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Company shares to employees: Gift or salary?

Company shares to employees: Gift or salary?
  • 04/01/2025
  • Reading time 3 Minutes
Group taxes Tax

Employee participation in the company can be a powerful succession planning tool. However, there are tax pitfalls lurking: Is it a salary - or a gift?

In a recent ruling by the Federal Fiscal Court (BFH) from November 20, 2024 (VI R 21/22), the judges clarify: Not every transfer of shares is automatically taxable wages. 

The case: Succession instead of remuneration 

An entrepreneur transferred shares to his son and to managers of his company - with the aim of ensuring succession and the long-term preservation of the company. The tax office assumed the transfer was a salary and wanted to levy wage tax. However, both the tax court and the Federal Fiscal Court disagreed. 

Important criteria according to the BFH 

The BFH clarified that the transfer of company shares does not automatically qualify as wages. Rather, clear criteria that distinguish a genuine succession arrangement from concealed remuneration are decisive. In its decision, the BFH stated that no wage tax is payable if the following conditions are met:  

Wage vs. gift: the tax differences 

Criteria    Wages    Gift
Taxation    Subject to income taxGift tax possible, but preferential
Responsible for taxEmployer must pay income taxGift recipient is liable for tax
Tax rateProgressive, depending on incomeFixed rate, with personal allowances
Social security contributionsYes, usually in full    No
Scope for structuringVery limitedSignificantly greater with early planning
External impact / signal to employeesRemuneration for performanceLong-term trust, participation in success 

 

Practice advice: design is key

A well thought-out and clear regulation is crucial for a company participation to have the desired effect. It should not only be legally secure, but also reflect the long-term interests of the company and the parties involved. A well-planned structure creates trust, ensures commitment and supports a successful succession plan.

Entrepreneurs who want to retain managers through company participation or organize the succession should

  • Clearly document that it is not about remuneration,
  • avoid contractual clauses that establish a connection with the employment relationship,
  • and include the succession plan as a strategic corporate objective in resolutions and contracts.

Conclusion

Employee participation can be a valuable succession planning tool - if it is set up correctly. If it is designed and documented at an early stage, you can avoid tax risks and benefit from favorable regulations.
Are you planning a succession solution involving your managers? Contact us - we will support you from the tax concept to implementation.

Are you planning a succession solution involving your managers? Contact us - we will support you from the tax concept to implementation.