More flexible tax rules proposed

Section 7 P of the Tax Assessment Act allows employees to be remunerated with warrants, options and employee shares without the value being taxed as salary income, but instead as share income. In addition to the significantly lower tax rate (27 %/ 42 % for share income instead of up to approx. 61 % for salary income (2026)), the taxation is deferred until the time when the employee sells the shares.

The bill is intended to address the practical and economical challenges many companies have faced in using the current scheme. The objective is to create a more flexible framework, enabling both new and growing companies to make greater use of the scheme and thereby attract and retain qualified employees.

The current scheme under section 7 P of the Tax Assessment Act

Under the current rules in section 7 P of the Tax Assessment Act, employee shares, options and warrants granted to employees may be taxed as share income to the extent that their value does not exceed the following limits:

• 10 % of the employee's annual salary.
• 20 % - if the grant is offered broadly to at least 80 % of an employee group on equal terms.
• 50 % - if the employee is employed by a company that (i) in one of the two most recent approved financial statements had fewer than 50 employees, (ii) has been in existence for less than five years prior to the calendar year in which the agreement is entered into with the employee, and (iii) if either the balance sheet total or net turnover, calculated at consolidated level, has been less than DKK 15 million in one of the last two approved financial statements.

Abolition of the 50 % limit

The bill proposes to abolish the current 50 % limit, according to which the value of the employee shares, options or warrants granted is subject to income tax if (and to the extent that) they exceed 50 % of the employee's annual salary. Going forward, there will be no upper limit on the number of employee shares, options or warrants that an employee may receive. However, this requires that the employee receives a minimum taxable basic salary of DKK 253,000.

The proposed amendment also means that companies will avoid having to value the employee shares, options or warrants granted to be able to compare them with the employee's salary, which makes the scheme significantly easier to apply. The valuation requirement has been one of the greatest barriers to the application of section 7 P of the Tax Assessment Act. It has proven to be both costly and administratively burdensome and, in many cases, has created uncertainty about the tax consequences for the employee, which has generally deterred companies from using such incentive schemes.

Expansion of the group of companies

In addition to the removal of the 50 % limit, it is proposed to expand the scope of companies that can use the basic salary requirement as follows:

• 150 employees (compared to 50 previously)
• DKK 200 million in net turnover or balance sheet total (previously DKK 15 million)
• 10 years of age (compared to 5 years previously)

Under the current rules, access has primarily been limited to very young companies in the early stages of establishment. The proposed amendments mean that larger growth companies, which have passed the initial years and are in the process of scaling up, will in the future be increasingly able to offer employee shares, options and warrants on more favourable tax terms.

The expansion will thus ensure that the incentive scheme can be used by companies that are further along in their growth process and support the retention of key employees.

The further process

The bill has been submitted for consultation with a view to being presented to the Danish Parliament in the autumn of 2025. For the amendments to section 7 P of the Tax Assessment Act, it is proposed that the rules should apply to agreements on the grant of share-based remuneration entered into after a date to be determined by the Minister of Taxation. This date has not yet been set, as the entry into force is subject to the European Commission's approval of the scheme under state aid rules.

The final content of the amendment may also be adjusted in connection with the political consideration of the bill.

At Horten, we will follow developments closely and provide ongoing information about any amendments that may be of significance to companies and employees. At Horten, we assist a number of clients (both large and small) with the establishment of employee share and warrant schemes. You are therefore always welcome to contact us if you have any questions regarding this article or if you need assistance.