Effective January 1, 2017, Romanian legislation expanded the definition of “stock option plan” to include equity awards settled with shares not listed on a stock exchange. This change in Romanian law allows equity awards offered by private companies to benefit from preferential tax treatment in Romania, provided certain other conditions are met. Shares offered under equity plans that meet the definition of “stock option plan” are exempt from tax until the sale of the underlying shares.
By way of background, Romania introduced changes to its tax laws starting January 1, 2016 which allow equity awards to qualify for preferential tax treatment, provided the equity awards are settled in shares and are granted under a plan that meets the definition of a “stock option plan.”
Originally, equity awards had to satisfy three conditions to meet the definition of a “stock option plan.”:
- First, the equity awards can only be granted to employees or directors of the issuer or its affiliates.
- Second, there must be a minimum period of one year between grant and vesting of the equity award.
- Third, only shares listed on a regulated trading market or alternative trading system could fall under the definition of a “stock option plan.”
With the changes to Romanian legislation effective January 1, 2017, the third requirement no longer applies. Accordingly, private companies who grant share-settled equity awards in Romania now may benefit from the tax exemption under a “stock option plan,” provided the minimum vesting period and employee/director grant requirements are met.