In many Danish companies, employee shares are offered as part of the pay package (share-based pay), giving employees the opportunity to achieve a financial gain and become part-owners of their workplace. But how are employee shares actually taxed, and what tax advantages can you make use of?
What are employee shares?
Employee shares – also known as share-based pay – are often used as a retention tool in companies or used in practice as an incentive for key employees.
Employee shares are an agreement between employee and employer under which the employee is given the opportunity to buy or receive shares in the company they work for. They are often conditional on continued employment at a given time, or on the company's results.
The purpose of employee shares is to increase employees' personal and financial interest in the company by making them shareholders in it. For many companies, share-based pay can therefore be an attractive way to attract and retain employees.
Remuneration in the form of employee shares
Shares, purchase rights and subscription rights must be granted as remuneration in order to be covered by one of the tax rules on employee shares. Remuneration means that the shares or the purchase or subscription right are received as part of an employment relationship, either free of charge or against payment of an amount lower than the market value at the time the share-based pay agreement is entered into.
What is a share, a purchase right and a subscription right?
The term shares is understood to cover both shares and capital interests covered by the rules of the Danish Capital Gains Tax Act.
A purchase right to shares is a right, but not an obligation, to buy a number of shares at a pre-determined price at a future point in time or during a future period.
A subscription right to shares (warrant) is a right, but not an obligation, to subscribe for new shares at a pre-determined price at a future point in time or during a future period.
Purchase rights and subscription rights are collectively referred to as options.
Methods of taxing employee share scheme
The tax treatment of the employee and the employer depends on which set of rules the share-based pay is granted under. It is therefore advantageous to choose the form of remuneration that involves the lowest possible tax payment.
The taxation of employee shares depends on which statutory provision they are granted under:
- Section 16 of the Tax Assessment Act – taxation at the time the right is earned
- Section 28 of the Tax Assessment Act – deferral of taxation until the time of exercise
- Section 7 P of the Tax Assessment Act – deferral of tax until the time of sale
Each provision has a number of conditions that must be met before it can be applied. If the conditions for applying for section 28 and section 7 P of the Tax Assessment Act are not met, taxation instead takes place under section 16 of the Tax Assessment Act.
The conditions for the taxation methods are described below.
Taxation under Section 16 of the Tax Assessment Act – the general tax rules
If an employee receives shares, purchase rights, or subscription rights without applying section 28 or section 7 P of the Tax Assessment Act, the general tax rules apply (section 16 of the Tax Assessment Act).
The employee is taxed on the share-based remuneration at the time the right is earned. The taxation itself is calculated on the difference between the trading value of the share and any payment made by the employee. The net value is taxed as personal income (salary income). There is therefore no difference between being paid in shares or in ordinary salary income.
The employee must ensure that their preliminary income assessment is adjusted, or pay the tax themselves, since the employer does not withhold A-tax or labour market contributions on the taxable amount. Doing so before 31 December in the income year avoids unnecessary interest charges to the authorities.
For purchase rights and subscription rights (options), the employee receives shares upon exercise of the options, with the purchase price being the value at the time the right was earned. The same applies to shares.
Taxation under Section 28 of the Tax Assessment Act – deferral of tax until the time of exercise
Only the grant of purchase rights and subscription rights is covered by this provision. This means that the provision cannot apply if shares are granted directly.
If an employee receives purchase rights or subscription rights as part of an employment relationship, taxation can be deferred from the time the right is earned to the time it is exercised. Anyone who performs personal work for the company in question can be covered by the provision.
The employee is taxed on the purchase or subscription right at the time it is exercised. The taxation itself is calculated on the difference between the price of exercising the right (the exercise price) and the value of the shares at the time of exercise (the market value). The net value is taxed as personal income (salary income) – see the updated note on 2026 rates above.
The employee must themselves ensure that their preliminary income assessment is adjusted, or pay the tax, since the employer does not withhold A-tax or labour market contributions on the taxable amount.
When the employee subsequently sells the shares, the gain is taxed as share income at a rate of 27%/42%, depending on the employee's total share income.
The gain is calculated as the difference between the value of the shares at the time of exercise (purchase price) and the sale price of the shares.
Taxation under Section 7 P of the Tax Assessment Act – deferral of tax until the time of sale
This provision does not cover board members or other persons who perform personal work for the company without being employed.
If an employee receives purchase rights, subscription rights, or shares as part of an employment relationship, taxation can be deferred from the time the right is earned to the time of sale. The advantage of the scheme is that the point of taxation is deferred until the employee sells the shares, and that the entire amount is taxed as share income for the employee.
A number of conditions are attached to the use of the scheme, including:
- It must be stated in the contract that the scheme applies.
- The value may not exceed 10%, 20% (if the agreement is entered into for at least 80% of employees), or 50% of the annual salary (for new and smaller companies/start-ups) that the employee has at the time the agreement is entered into.
- As of 1 July 2026, the 50% of annual salary requirement has been abolished for new agreements. Instead, a minimum salary of DKK 265.300 is required. We refer you to our article “New Opportunities to Grant Employee Shares under Section 7 P of the Danish Tax Assessment Act”
- It must not be a special share class.
- It only applies to employed staff (not board members).
The employee is only taxed once the shares, purchase rights or subscription rights received are sold, at which point they are taxed as share income at a rate of 27%/42%.
The gain is calculated as the difference between the employee's own payment and the sale price of the shares.
The shares are deemed to have been acquired at DKK 0 if they are received as part of a salary sacrifice arrangement.
Current rates for share income (2026)
For information, the following rates apply to the taxation of share income in the 2026 income year:
- 27% of share income up to DKK 79.400 for single individuals (DKK 158.800 for spouses living together at the end of the income year).
- 42% of share income above this threshold.
The thresholds are adjusted annually and should always be checked on skat.dk for the current income year.
Contact us
Do you have questions about the taxation of employee shares, or do you need advice on how best to handle the tax aspects of employee shares? We are ready to help you! At SkatteInform, we offer tax advice from leading legal professionals. We can help with most tax matters and have extensive experience with everything from tax on renting out property and holiday allowance deductions to international tax matters, such as the taxation of foreign pensions and tax on working abroad. Contact us with your tax matter today and hear more about how we can help you!
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