Warrants are financial instruments that give the holder the right, but not the obligation, to subscribe for shares in a company at a predetermined price within a specific time period. Warrants are often issued as part of capital increases and can be traded separately from the shares on the stock exchange.
Frequently Asked Questions About warrants
What are warrants?
A warrant is a right that gives the holder the opportunity to subscribe for (buy) new shares or ownership interests in a company at a later date and at a predetermined price.
Warrants are used in different contexts. In many cases, they are issued to existing shareholders in connection with a capital increase, so that they get the opportunity to buy new shares and thereby maintain their ownership share in the company.
In other cases, warrants are given to employees or management as part of an incentive scheme. Here they function as a tool to reward and motivate employees, as they get the opportunity to buy shares in the company on favourable terms.
A warrant is therefore not an obligation, but an opportunity to invest in the company on special terms. If it is not exercised before the set deadline, it lapses as a general rule without value.
How are warrants taxed?
Warrants give the right to buy shares at a fixed price at a later date.
For employees, warrants are as a general rule taxed as salary, unless the scheme meets the conditions in the Danish Tax Assessment Act § 7 P, where the taxation is postponed, and the gain is taxed as share income upon sale of the shares.
For investors and capital owners, warrants are covered by the Capital Gains Tax Act. The allocation itself does not trigger taxation, but gain from sale or exercise is taxed as share income for individuals and as company income for companies.
Exercise of the warrant does not trigger tax, and the subscription price together with any purchase sum constitutes the share's acquisition sum.
What happens if you do not exercise your warrants?
If you do not exercise your warrants before the set deadline, the right expires without value.
This means that you lose the opportunity to buy the new shares at the agreed subscription price.
For tax purposes, this normally has no consequences – warrants that are not exercised generally do not give rise to taxable losses or deductions.
What is the difference between warrants and stock options?
The difference between warrants and stock options lies both in the character of the right, when it can be exercised, and the tax treatment.
A warrant is typically linked to a capital increase in a company. It gives the shareholder the right, but not the obligation, to buy new shares in the company at a predetermined price (subscription price) before a certain deadline. Warrants often arise in connection with capital increases and are temporary. If they are not exercised, they disappear without value.
A stock option, on the other hand, is a financial instrument that gives the holder the right, but not the obligation, to buy (call option) or sell (put option) a share at a specific time in the future at an agreed price. Stock options are often used as part of incentive schemes for employees, but can also be traded on the stock exchange. For employees with stock options, there are often special tax rules.
Can warrants have other tax consequences?
Warrants can in certain situations trigger tax consequences upon transfer or exercise.
If the warrants are traded or passed on, gains from this can be taxed as capital income or capital gains, depending on the ownership and the specific situation. This applies especially if the warrants are traded outside the company's structured issuance process.
In addition, the price at which the warrants are exercised can have significance for the calculation of the tax acquisition sum for the new shares.
An incorrect calculation can result in unexpected taxable gains or losses when the shares are later disposed of.
Disclaimer
As the above is for guidance purposes only, we accept no liability for decisions that may be made based on the above without prior individual advice. We accept no liability for errors and omissions.