Employee stock options and the EU-ESO, read for founders

In much of Europe, an employee can be taxed on options before they are worth anything in cash. Depending on the country, the taxable moment can be vesting or exercise, not the sale of the underlying shares. The employee owes tax on a paper gain, on shares they cannot easily sell, sometimes in a company with no market at all. The impact assessment behind COM(2026) 321 calls this taxation of unrealised income with cash-flow disadvantages. Founders call it the reason a strong candidate takes the salary and waves off the equity.

It is worse across borders. A team spread over three Member States can face three taxable moments and three calculations on the same grant, and the proposal names that fragmentation as an obstacle (recital 57).

The 28th regime answers this with an optional scheme it calls the EU-ESO, the EU Employee Stock Option plan (Article 78). The shape of it:

• It is opt-in. The company may establish an EU-ESO; nothing forces it. The general meeting decides, and its resolution sets the eligible group, the maximum number of warrants, and a waiting period.
• It works through warrants, rights to acquire shares later at set terms. They are issued for no consideration, are non-transferable, and cannot be exercised for at least 24 months from issue.
• Eligibility runs to board members and employees of the company and its subsidiaries, and is closed to anyone holding more than 25 per cent of the voting rights or the proceeds, now or in the previous 24 months. It is a staff-incentive tool, not a founder top-up.

So far this is recognisable option-pool machinery with EU-level guardrails. The part that is genuinely new sits in the next article.

Article 79 is the provision the entire scheme exists for. Income from an EU-ESO warrant is deemed not to accrue at grant, not at vesting, and not when the holder exercises the warrant to acquire shares. It is deemed to arise, and so to be taxable, only when the shares obtained by exercising the warrant are disposed of.

That is the dry-tax problem solved at the root. For the employee the change is concrete: you would not owe tax for holding vested options or for exercising them, only for selling the shares and having the proceeds to pay from.

The amount is harmonised too. The taxable income is the difference between the fair market value of the shares at disposal and their acquisition price. Every Member State is meant to calculate the same base, so a company can run one plan instead of reverse-engineering 27 tax treatments.

Founder commentary tends to over-read the EU-ESO, so be precise. It is not a single EU option tax rate. Member States keep the right to decide how the income from the disposal is characterised and at what rate it is taxed (recital 58). Article 79 harmonises when the tax is due and how the taxable amount is measured, not how much. Two employees in two countries can still be taxed at very different rates at the end. What they share is the moment and the method, not the bill.

It does not override the rest of national tax law either. There is one guardrail against it being worse than what exists: where a Member State already runs a preferential regime for employee stock options, EU-ESO shares are meant to get treatment no less favourable than those instruments, provided the legal requirements are met (Article 79(4)).

On 26 June 2026 the Council General Secretariat circulated WK 9143/2026 INIT, a 618-page table of member-state drafting suggestions compiled as at 24 June 2026. Twenty-one of the twenty-seven member states filed into it; Germany, Italy, Ireland, Belgium, Cyprus and Romania did not. The Irish Presidency’s compromise text (ST 11829/26) is marked “not accessible to the public”, so which asks survived is unknown. Article 78 drew 22 interventions from eight states, and no state moved to delete the article. Five of its cells carry strike-through: France strikes the 25 in the eligibility cap and marks 50 in its place (page 465), and Sweden’s four (pages 467 and 468) replace the word “warrants” with “options” throughout, a terminology change it sets out in its comment on page 465. Croatia is the one state to put the whole chapter in doubt, calling the application of Articles 78 and 79 unacceptable at this stage without further analysis (page 463). Article 79, the tax article, drew 32 interventions from fifteen states, and that is where the file gets difficult.

Czechia struck Article 79 out of the text, deleting the article title and all four paragraphs (pages 470, 475, 479, 481, 482). Its reason, page 470: decision-making on taxation by qualified majority is “a dangerous precedent, which CZ rejects”, and the provision “should be removed from the present proposal and addressed in a separate legislative act”. Luxembourg asks for the same outcome in prose rather than track changes, page 476: “LU cannot endorse the principle of including Article 79 in the proposal”, and it would like the provision “omitted from the forthcoming compromise text”.

The argument underneath is the legal basis. The proposal rests on Article 114 of the Treaty on the Functioning of the European Union (TFEU), whose paragraph 2 excludes fiscal provisions. Czechia (page 470), Estonia (page 471) and Sweden (page 478) each say a tax rule cannot sit there and belongs under Article 115 TFEU, which requires unanimity. Luxembourg (page 476) stops one step short of naming the replacement, recording “serious doubts as to whether Article 114 provides an appropriate legal basis for this part of the proposal, including with regard to the applicable voting procedures”. Austria, on page 40, says tax provisions of this kind would have to be taken under Article 113 or Article 115 TFEU and in the Working Party on Tax Questions. Latvia (page 476), Portugal (page 475) and Slovenia (page 480) do not propose a basis but each record that Article 79 reaches into direct taxation, which is national competence. Croatia (page 463) proposes the fix that follows: move the tax provisions into a standalone act on the right basis.

The states do not agree on why. Czechia says it is “open to harmonisation in this area, but only on the basis of Article 115 TFEU”, and Estonia says it supports the approach to taxation but not its vehicle: both object to the route, not the destination. Sweden objects to both. It calls employee stock option programmes “of great importance for new and growing companies to attract talent and skills” and, in the same cell, says it is “as a principle opposed to increased harmonisation of taxes at EU level, in particular in the area of direct taxation”. A carve-out to a unanimity file would satisfy Czechia and Estonia. It would not obviously satisfy Sweden.

Malta is the state that says what it would lose. On page 472 it sets out its current treatment: Malta taxes an option at exercise, treating the difference between market price and option price as a fringe benefit taxed as employment income at 15 per cent under the Final Settlement System, its equivalent of pay-as-you-earn, and taxes the eventual disposal gain at progressive rates. Malta agrees grant and vesting are not appropriate taxing points, but doubts “whether crunching the subsequent two steps (exercise and ultimate disposal) into one… is appropriate”, and notes that taxation at exercise “is also the most prevalent treatment amongst countries”.

Three design asks matter for anyone drafting a plan. France would loosen the eligibility gate: its drafting cell on page 465 strikes the 25 per cent cap and marks 50 in its place, and marks 6 against the 24-month lookback. Its comment on page 466 gives the reason, that the cap “excludes founders who control their companies” and that the 24-month threshold “appears also too restrictive for businesses”. Spain would narrow the tax rule to innovative startups (page 475). Malta proposes a new Article 78(8) stating the plan “shall not be used as a substitute for wages or other employment-related entitlements” (page 469), a point Luxembourg makes in prose on page 463 and Sweden folds into Article 78(1) on page 465.

On 29 June 2026 the Parliament’s rapporteur, René Repasi, put his draft report against the proposal (PE790.143v02-00, 246 amendments). The employee-equity chapter is one of the places he builds rather than trims: it is renamed to cover an EU employee stock option and ownership plan (Amendment 163), and next to the EU-ESO a second instrument appears, the EU-ESOP, the EU Employee Stock Ownership Plan (new Article 78a, Amendment 168), actual shares issued for work or services, with vesting and the same 25 per cent exclusion. To make shares-for-work possible the draft reverses the exclusion of sweat equity, so work and services would count as valid in-kind contributions (Article 65, Amendment 158). Equity may never replace statutory minimum wage, collectively agreed pay, pensions or social security, and a separate rule blocks using equity value to shrink the base on which social-security contributions are calculated (Article 79(4a), Amendment 174). The sentence defining the ESOP’s taxable event (Article 79(2a), Amendment 171) stops mid-clause in the circulated text, at “only at the time when the shares obtained”. The chapter-by-chapter read is in our analysis of the draft report.

The amendment deadline in the Committee on Legal Affairs (JURI) fell on 17 July 2026. Five consolidated documents, PE791.127 to PE791.131, cover-dated 23 July 2026 and registered on the procedure file as 22 July 2026, carry amendments 247 to 1664: 1,418 tabled amendments. Amendments 1 to 246 are the rapporteur’s own, inside draft report PE790.143v02-00 of 29 June 2026, so nothing is missing from the series. All five documents were read for this piece. The employee-equity material sits in four of them and concentrates at the end: amendments 1464 to 1506 in PE791.131 target Articles 78 and 79 and two proposed new articles, forty-three tabled amendments on a two-article chapter, twenty-five of them on Article 78 alone.

Five amendments delete. Amendment 1464 (Arash Saeidi and Özlem Demirel for The Left group) would delete Article 78 outright. Amendments 1490 (Juan Carlos Girauta Vidal, Jorge Buxadé Villalba), 1491 (Jaroslav Knot and seven colleagues) and 1492 (Saeidi and Demirel for The Left) would each delete Article 79 outright. Amendment 1501 (Pascale Piera, Girauta Vidal, Ernő Schaller-Baross) is narrower and deletes only Article 79(4), the guarantee of treatment no less favourable than an existing national scheme. The justification to Amendment 1491 is the Council’s argument transposed: “in case, taxation issues will stay in 28th regime, we request Article 115 TFEU as a legal basis for taxation issues”.

The rapporteur re-tables his ownership plan. Amendment 1489 (René Repasi) restates Article 78a, this time allowing the shares to be “acquired, held and administered by an intermediary corporate entity for the benefit of participating employees”, and hardening the language that an EU-ESOP may not substitute for pay. Its justification names Amendment 168 of the draft report as its parent.

Wage substitution is the largest single block. The rapporteur had already put the rule in the draft report (Article 78(2a), Amendment 165). Six tabled amendments now restate it: 1465 and 1484 (The Left), 1466 and 1472 (the Greens/European Free Alliance, Verts/ALE), 1471 (Brando Benifei) and 1473 (Pascale Piera with Juan Carlos Girauta Vidal and Ernő Schaller-Baross), each some version of the rule that options and shares supplement wages and never replace them. Amendment 452 writes the same thing into a new recital 57a. This is the point Malta drafted into Article 78(8) in the Council. Two political groups and two further sets of members carry it, which makes it the likeliest survivor in the chapter.

A second block turns on what the employee is told. Amendment 1482 (Verts/ALE) would require written information on the vesting schedule, exercise price, expiry, forfeiture on termination or insolvency, the share class, the share of expected annual remuneration the warrants represent, and a statement that warrants “do not constitute wage and may have no monetary value”, all of it “attached as an annex to the employment contract”. Amendment 1483 (Girauta Vidal, Buxadé Villalba) would make participation conditional on the employee’s “prior, explicit and informed consent”. Amendment 1486 (The Left) would put the risk briefing, illiquidity included, before the board is allowed to establish the plan at all.

Eligibility and vesting push the other way. Amendment 1470 (Axel Voss with six colleagues) deletes the 24-month lookback because it “would exclude individuals who no longer hold a significant ownership interest”. Amendment 1469 (Pascal Canfin) deletes both the lookback and the 25 per cent cap: “Warrants should be available for all employees.” Amendment 1475 (Voss with eight colleagues) hands the vesting period to the general meeting or the articles of association outright. Amendment 1476 (Canfin) keeps a mandatory waiting period but removes the 24-month floor and lets warrants become exercisable progressively, and Amendment 1477 (Canfin) would allow the wait to be shortened on a funding event. That is the direction France took in the Council, reached from a different starting point.

Valuation is the gap members reached into, and the Commission text does not address it at all. Amendments 1505 (Voss with seven colleagues) and 1506 (Damian Boeselager, Kira Marie Peter-Hansen) each propose a new Article 79a on standardised valuation of shares and warrants under the EU-ESO, and both ask the Commission for “simplified safe harbour valuation methods for startups”. They diverge on the half that matters. Amendment 1505 adds a rebuttable presumption that a valuation carried out under the methodology complies, and bars Member States from reassessing it retroactively except where fraud, abuse or manifest error is demonstrated. Amendment 1506 carries neither: it sets the methodology by Commission implementing act and requires valuations to be performed by qualified independent valuers. Amendment 1497 (Canfin) would anchor fair market value to the most recent arm’s length financing round. Amendment 1503 (Mario Mantovani) proposes a presumption modelled on US 409A practice. Amendments 1498 (Voss with nine colleagues) and 1499 (Boeselager, Peter-Hansen) are word for word identical and would put beyond doubt that the gap between exercise price and fair market value at grant, vesting or exercise is not by itself a taxable event.

Social security splits the room on one paragraph: Amendments 1494 and 1496 (the Voss group) extend the deferral so contributions also fall only at disposal, while Amendment 1500 (Saeidi and Demirel for The Left) requires Member States to levy them on that income.

The least expected layer is not in Chapter VIII at all. Nine amendments in PE791.130 would give EU-ESO warrant holders standing in the general meeting before they own a single share. Amendments 1315 (René Repasi), 1316 (The Left) and 1329 (Verts/ALE) give warrant holders the right to attend it; 1317 (Özlem Demirel) and 1318 (Repasi) give them the agenda information shareholders get; 1321 (The Left) and 1322 (Repasi) let them examine the company’s books. Amendment 1323 (Repasi) would make exercising those rights no ground for dismissal or retaliation, and Amendment 1331 (The Left) would stop the articles of association restricting the votes attached to shares that come out of an EU-ESO. Two further amendments put the scheme under supervision: Amendment 1626 (Verts/ALE) makes using an EU-ESO or EU-ESOP to substitute ordinary remuneration or to evade wage, social-security or tax obligations an abuse ground under Article 106, and Amendment 1637 (Verts/ALE) writes the take-up of EU-ESOs and their effect on remuneration packages into the Article 108 review clause. Amendments 772 and 779 (Voss with colleagues) and 1478 would add optional EU templates for employee stock option plans under Article 8(3), point (c). None of this is adopted text. It is what members and groups asked for, before any vote.

Read the two records together and the risk to the EU-ESO is not that anyone thinks employees should be taxed at vesting. Almost nobody in either institution argues that. The risk is procedural. Article 79 is a tax rule sitting on an internal-market legal basis. One member state has already struck it in track changes and three tabled amendments would delete it outright, one of them asking for Article 115 TFEU in as many words: the basis on which the Council decides by unanimity. A qualified majority can carry a company-law regulation; unanimity means one finance ministry can hold the timing rule indefinitely, and Malta’s page 472 disclosure is what that looks like in cash for a state that collects at exercise today.

Croatia’s carve-out is the tidy solution and also the dangerous one, because a separated file moves on its own, slower calendar. If Article 79 leaves this regulation, what remains is Article 78: opt-in warrant machinery with a 24-month wait and a 25 per cent eligibility cap, and no timing rule. That version is worth very little to a hiring plan. If you are counting on the EU-ESO, that is the outcome to watch for, not an argument about rates.

• 7 September 2026: JURI’s next sitting, 15.00 to 18.30 in Brussels, confirmed on the committee’s own meetings schedule. Consideration of the tabled amendments is expected there, but no draft agenda has been published, so read it as expected rather than scheduled. Whether the Article 79 deletion amendments attract shadow-rapporteur support is the thing to watch for.
• 1, 10, 17 and 29 September, then 8 October 2026: the Council working-party sessions on the file (meetings 369355, 369598, 369762, 370047 and 370259). Ireland holds the presidency until 31 December 2026, and a ministerial policy debate is provisionally listed for 24 September 2026 in the Council’s planning document ST 10983/26.
• 28 September 2026: JURI’s following sitting, also confirmed on the meetings schedule, and the candidate date for the committee vote. The meeting is on the calendar; the vote is not yet on an agenda.
• 5 October 2026: the indicative forecast plenary sitting date on the procedure file for a first reading. A forecast, not a fixed vote.
• Availability: not before 2027 on the most optimistic reading, and later is widely expected.

The live version of this timeline, updated from the official procedure file (OEIL, the Parliament’s Legislative Observatory) and the Council register, is on the progress tracker. The companion piece on forming a 28th regime company sets the option pool in the context of the rest of incorporation, and converting an existing company covers the route in.

• Proposal for a Regulation on the 28th regime corporate legal framework, “EU Inc.”, COM(2026) 321 final, 18 March 2026: Article 78 (EU-ESO: establishment, eligibility, 24-month waiting period, non-transferable warrants) and Article 79 (taxation of warrants on disposal only; harmonised calculation base; no-less-favourable treatment). Recitals 57 and 58. Member State liquidity effect from the impact assessment. Procedure 2026/0074(COD).
• Council of the European Union, WK 9143/2026 INIT, “Table with Member States Drafting suggestions”, 26 June 2026, 618 pages, compiled as at 24 June 2026, carrying suggestions from 21 of the 27 member states. Chapter VIII runs pages 463 to 485 and holds 54 of the document’s 1,815 interventions: Czechia’s deletions pp. 470, 475, 479, 481, 482; Luxembourg pp. 463 and 476; Estonia p. 471; Sweden pp. 465 and 478; Croatia pp. 463 and 479; Malta pp. 469, 472 and 483; France pp. 465, 466 and 481; Spain pp. 475 and 476; Latvia p. 476; Portugal pp. 464 and 475; Slovenia p. 480; Poland pp. 463, 465 and 469. Austria’s Chapter VIII comment is at p. 470 and cross-refers to its legal-basis comment on Article 4 at p. 40.
• Draft report PE790.143v02-00, Committee on Legal Affairs, rapporteur René Repasi, 29 June 2026, 246 amendments: Chapter VIII renamed (Amendment 163), EU-ESOP in Article 78a (Amendment 168), sweat equity in Article 65 (Amendment 158), tax amendments to Article 79 (Amendments 171 to 174).
• Tabled committee amendments, Committee on Legal Affairs, cover-dated 23 July 2026 and registered on the procedure file as 22 July 2026, amendments 247 to 1664 across five documents, all read for this piece: PE791.127 (247 to 426), PE791.128 (427 to 695, containing 446 to 452 on recital 57 and 57a, and 456 and 457 on recital 58), PE791.129 (696 to 995, containing 772 and 779 on Article 8(3)), PE791.130 (996 to 1339, containing 1315 to 1331 on Articles 56 and 57), PE791.131 (1340 to 1664, containing 1464 to 1506 on Articles 78 to 79a and 1626 and 1637 on Articles 106 and 108).
• Procedure file, roster and forecast dates: OEIL, procedure 2026/0074(COD).
• European Corporate Governance Institute (ECGI) blog, “EU Stock Option Policy: Time for a Holistic Approach”: ecgi.global
• The 28th Regime, formation explainer: how you would actually form a 28th regime company
• The 28th Regime, progress tracker and timeline: the28thregime.eu/progress
• The 28th Regime, founder readiness checklist: founders.the28thregime.eu