Tax on share options: Employee stock ownership plan in Croatia

Employee stock ownership has become a magnet for hiring new employees in Croatia. It is likely to become even more popular and widespread if legislators make necessary changes to the tax treatment of giving employees a share in ownership.

What is employee stock ownership?

An employee stock ownership plan (ESOP) is the name given to a social plan in which employees participate in the ownership of the company. By participating in ownership, employees feel more valued by their employers, which further motivates them to do their best at work. Their better performance leads to greater success for the company, and as a reward for better performance, employees receive the right to financial compensation – the dividend.

Tax legislation in Croatia

Taxation of the transfer of ownership shares to employees in Croatia is regulated by the Income Tax Act, although there are differences in the taxation of the transfer of ownership shares in limited liability companies and joint stock companies, explain the Ecovis advisors.

Croatian tax legislation is very complex, but we can accompany the entire process for you.

Robert Špoljar, Tax advisory & Accounting Manager, ECOVIS FINUM, Zagreb, Croatia

In the case of a limited liability company, the transfer of ownership shares is treated as income from employment, which means that in addition to income tax, the owners must also pay contributions for pension and health insurance. This makes it a very expensive option for owners which is currently a major obstacle to increasing the number of ESOPs in Croatia.

Under the Croatian Personal Income Tax Act, the allocation of shares to employees of joint stock companies is considered capital income, which is a much more favourable option for companies.

In this case, the basis for taxation is the difference between the market price of the share and the contractual price of the share, and a capital gains tax is paid. However, there is no payment of contributions for pension and health insurance.

For further information please contact:

Robert Špoljar, Tax advisory & Accounting Manager, ECOVIS FINUM, Zagreb, Croatia
Email: robert.spoljar@ecovis.hr