New regulations on employees' access to share options

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The Norwegian Parliament approved in December 1998 a proposal for new tax provisions, making it more advantageous for employees to receive options on shares in their own company.

The Norwegian Parliament (Stortinget) decided in December 1998 to introduce new tax regulations in relation to employees receiving share purchase options in their own company. In 1999, employees may receive tax-free options up to the value of NOK 600,000; any share value above this level will be subject to tax. The tax-free figure is twice that of the government's original proposal in the state Budget, which was published in October 1998 (NO9811100N). However, the exemption from tax does not include profits on options that have already been realised: if options generate profits by being used to buy shares in an employee's own company at favourable prices, or are used to buy shares in other companies, any profit made will be taxed as normal income.

The decision to introduce new tax regulations will make it more advantageous for employees to receive options to buy shares in their own companies. An alteration to the law in 1996 made it less favourable for employees to receive such options when Parliament decided that the share options were to be taxed at the time of their allocation. The reason for this decision was that some managers received substantial gains through these share options.

In companies with more than 20 employees, at least five employees must receive share options before the tax-free scheme takes effect. In companies with 11 to 20 employees, the requirement is that at least a quarter of the employees should receive stock options. In companies with under 10 employees, however, the tax-free scheme takes effect even if only one employee receives options.

Parliament also decided to increase the tax-free advantages for employees buying shares in their own company below the actual share value, from NOK 1,000 to NOK 1,500. The two changes will probably mean that it will become common practice to offer employees shares or options in their own company. The majority in Parliament argued in favour of the changes on the grounds that it would be a positive step towards making employees co-owners in their own companies. Another rationale for the changes is that such schemes may contribute to keeping key personnel in a company.

The original government proposal in the October state Budget to introduce an extra employment tax on higher incomes - NOK 726,000 or more per year - was rejected.