In Portugal, the taxation of stock options and other equity plans is a highly complex and critically important topic for companies and employees. Its analysis requires a deep understanding of the applicable tax regimes, which are fundamentally distinguished between the general regime and the startup regime, introduced by Law no. 21/2023. Under the general regime, the gain obtained at the time of exercising the options (the difference between the market value and the exercise price) is classified as employment income (Category A). Consequently, this gain is subject to progressive Personal Income Tax (IRS) rates, which can reach significant levels, and social security contributions. This taxation occurs in the year of exercise, even if the underlying financial instruments have not yet been disposed of, which can create a liquidity problem for the beneficiary. In contrast, the startup regime offers a substantially more favourable tax framework: taxation is deferred until the time of sale of the instruments, applies only to 50% of the gain, and the autonomous rate of 28% is applied (an effective rate of 14%), with the gain keeping its nature as employment income. This distinction is fundamental for attracting and retaining talent, especially in dynamic business ecosystems such as startups, where equity-based compensation is a strategic tool.
1. Legal and Tax Framework for Stock Options in Portugal
Stock options, or share subscription and acquisition options, are financial instruments that grant their holder the right (but not the obligation) to acquire a certain number of shares of a company at a predetermined price (exercise price) during a specific period. Their use as a form of remuneration and incentive is growing, especially in startup and high-growth company contexts, allowing the alignment of employee interests with those of shareholders and rewarding their contribution to the company's success.
In Portugal, the tax treatment of these instruments has been subject to several legislative changes, reflecting the need to adapt legislation to market developments and international best practices. The fundamental distinction lies between the general regime, applicable to most equity plans, and the special regime for startups, which aims to foster entrepreneurship and innovation.
1.1. Definition and Types of Equity Plans
In addition to stock options, there are other equity instruments that can be used as remuneration, such as:
- Restricted Stock Units (RSUs): Units that convert into shares after fulfilling certain conditions (vesting period).
- Phantom Shares: Rights to a cash payment equivalent to the value of the shares, without the employee becoming a shareholder.
- Share Appreciation Rights (SARs): Rights to a payment (in cash or shares) equivalent to the appreciation of the company's shares since the grant date.
- Free Share Awards: Direct allocation of shares to employees.
The tax treatment of each of these instruments may vary, making a detailed analysis of the specific plan and its compliance with applicable legislation crucial.
2. General Taxation Regime: Category A and Social Security
Under the general regime, the taxation of stock options and equity instruments occurs at the time of their exercise or, in the case of RSUs and free share awards, at the time of their final allocation (vesting). This framework is provided for in the Personal Income Tax Code (CIRS), specifically in Article 2, paragraph 3, point b), which considers as employment income "ancillary remuneration, comprising all rights, benefits or advantages not included in the main remuneration which are received by reason of, or in connection with, the provision of work and which constitute an economic advantage for the beneficiary, namely: (…) 7) Gains derived from option, subscription, allocation or equivalent plans over securities or equivalent rights." Under Article 24, paragraph 4, of the CIRS, the gain is the positive difference between the market value of the securities or equivalent rights at the date of exercise or allocation and the exercise or acquisition price paid by the beneficiary.
2.1. Timing of Taxation
Taxation applies to the exercise gain, which is calculated as the positive difference between the market value of the shares at the time of option exercise and the exercise price paid by the employee. This gain is classified as employment income (Category A), similar to a salary, and added to the taxpayer's other income for IRS purposes.
The particularity of this regime lies in the fact that taxation occurs at the time of exercise, even if the employee has not yet sold the shares. This can create a liquidity problem, as the tax is due on a gain that has not yet been realised in cash.
2.2. IRS Rates and Social Security Contributions
Category A income is subject to progressive IRS rates, which vary according to the taxpayer's taxable income bracket. In 2026, these rates range from 12.5% (first bracket, up to €8,342) to 48% (taxable income above €86,634), plus the additional solidarity rate (2.5% above €80,000 and 5% above €250,000).
Additionally, the exercise gain is considered for the calculation of social security contributions. The contribution rate for the employee is 11% and for the employer is 23.75%, totalling 34.75%. This double incidence (IRS and Social Security) significantly increases the tax burden on these instruments.
2.3. Withholding Tax
The employer is responsible for withholding IRS on the exercise gain, according to the withholding tax tables applicable to Category A, and for deducting social security contributions. This withholding obligation solidifies the salary nature attributed to these gains.
3. The Incentivised Tax Regime for Startups (Law no. 21/2023)
Law no. 21/2023, of 25 May, known as the "Startup Law," introduced a highly advantageous tax regime for the allocation of stock options and other equity plans by companies qualified as startups. This regime aims to mitigate the disadvantages of the general regime, namely the liquidity problem and the high tax burden, making Portugal more competitive in attracting and retaining talent in technology-based and innovative companies.
This regime is set out in Article 43.º-C of the Tax Benefits Statute (EBF), added by Law no. 21/2023, of 25 May, and amended by Law no. 82/2023, of 29 December. It applies to the gains provided for in item 7) of point b) of paragraph 3 of Article 2 of the CIRS — gains derived from option, subscription, allocation or equivalent plans over securities or equivalent rights, granted to employees and members of corporate bodies.
3.1. Company Eligibility Conditions (Qualified Startup)
In addition to startups recognised under Law no. 21/2023, the regime covers entities which, in the year prior to the approval of the plan, are micro, small or medium-sized companies or small mid-cap companies, or which carry out activity in the field of innovation (R&D expenditure, patents, industrial designs or computer programs equal to at least 10% of costs or of turnover) — Article 43.º-C, paragraphs 1 and 2, of the EBF. Where the entity is a startup, the eligibility criteria include:
- Age: Less than 10 years of existence, counted from the date of incorporation.
- Size: Fewer than 250 employees and turnover below €50 million.
- Activity: Not resulting from the spin-off of a large company, unless such spin-off occurs within the scope of a corporate restructuring process involving the creation of new independent companies.
- Innovation/Investment: Being recognised as an innovative company by ANI (or holding technology-sector recognition), having completed at least one venture capital round, or having received investment from Banco Português de Fomento.
- Recognition: Being recognised as a startup under Law no. 21/2023, recognition granted by Startup Portugal (application submitted on the gov.pt portal).
It is essential that the company maintains its startup status during the allocation and vesting period of the instruments.
3.2. Plan and Beneficiary Eligibility Conditions
In addition to the company's qualification, the equity plan itself and the beneficiary must meet certain conditions:
- Minimum Period of One Year: The regime depends on maintaining the rights underlying the securities that generate the gains (or the equivalent rights, even of a notional nature) for a minimum period of one year (Article 43.º-C, paragraph 4, of the EBF). The law provides no exceptions for termination of employment or sale of the company.
- No Annual Value Limit: Article 43.º-C of the EBF sets no ceiling per beneficiary. Excluded, however, are taxpayers holding, directly or indirectly, 20% or more of the share capital or of the voting rights of the granting entity (paragraph 9), an exclusion that does not apply where that entity is a startup or a micro or small company (paragraph 10).
- Nature of Beneficiaries: The regime applies to employees and members of corporate bodies of the startup.
3.3. Main Tax Advantages
The startup regime offers three crucial tax advantages:
- Deferral of Taxation: Tax is not due on exercise, but at the first of the following moments — disposal of the securities, loss of Portuguese tax residence, or gratuitous transfer (Article 43.º-C, paragraph 4, of the EBF). On loss of residence, the income is partially exempt up to 20 × IAS, once only (paragraphs 5 and 6). This resolves the liquidity problem affecting the general regime, allowing the beneficiary to only pay tax when the gain is realised.
- Reduction of Taxable Base: Taxation applies only to 50% of the total gain obtained. The remaining 50% are exempt from tax.
- Autonomous Rate of 28%: The gain, taken at 50% of its value, keeps its nature as employment income (Category A) but is taxed at the autonomous rate of 28% under Article 72, paragraph 1, point f), of the CIRS, unless aggregation is elected — an effective rate of 14%. This rate is significantly lower than the maximum IRS rates of the general regime.
- Social Security Exemption: Gains falling under this regime are exempt from social security contributions, representing a considerable additional saving for both the employee and the company.
These advantages make the startup regime extremely attractive, aligning Portugal with the practices of other countries seeking to foster the entrepreneurial ecosystem.
4. Practical Examples of Taxation: General Regime vs. Startup Regime
To illustrate the financial impact of the two regimes, let's consider an employee who makes a gain of €100,000 from stock options.
4.1. Example 1: Gain of €100,000
Scenario: An employee exercises stock options and realises a gain of €100,000. It is assumed that the employee already has other income that places them in the highest IRS bracket (48%) and that social security contributions are due.
4.1.1. General Regime
- Taxable Gain (Category A): €100,000
- IRS (maximum rate): €100,000 * 48% = €48,000
- Social Security Contribution (Employee): €100,000 * 11% = €11,000
- Social Security Contribution (Company): €100,000 * 23.75% = €23,750
- Total Tax and Contributions (Employee): €48,000 + €11,000 = €59,000
- Effective Tax Burden (Employee): 59%
- Liquidity Problem: The employee pays €59,000 in the year of exercise, even if they have not sold the shares.
4.1.2. Startup Regime
- Total Gain: €100,000
- Taxable Gain (50% of total): €100,000 * 50% = €50,000
- IRS (autonomous rate): €50,000 * 28% = €14,000
- Social Security Contribution: €0 (Exempt)
- Total Tax (Employee): €14,000
- Effective Tax Burden (Employee): 14%
- Deferral: The tax of €14,000 is only due at the time of sale of the shares.
Conclusion of Example: The difference is enormous. Under the startup regime, the employee pays €14,000 instead of €59,000, and only when they sell the shares, which represents a saving of €45,000 and the elimination of liquidity risk.
4.2. Example 2: Gain of €75,000
Scenario: An employee exercises stock options and realises a gain of €75,000. A marginal rate of 34.9% is assumed for the general regime (the €29,397 to €43,090 bracket).
4.2.1. General Regime
- Taxable Gain (Category A): €75,000
- IRS: €75,000 * 34.9% = €26,175
- Social Security Contribution (Employee): €75,000 * 11% = €8,250
- Total Tax and Contributions (Employee): €26,175 + €8,250 = €34,425
- Effective Tax Burden (Employee): 45.9%
4.2.2. Startup Regime
- Total Gain: €75,000
- Taxable Gain (50% of total): €75,000 * 50% = €37,500
- IRS (autonomous rate): €37,500 * 28% = €10,500
- Social Security Contribution: €0 (Exempt)
- Total Tax (Employee): €10,500
- Effective Tax Burden (Employee): 14%
Conclusion of Example: Even for a lower IRS bracket under the general regime, the difference is substantial, with a saving of €23,925 and the benefit of tax deferral.
5. Common Mistakes to Avoid in Managing Equity Plans
The complexity of tax legislation and the specificities of each equity plan can lead to errors that compromise the expected tax benefits. It is crucial to pay attention to the following points:
- 1. Failure to Qualify the Company: Not verifying in a timely manner whether the company meets all the requirements to be considered an eligible "startup" for the special regime. Recognition by Startup Portugal (application submitted on the gov.pt portal) is an essential step.
- 2. Ignorance of the Timing of Taxation: Confusing the time of exercise with the time of sale under the general regime, leading to unpleasant surprises with the Tax and Customs Authority and liquidity problems.
- 3. Non-Compliance with the Holding Period: Disposing of financial instruments before the minimum one-year period required under the startup regime, which can lead to disqualification from the tax benefit and the application of the general regime.
- 4. Ignoring the Exclusion of 20%-or-More Shareholders: Holders of a stake equal to or greater than 20% of the share capital or of the voting rights are excluded from the benefit (Article 43.º-C, paragraph 9, of the EBF), unless the entity is a startup or a micro or small company (paragraph 10).
- 5. Lack of Adequate Documentation: Not having a stock option allocation plan duly formalised, approved by the company's corporate bodies, and with clarity on the conditions of vesting, exercise, and disposal. Lack of robust documentation can hinder the defence of the tax framework.
- 6. Errors in Instrument Valuation: The valuation of shares or quotas at the time of allocation and exercise is crucial for calculating the gain. Using inadequate or outdated valuation methods can lead to discrepancies with tax authorities.
- 7. Neglecting Reporting Obligations: Not complying with reporting obligations to the Tax and Customs Authority regarding the allocation and exercise of stock options, both by the company (form 10) and the beneficiary (annexes to the IRS declaration).
Avoiding these errors requires careful planning and, ideally, the support of specialised tax and accounting consultants.
6. Practical Differences and Impact on Talent Attraction
The difference between the two regimes is not merely fiscal; it has a profound impact on the ability of companies, especially startups, to attract and retain qualified talent. The possibility of offering an equity plan with a significantly lower tax burden and deferred taxation until sale is a decisive competitive factor.
Under the general regime, the fact that an employee has to pay tax on a potential gain before they can monetise it represents a financial risk and a barrier to accepting equity plans. Many employees may prefer direct salary remuneration, even if lower, to avoid this uncertainty.
With the startup regime, this obstacle is largely overcome. The employee knows that they will pay a much lower tax (14% effective on the total gain) and only when they actually receive the money from the sale of the shares. This predictability and tax optimisation make stock options and other equity instruments a much more attractive and effective remuneration tool for aligning interests and rewarding long-term success.
7. Accounting Implications for Companies
For companies, the management of equity plans also entails important accounting implications, which must be treated in accordance with the Accounting and Financial Reporting Standards (NCRF) applicable in Portugal.
7.1. Share-based Payments
The SNC has no standard of its own for share-based payments — NCRF 26 deals with Environmental Matters. In practice, companies must recognise the cost associated with these plans as a personnel expense, generally over the vesting period, and the specific accounting treatment should be confirmed case by case.
- Equity-Settled Transactions: When a company grants equity instruments (shares, options) in exchange for goods or services, it must recognise a corresponding increase in equity and an expense. The amount to be recognised is the fair value of the equity instruments at the grant date.
- Cash-Settled Transactions: When a company undertakes to pay cash based on the price of its shares (e.g., phantom shares, SARs), it must recognise a liability and an expense. The liability is re-measured at each financial reporting date, with changes recognised in profit or loss.
The correct accounting treatment of these plans is fundamental for the reliability of the company's financial statements and for compliance with accounting rules.
8. Recommendations and Conclusion: Structuring Equity Plans with Expertise
Stock options rarely come on their own. A technology company granting equity almost always has two further incentives open to it: the IP Box regime in Article 50-A CIRC, which deducts up to 85% of income from registered patents, industrial designs or models and copyright on computer programs from taxable profit — the figure can be estimated in the Patent Box calculator — and SIFIDE, a tax credit on R&D spending. All three touch the same cost base, so they are worth looking at together before the plan is designed.
The allocation of stock options and other equity plans is a strategic decision with profound tax and accounting implications. The choice of the applicable regime and the correct structuring of the plan can determine the success of its implementation and its impact on attracting and retaining talent.
For companies, it is essential to:
- Validate Eligibility: Before implementing a plan, rigorously verify whether the company meets the criteria for the startup regime and obtain the necessary certification.
- Define Clear Terms and Conditions: Develop a detailed allocation plan, with clarity on rights and obligations, vesting periods, exercise prices, and disposal conditions.
- Anticipate Tax and Accounting Impact: Conduct a prior analysis of the tax impact for employees and the accounting implications for the company, ensuring compliance and optimisation of benefits.
- Communicate Transparently: Clarify to employees the tax implications of their equity plans, so that they fully understand the value and associated responsibilities.
- Continuous Monitoring: Monitor legislative changes and ensure that the plan remains compliant.
HVR has extensive experience in structuring stock option and equity plans, assisting companies in navigating this complexity. We validate eligibility for the startup regime, handle the tax framework (IRS), and ensure accounting compliance. Our expertise allows you to optimise tax and administrative benefits, focusing on what truly matters: the growth of your business and the motivation of your team. Do not let tax complexity be an impediment to your talent strategy.
Where the plan covers staff or investors abroad, it is worth designing it with tax and business consulting before approval.
To learn more about how we can help your company implement a fiscally efficient equity plan, explore our startup accounting page or contact us directly for a personalised consultation. Invest in your team, invest in the future of your company.
9. Frequently Asked Questions about Stock Options in Portugal
How are stock options taxed in Portugal?
Under the general regime, the exercise gain is taxed as employment income (Category A) at the time of exercise, subject to progressive IRS rates and social security contributions. Under the startup regime, taxation is deferred until sale, applies to 50% of the gain, and an autonomous rate of 28% is applied on 50% of the gain (an effective rate of 14%), without social security contributions.
What is the startup regime for stock options?
It is a tax regime introduced by Law no. 21/2023 that offers more favourable treatment for equity plans granted by companies qualified as startups. It allows for the deferral of taxation until the time of sale, taxation of only 50% of the gain at a rate of 28%, and exemption from social security, subject to certain company and plan conditions.
Do I pay tax when I exercise or when I sell stock options?
Under the general regime, tax is due at the time of option exercise. Under the startup regime, tax is only due at the time of the effective sale of the underlying shares or quotas.
What IRS rate applies under the startup regime?
An autonomous rate of 28% applies to only 50% of the total gain. This rate is substantially lower than the progressive IRS rates of the general regime, which can go up to 48% (plus surcharges).
Does my company qualify for the startup regime?
Qualification depends on meeting several legal criteria, such as age (less than 10 years), size (SME or Mid-Cap), non-distribution of profits or significant growth, and obtaining startup recognition from Startup Portugal (application submitted on the gov.pt portal). HVR can validate your company's eligibility.
Are social security contributions due on stock option plans?
Yes, under the general regime, the exercise gain is subject to social security contributions (11% for the employee and 23.75% for the company). However, under the startup regime, the gain falling under the special regime is exempt from social security contributions.
Is there any annual value limit under the startup regime?
No. Article 43.º-C of the EBF provides for no annual limit per beneficiary; what exists is the exclusion of anyone holding 20% or more of the share capital or of the voting rights (paragraph 9).
10. Sources and Legal References
- Personal Income Tax Code (CIRS) - Articles 2, paragraph 3, point b), item 7); Article 24, paragraph 4; and Article 72, paragraph 1, point f).
- Tax Benefits Statute (EBF) - Article 43.º-C (tax incentive for the acquisition of shares in startups), added by Law no. 21/2023, of 25 May.
- Law no. 21/2023, of 25 May - Startup Law.
- Comissão de Normalização Contabilística - List of the Accounting and Financial Reporting Standards (NCRF) in force.
- Corporate Income Tax Code (CIRC) - Relevant for the deductibility of expenses for the company.
- Decree-Law no. 372/2007, of 6 November - Defines the criteria for classifying companies as SMEs.