Global Share Option Plans
Spain
Securities laws and regulation
Exchange control
Company law
Employment law
Plan communications
Data protection
Governing law
Tax treatment
Non-employee options
Other
Securities laws and regulation
Red flags
What are the key securities laws and regulatory obligations or restrictions in relation to granting options, exercising options, selling resulting shares or other relevant events? For example, would a prospectus or any filings be required?
Response
Securities law filings: Generally, there are no reporting requirements concerning securities, such as notifications to the National Securities Market Commission (CNMV), unless the underlying shares are listed on a regulated market within the European Union (EU).
If the underlying shares are listed on a regulated market, specific information requirements apply in cases where options have been granted to executives or directors, as these may qualify as 'relevant information' under the legislation. Relevant information is defined as any information whose disclosure could reasonably influence an investor’s decision to acquire or transfer securities or financial instruments and may therefore have a significant influence on their price on a secondary market.
Prospectus: No prospectus is required unless the company is registered in Spain or in any of the Member States of the EU whose shares or units are listed on any of the regulated markets of such States.
Regulations: There are no regulatory restrictions in respect of foreign companies on the granting of share options or the issuance of shares subject to share options.
Exchange control
Red flags
Are there any exchange control restrictions, notification/filing, or approval requirements related to the exercise of options or sale of shares?
Response
Investments made abroad by residents in non-resident companies must be declared to the Investment Registry if they hold or attain with such investments a shareholding equal to or greater than 10% of the issuer's capital stock or voting rights under certain money laundering regulations, with additional requirements for certain jurisdictions.
Spanish residents investing more than EUR1 million may fall within the Bank of Spain reporting requirements that apply to economic transactions and balances of financial assets and liabilities abroad.
Company law
Red flags
Are there any red flag company law and corporate governance considerations, for example, shareholder approval requirements or financial assistance restrictions?
Response
After a Spanish company adopts an option plan, the plan and any share capital increase connected with the operation of the plan must be approved by a general shareholders' meeting.
This approval is needed to operate the option plan (and the acquisition of company shares by option holders). If the share option plan is approved by the general shareholders’ meeting, no shareholder may vote against the resolution to increase the share capital necessary for the operation of the plan.
Employment law
Red flags
Are there any material employment law issues to be aware of, for example the requirement to consult employees?
Response
Under Spanish law, the implementation of a new option plan does not require the participation of employee representatives. However, in cases where the terms of an existing plan need to be amended, should the amendment be to the detriment of the employees, then the company must obtain the agreement of the employees concerned or if the number of affected employees is over a certain threshold, then the company will need to follow a special process known as the modification of working conditions. This process includes the participation of the employee representatives.
The difference between the option price and the value of the share at the date of grant will be considered an integral part of the employees’ remuneration, for all purposes, including for the calculation of statutory employment termination severance payments.
Furthermore, the ‘good leaver’ and ‘bad leaver’ clauses are usually only partially enforceable under Spanish law, but this must be analysed on a case-by-case basis.
Plan communications
Red flags
Are there any requirements for the communications, for example, a translation into any language(s), and if so, which?
Response
There is no legal requirement to draft the plan communication in Spanish, however, it will have to be translated in case it must be used as evidence in court proceedings.
The plan communication must be made in a way that the employer can evidence the communication itself. In other words, the plan documents must be executed in wet ink or served in a certified manner.
Data protection
Red flags
What are the key data protection requirements, if any?
Response
Employees should be informed of how their personal information is collected, processed and disclosed, in connection with an employee share plan. A privacy notice should be provided, or a plan should include details on how to access a company's privacy notice and other data protection procedures and policies.
Additional data protection matters also apply under Spanish law that must be considered and followed. The information must be provided in Spanish.
Governing law
Red flags
Will governing law and jurisdiction clauses be effective?
Response
Governing law and jurisdiction clauses are typically effective, however, any overriding mandatory Spanish rules will apply.
Tax treatment
Red flags
What is the tax and social security treatment (including other employee and employer levies)? Are there any red flag issues, for example tax on grant, filings or notifications?
Response
Tax on grant: The grant of options to Spanish employees does not normally give rise to any Spanish tax liabilities provided the options are not transferable.
Tax on exercise: The exercise of options by Spanish employees will generally give rise to an income tax liability, normally calculated by reference to the difference between the market value of the shares on the date of exercise, less any exercise price paid to acquire the shares. Spanish personal income tax is subject to progressive rates of taxation.
There is also an obligation to pay Spanish social security contributions, upon exercise of the option. The granting of an option in itself is not generally considered as income and, therefore, no social security contributions should arise, although a case-by-case analysis must be carried out to confirm this.
Reporting requirements: Labour income paid to Spanish tax residents is subject to withholding obligations by the employer. In this respect, the employer shall be under the obligation to withhold taxes on account of Spanish personal income tax under the monthly or quarterly returns and annual summary reporting.
Tax-favoured plans: A 30% reduction in Spanish personal income tax is available where certain conditions are satisfied. These include the requirement that there must be at least two years between the grant and exercise of an option.
The total income that can qualify for the 30% reduction is limited to EUR300,000 (therefore, the total reduction applied cannot exceed EUR90,000).
In addition, there is an exemption amounting to EUR12,000 (which can be increased to EUR50,000 in the case of start-ups). However, this exemption is rarely available due to very restrictive qualifying conditions – accordingly eligibility should be reviewed on a case-by-case basis.
Non-employee options
Red flags
Are there any issues with granting options to non-group employees, eg advisers/consultants or PEO employees?
Response
A non-employee adviser should seek independent tax advice, as a tax liability can arise on the grant of options, depending on the circumstances and the value of the options.
Non-employees may apply for the 30% tax reduction incentive mentioned above.
From an employment law perspective, the fact that a non-employee is granted options may be viewed as evidence of the existence of an employment relationship with the grantor of the option.
Other
Red flags
Are there any other red flags, for example, is a sub-plan required?
Response
A sub-plan is not strictly required, but strongly recommended, in order to adapt the general plan regulation to Spanish law, where necessary or convenient.
