Improved conditions for new, smaller companies under the section 7 P scheme

According to the rules in Section 7 P of the Danish Tax Assessment Act, it is possible under certain circumstances to grant employee shares or warrants, etc., without triggering salary taxation for the employee. Instead, employees are taxed upon disposal of the shares according to the rules on capital gains.

The current scheme gives smaller companies the opportunity to remunerate employees with tax-exempt grants of employee shares etc. with a value corresponding to up to 50% of the employee's annual salary, if the company has been active for less than 5 years, has not had more than 50 employees and has had a maximum net turnover or balance sheet total of DKK 15 million. The latter two requirements must be met in at least one of the two most recent annual accounts.

The 50% limit, which is linked to the employee's annual salary, is now abolished and replaced with a requirement for an annual basic (taxable) salary for the relevant employee that approximately corresponds to 12 months of the highest unemployment benefit rate. This corresponds to approximately DKK 264,492 annually in 2026. If this minimum salary is paid to the employee, it is possible to give the employee warrants or shares etc. as an additional (tax-exempt) salary component.

The abolition of the 50% limit will, for startup companies, remove the uncertainty surrounding the valuation of the shares.  This is a particularly welcome development. With the new rule for startups, the rules still ensure that most of the (taxable) cash salary is not exchanged for tax-exempt employee shares. Valuation, however, will still be relevant for other employers that are not subject to these new rules when offering share incentives.

The scheme is significantly expanded by raising the limits for which companies can utilise the improved rules:

• Number of employees: The maximum number of employees will be raised from 50 to 150 so that the scheme can be utilised by companies that at the time of agreement have not had more than 150 employees in one of the two most recent annual accounts.
   
• Turnover/balance: The maximum net turnover or balance sum will be raised from DKK 15 million to DKK 200 million, so that the scheme can be utilised by companies that at the time of agreement in one of the two most recent annual accounts had a net turnover or balance sheet that did not exceed DKK 200 million.
   
• Company's active period: The maximum period is extended from 5 to 10 years so that the age requirement will be met if the company has been active in the market for less than 10 years before the calendar year in which the agreement for the granting of employee shares is entered into.
   

The other requirements in Section 7 P continue to apply, and we can assist  in determining whether the provision can be utilised by your company.

The new rules are relevant for employee share schemes entered into after the change of law is in force on 1 July 2026. 

These new rules represent a significant opportunity for small and medium-sized companies in the startup phase to recruit and retain employees. Please do not hesitate to contact us if you need assistance with setting up warrant programmes or would like advice on the tax implications of the new rules.