The Luxembourg tax administration issued a new circular L.I.R. 104/2 dated November 29th 2017 replacing the previous circular dated December 20th 2012 regarding the tax treatment of warrants and stock-options allocated to employees. The new circular changes the lump sum valuation method of tradable options, restricts the conditions for its application and introduces a new notification formality.
New lump sum valuation
The taxable benefit in kind for tradable options (i.e. options that can be, immediately and without restriction, sold by the employee) not commonly traded on a stock-market can be determined according to a lump sum valuation method. According to the lump sum valuation method, the benefit in kind will be equal to 30% of the underlying asset value (17.5% for options granted until December 31st 2017).
New conditions for the lump sum valuation method
- The allocated options should not exceed 50% of the gross annual remuneration. This threshold is analysed at the level of each employee.
- The option plan can only be granted to senior managers within the meaning of article L 211-27 of the Labour Code.
- The value of option should not exceed 60% of the underlying asset value.
The lump sum valuation method does not apply to tradable options granted as legal, contractual, judicial or transactional severance payment in case of termination of the employment contract.
Employers have, to the extent they have not yet done so, to notify the tax authorities of the option plans that were granted in 2016 and 2017 before January 31st 2018 and March 31st 2018 respectively. A lack of notification within the required deadline could lead to an exclusion of the regimes set out in the circular. As of 2018, the notification has to be made to the tax authorities when the benefit in kind becomes taxable for the employee.
Option plans involving several employers are now explicitly mentioned in the circular. The tax treatment of these option plans remains the same.