originating in Spain, under the non-resident income tax provisions.

 
28. What is the tax position when an employee becomes tax resident in your jurisdiction while holding share options or awards granted abroad and a taxable event occurs?

If an employee becomes tax resident in Spain while holding share options or awards granted abroad and a taxable event occurs, the employee becomes tax resident and income accrued from the exercise is subject to tax as for resident employees. In these circumstances, the general taxation rules apply (see Questions 8, 9 and 12).

If the employee is taxed abroad, a tax credit is available (equivalent to the tax paid abroad or PIT payable in Spain).

 

Securities laws

29. What are the requirements under securities laws or regulations for the offer of and participation in an employee share plan?

If the ESP qualifies as a public offer of securities, the company is subject to:

  • Reporting requirements under Royal Decree 291/1992 for the issuance of securities and public sale of shares.

  • A requirement to file a prospectus on listings and public offerings (Article 41.1.(e), Royal Decree 1310/2005 of 4 November 2005). This implements Directive 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trading (Prospectus Directive) into Spain.

 
30. Are there any exemptions from securities laws or regulations for employee share plans? If so, what are the conditions for the exemption(s) to apply?

A prospectus exemption is available if all of the following requirements are met:

  • The ESP is addressed to only former or current directors or employees by the employer (company or company of the group).

  • A document explaining the nature and number of securities and the motivation and details of the offer is made available to the directors or employees.

  • The securities are the same as the securities listed on an official market or recognised market in the EU.

  • The ESP is not considered a public offer (see below).

An ESP will not be considered to be public offer if all of the following apply:

  • The offer is only addressed to qualified investors.

  • The offer is addressed to fewer than 100 individuals or legal entities of EU member states, not including qualified investors.

  • The offer is addressed to investors investing at least EUR50,000.

  • The minimum unit face value of the offered shares is EUR50,000.

  • The total amount of the offer is less than EUR2.5 million per year.

However, all offers must be considered and analysed individually, as other conditions may have to be met in addition to those listed above.

 

Other regulatory consents or filings

31. Are there any other regulatory consents and filing requirements and/or other administrative obligations for an offer of and participation in an employee share plan?

There are no other regulatory consents or filing requirements.

 
32. Are there any data protection requirements or obligations for an offer of and participation in an employee share plan?

The employer must inform employees that, in relation to their participation in the plan their personal data will be stored in a database with a description of their details. The employer should also inform the Spanish Data Protection Agency.

If the database is in another jurisdiction and the employer needs to send employees' personal details overseas to a parent company, is not necessary to inform the employee expressly, if this is already stipulated within the employment contract or if there is a services contract between the employer and the parent company.

However, any situation must be considered and analysed on its own facts, as there is variation on the requirements depending on particular cases.

 

Formalities

33. What are the applicable legal formalities?

Translation requirements

It is not mandatory to translate an ESP's document into Spanish, but it is good practice to provide employees with a document in their native language so they cannot argue that they did not have the appropriate knowledge of the conditions.

However, if the ESP qualifies as a public offer, translation into Spanish is mandatory, as all documents filed with the CNMV must be filed in Spanish or translated into Spanish by a professional and official translator (see Question 29).

E-mail or online agreements

For ESPs, employees can enter into binding agreements electronically. However, depending on the legal nature of the company offering the shares, employees may be required to sign them in person.

Witnesses/notarisation requirements

Notarisation may be required, depending on the company's situation in Spain (for example, in relation the company's nature and domicile).

Employee consent

To make a deduction in an employee's salary, the employee's consent is expressly required.

 

Developments and reform

34. Are there any current trends, developments and reform proposals that have or will affect the operation of employee share plans?

Trends and developments

There are no specific trends or developments regarding ESPs, as legal practice derives from case law.

Reform proposals

There are no reform proposals.

 

Online resources

Spanish Securities and Exchange Commission (Comisión Nacional del Mercado de Valores) (CNMV)

W www.cnmv.es/portal/home.aspx

Description. Official website of the Spanish Securities and Exchange Commission.

Spanish Social Security Administration

W www.seg-social.es/Internet_6/index.htm

Description. Official website of the Spanish Social Security Administration. Provides written documents used by the Social Security Treasury Office, the National Social Security Institute and the Social Marine Institute.

Spanish Tax Administration

W www.agenciatributaria.es/AEAT.internet/Inicio_en_GB/English/English.shtml

Description. Official website of the Spanish Tax Administration. Provides information in relation to non-resident taxation, the 2012 taxpayer's calendar, annual reports and the month tax revenue report in summary form.

W http://www.agenciatributaria.es/AEAT.internet/Inicio_en_GB/English/English.shtml

Description. Official website of the Tax Administration in English.



Contributor details

Montse Rodríguez Viñas

BDO Abogados y Asesores Tributarios

T +34 932 098 802
F +34 934 141 575
E montse.rodriguez@bdo.es
W www.bdo.es/abogados

Qualified. Spain, 1997

Areas of practice. Employment law; social security.

Raquel de la Viña Rodríguez

BDO Abogados y Asesores Tributarios

T +34 914 364 195
F +34 914 364 193
E raquel.delavina@bdo.es
W www.bdo.es/abogados

Qualified. Spain, 2005

Areas of practice. Employment law; social security.

Recent transactions

  • Legal advice, drafting and negotiation of employment contracts of directors and senior managers.
  • Legal advice on directors' and senior managers' remuneration structure.
  • Company restructuring: advising and negotiation on collective and objective dismissals.
  • Out-of-court and social court assistance for dismissals of directors and senior managers.

These transactions relate to different companies from the following sectors: public companies, software, hardware, automotive industry, pharmaceutical laboratories, and port.


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