Equity compensation (Mitarbeiteraktien)
Equity compensation pays an employee partly in company shares instead of cash, typically as RSUs (restricted stock units — shares delivered once conditions like a vesting schedule are met) or through an ESPP (Employee Stock Purchase Plan — a payroll-funded option to buy shares at a discount). German tax law splits the resulting money into two stages taxed differently: the value received at vesting or purchase, and any gain after that point.
Why it matters
Employees at multinational and tech companies operating in Germany often receive equity as a substantial share of total compensation, not a bonus footnote. Because the value at vesting or purchase runs through the same progressive income tax and Sozialversicherung (social insurance) withholding as salary, an employee can owe real tax on shares before deciding whether to sell them — a cash-flow issue distinct from ordinary capital gains tax on a stock sale. Grasping where the compensation regime ends and the capital-gains regime starts is what makes an eventual sale's tax bill predictable instead of a surprise.
Worked examples
1. RSU vesting. An employer grants 100 RSUs vesting over four years, 25 per year. When 25 shares vest at a market price of €40 each, the employee receives 25 x €40 = €1,000 in value. That €1,000 is added to gross salary for the month and taxed through ordinary payroll withholding (Lohnsteuer, wage tax), exactly like a cash bonus — not at a flat capital-gains rate. If the employee later sells those 25 shares at €45, only the appreciation since vesting (25 x (€45 - €40) = €125) is capital income; the original €1,000 already went through income tax and isn't taxed again.
2. ESPP purchase discount. An ESPP lets employees buy company shares below market price through payroll deductions. With a 15% discount and a market price of €100/share on the purchase date, buying 10 shares costs 10 x €85 = €850 for shares worth €1,000. The €150 discount is ordinary income at the purchase date, taxed the same way as the RSU example. Appreciation above the €100 purchase-date value belongs to the capital-gains track once the shares are sold.
| Instrument | Grants | Taxable event | Taxed as ordinary income |
|---|---|---|---|
| RSU | Shares on a vesting schedule | Vesting date | Full market value of vested shares |
| ESPP | Right to buy at a discount | Purchase date | The discount (market minus purchase price) |
Don't confuse with
Capital gains tax (Kapitalertragsteuer) applies to profit from selling an asset that's already owned — equity compensation is how the shares were acquired in the first place, and that acquisition step is taxed as income, not as a capital gain. Treating the entire eventual sale proceeds as capital income overstates the flat-rate portion and understates the income-tax portion; treating the whole vested or purchased value as a capital gain does the reverse. The two regimes meet exactly at the vesting or purchase price: everything up to that point is compensation, everything after is capital appreciation.
Check yourself
An RSU grant (restricted stock unit — a promise of shares once conditions are met) vests 50 shares at a market price of €30 per share. How much value, in euros, is added to the employee's gross salary as ordinary income at the moment of vesting?
An employee buys 20 shares through an ESPP (Employee Stock Purchase Plan) offering a 20% discount, on a day the market price is €50/share. How much of this purchase counts as ordinary taxable income at the purchase date?
Which of the following are taxed as ordinary income (not capital gains tax)? Select all that apply.