Employee equity (Mitarbeiterbeteiligung) shares company success with employees, either through real shares (ESOP) or virtual participation (VSOP), a contractual participation in exit proceeds common in German startups. The key tax issue is the dry-income problem of real shares; § 19a EStG allows a deferral of taxation that the Future Financing Act (2024) expanded. Vesting, cliff, and leaver clauses govern the claims.
At a glance
- Real participation: shares or company interests (ESOP/share programmes); employees become shareholders
- Virtual participation (VSOP): a purely contractual claim to a payment, usually at exit; common in German startups because of notary and tax issues
- The core tax problem of real shares is „dry income“: taxation at grant even though no cash flows
- § 19a EStG lets eligible companies defer taxation; the Future Financing Act (Zukunftsfinanzierungsgesetz, 2024) expanded the rule
- There is also a tax allowance for employee capital participation of €2,000 per year (§ 3 Nr. 39 EStG, raised from €1,440 in 2024)
- Vesting, cliff, and leaver clauses govern when and to what extent claims arise; forfeiture of vested virtual options upon resignation is invalid (BAG 10 AZR 67/24)
Real vs. virtual participation
- ESOP / real shares: membership and asset rights, but notary and administrative effort plus the dry-income risk
- VSOP: a contractual bonus claim that economically mirrors a share, without shareholder status; usually paid at exit and subject to income tax
- § 19a EStG: for startups and SMEs, deferral of wage tax on the non-cash benefit from real shares; the Zukunftsfinanzierungsgesetz (2024) expanded the scope to companies with fewer than 1,000 employees and no more than €100m annual turnover or an €86m balance sheet total (at the time of transfer or in one of the six preceding calendar years), founded no more than 20 years ago; the deferral runs for up to 15 years
- Vesting/cliff: claims are acquired gradually over time, often with an initial waiting period (cliff)
- Good and bad leaver clauses set out what happens to shares or claims when someone leaves
Forfeiture of vested options: the BAG's new line (2025)
The Federal Labour Court has ruled (judgment of 19 March 2025, 10 AZR 67/24): clauses under which vested virtual options forfeit immediately when the employee resigns are unreasonably disadvantageous and invalid. The same applies to clauses that let vested options lapse at an accelerated pace after the contract ends, for instance twice as fast as they were earned during the four-year vesting period. No partial upholding of such clauses (geltungserhaltende Reduktion) takes place.
The court thereby abandons its 2008 position (10 AZR 351/07), which treated vested options as a mere earning opportunity because of their speculative character. The reasoning now: vested options are consideration for work already performed.
Important for plan design: forfeiture of options that have not yet vested remains possible. The cliff is not affected by the decision, only the forfeiture of what has already been earned.
FAQ
What is the difference between ESOP and VSOP?
Under an ESOP, employees receive real shares and become shareholders. Under a VSOP there is only a contractual claim to a payment that mirrors a share value, typically due at exit. VSOP is common in German startups because it is simpler to run.
What does the dry-income problem mean?
With real shares, even a discounted or free grant can be taxable as a non-cash benefit although no cash has yet flowed. § 19a EStG eases this by deferring taxation under certain conditions.
What did the Zukunftsfinanzierungsgesetz change?
It significantly expanded § 19a EStG: thresholds raised to fewer than 1,000 employees and no more than €100m turnover or an €86m balance sheet total, the permissible company age extended from twelve to 20 years, and the tax deferral from twelve to 15 years. The allowance under § 3 Nr. 39 EStG was raised from €1,440 to €2,000 per year. Recapture tax when changing employers can be avoided if the employer assumes liability for the wage tax.
Can vested virtual options forfeit when the employee resigns?
No. Under BAG 10 AZR 67/24, clauses that forfeit vested options immediately upon resignation or at an accelerated pace after the contract ends are invalid; there is no partial upholding. What remains permissible is the forfeiture of options that have not yet vested, for instance during the cliff.
What are vesting and leaver clauses for?
Vesting means claims arise only over time, often with an initial cliff. Leaver clauses determine what happens to already-earned and not-yet-earned shares or claims when someone leaves.
Last updated: August 2026
This article provides general information and is not a substitute for legal advice in individual cases.
