In April, the German Parliament adopted an amendment to the Fund Location Act (German: "Fondsgesetz"). Fondsstandortgesetz), which also affected the German law governing the taxation of personal income of individuals (art. Einkommensteuergesetz), in so far as it relates to payments for the purpose of participation in ownership.  

The latter already provided that payments to employees for their participation in the ownership were exempt from income tax and subject to contributions up to a maximum of €360 per year. However, the amendment has raised this limit by a factor of four, to €1,440 per year. 

Unlike Slovenian legislation (the Employee Profit Sharing Act), which limits such payments only to publicly listed companies (so-called share schemes), German legislation does not provide for such restrictions, as one of its explicit purposes is to promote employee ownership in companies of all sizes, including small and medium-sized companies, and especially start-ups. 

The main objective of the change in the law governing the taxation of personal income is, of course, to encourage the involvement of employees in the ownership through which the German economy is strengthened, not only by attracting but also by retaining skilled workers.  

The outlook for the German start-up sector, which should benefit from this change, is also ambitious. Young companies are increasingly offering shares in their companies to their employees, moving away from the old practice of granting virtual or phantom shares. 

The adoption of the amendment should also help with succession planning and corporate restructurings by providing additional capital that is free of tax and contributions. 

Despite the optimism, German experts warn that this amendment is only a first step in raising the profile and spreading the visibility of effective models for employee involvement in company ownership and for increasing individual wealth through ownership of the company in which they are employed.  

One of the purposes of the law was to encourage ownership participation in start-ups, and experts point out that it is still an open question how this model will work in practice there. Start-ups typically do not have free cash flow that could be used for such payments - so it remains an open question how to enable and expand employee ownership participation in companies where part of the salary is paid as an ownership participation in the company, without cash payments. They also point out that tax incentives are a complementary mechanism to other mechanisms, such as lower prices for shares, or even free grants, which are not generally eligible for tax benefits. 

In the future, it is expected that more and more employee remuneration models (variable pay, profit-sharing, etc.) will be converted into ownership models, which will of course be facilitated in particular by favourable tax legislation.