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Equity-based incentives

Share options

What are the most common types of share option plan in your jurisdiction? Please outline the rules relating to each scheme.

Stock option plans are the most common share option plan in Italy. A stock option plan grants employees the right to purchase shares in the employer or its related company at a specified price (exercise price). Directors can also be recipients of such plans.

The few general rules governing the equity-based incentive plans are set out in the Civil Code. In particular, pursuant to Article 2349(2) of the Civil Code and the company’s bylaws, an extraordinary shareholders meeting may approve the assignment of financial instruments, other than shares, to workers employed by the company or any controlled company. The Civil Code sets out specific rules regarding the exercise of the attributed rights, the right of transfer and grounds for disqualification or redemption.

Listed companies, insurers and credit institutions are subject to further mandatory requirements.

More specific rules govern the fiscal and social security aspects.

What are the tax considerations for share option plans?

The difference, if any, between the share value at the time of exercise of the option and the exercise price paid by the employee is fully taxed as employment income.

If the purchased shares are resold, any capital gain will be taxed as income arising from sale of shareholdings with a 12.5% rate.

Any employment income from stock option plans is exempt from social contributions.

Share acquisition and purchase plans

What are the most common types of share acquisition and purchase plan in your jurisdiction? Please outline the rules relating to each scheme.

Stock purchase plans are uncommon in Italy. Such plans entitle employees to purchase shares of the employer at a specified price over a fixed period.

The use of stock grant plans is fairly infrequent due to its limited fiscal benefits. Such plans provide for free allocation of shares to employees, establishing specific rules – particularly with regard to the right to transfer the shares.

The Civil Code does not provide overall requirements for the transfer of shares to employees. However, there are few provisions supporting the acquisition of shares by employees.

In accordance with Article 2349(1) of the Civil Code, if allowed by the company’s bylaws, an extraordinary shareholders meeting may approve the assignment of dividends to workers employed by the company or by any controlled company through the issue, in an amount corresponding to such dividends, of special categories of share, to be individually distributed to the employees.

Further, Article 2358 of the Civil Code allows a derogation from the prohibition on making loans or providing security with a view to the acquisition of company’s shares by a third party in order to facilitate the acquisition of shares by employees. Under Article 2441 of the Civil Code, the shareholders meeting may also exclude the right to pre-emption in cases of newly issued shares that are offered to workers employed by the company or by any parent or controlled company.

Specific rules govern the fiscal and social security aspects

What are the tax considerations for share acquisition and purchase plans?

The value of the shares distributed free to the employees is not included as employment income if:

  • the shares are offered to all employees in general or to all employees belonging  to certain categories;
  • the total value of the distributed shares does not exceed £2,065.83 within a fiscal period (any surplus will be subject to taxation); and
  • the shares are not repurchased by the employer or issuing company or divested anyway for at least three years after their award.

A social contribution exemption scheme is provided for any free allocation of shares to employees arising from share plans as long as such plans are intended for employees only (or for categories of employees only) and provide for free distribution of shares under certain conditions.

Phantom (ie, cash-settled) share plans

What are the most common types of phantom share plan used in your jurisdiction? Please outline the rules relating to each scheme.

Some companies prefer to introduce incentive-based compensation without distributing shares to employees. Phantom share plans require no approval by the shareholders meeting since they grant a cash incentive compensation to only some employees, based on the increase in value of a hypothetical number of shares.

The most common phantom share plans usually include the theoretical assignment of a certain number of shares to the employee setting the objectives to be achieved within a specified period. The value or the increase in value of the assigned shares at the end of such period results in the amount of the cash incentive to pay to the employee.

Listed companies, insurers and credit institutions are subject to mandatory requirements for incentive compensation.

The lack of any tax or social security benefit does not provide an incentive to use phantom share plans.

What are the tax considerations for phantom share plans?

Any income from phantom share plans is fully subject to taxation and social contributions as employment income.

Consultation

Are companies required to consult with employee unions or representative bodies before launching an employee share plan?

Employee share plans are not subject to any disclosure or consultation requirements. However, union agreements may be used to regulate specific remuneration by means of a share plan contained in the collective agreements.

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