Share-based incentives in Poland: benefits and key considerations

In today’s competitive job market employers are increasingly implementing additional benefits to attract and retain key employees. Among these, incentive schemes that grant employees company shares have gained significant traction. These programmes not only boost employees’ engagement and satisfaction but also align their interests with the company’s success and increase.

Understanding share-based incentive schemes
Generally speaking, share-based incentive schemes involve offering employees the opportunity to acquire shares in the company they work for or its affiliated entities. In Poland this can be achieved through various instruments, including share options, subscription warrants, or direct share awards. Such schemes serve as powerful tools to foster a sense of ownership among employees, motivating them to contribute actively to the company’s growth and profitability.

Benefits for employers and employees
For employees, participating in share-based incentive programmes provides a tangible stake in the company’s future. As the company’s value increases, so does the potential financial gain for the employee, either through the appreciation of share value or dividend distributions. This opportunity can be particularly appealing to high-performing individuals, encouraging them to remain with the company long-term.

Employers, on the other hand, benefit from enhanced employee loyalty and performance. By aligning employee interests with company objectives, these schemes can lead to improved productivity and a stronger commitment to organisational goals. Additionally, offering share-based incentives can be a strategic advantage in recruiting top talent, especially in competitive industries.

Key considerations in designing incentive schemes
When implementing incentive scheme, several factors must be carefully considered:

• Eligibility Criteria: Determining which employees qualify for the scheme is crucial.
• Key Performance Indicators: Linking share awards to individual or company performance metrics can further incentivise employees to meet or exceed targets.
• Vesting Period: Establishing a vesting schedule ensures that employees earn their shares over time, promoting long-term commitment.
• Tax Implications: Understanding the tax consequences for both the company and employees is essential. In Poland, the Personal Income Tax (PIT) Act provides specific regulations for taxation of income derived from participation in employee incentive plans. Depending on the structure of the scheme, income may be taxed at a flat rate of 19% for capital gains or at progressive rates up to 32%. The classification also affects social security and health insurance contributions.

Taxation of incentive schemes in Poland
The Polish PIT Act includes provisions that allow for the deferral of taxation of shares acquired or subscribed for under share-based incentive scheme until their future sale (regardless of whether they were acquired free of charge or below their market value). Upon the satisfaction  of the conditions specified in the PIT Act, income for incentivised employee emerges only once –at the time the shares are transferred for consideration and such income is classified as capital gain subject to 19% PIT (without social security and health insurance contributions).

According to the PIT provisions, the following conditions must be met (cumulatively) to enjoy treatment under more favourable rules:

• The incentive scheme is a remuneration system
• The scheme must be established on the basis of a general meeting resolution
• There must be an actual acquisition or purchase of shares (either directly or as a result of realisation of derivative financial instruments or as a result of realising other rights)
• The scheme must involve shares in an employer that is a joint share company (or a simple joint share company) or shares in a joint share company (or a simple joint share company) which is a parent company within the meaning of the Polish Accounting Act
• The participants of the scheme must be employees or persons deriving income from civil-law agreements (e.g. mandate agreements, contracts of specific work, managerial contracts) or members of the management boards remunerated on the basis of the respective resolution
• The rules relating to the incentive scheme apply to income obtained from the subscription or acquisition of shares in joint share companies (or simple joint share companies) seated or managed from the territory of an EU member state, a member state of the EEA or a country with which Poland concluded a double tax treaty.

If a given incentive scheme is not categorised as an incentive programme within the meaning of the PIT Act, the favourable tax rules provided by the PIT Act will not apply and then there is a risk for the employer to be treated as a PIT and social security remitter.

Polish tax regulations still lack provisions referring to taxation of participants in incentive schemes who cooperate on the basis of a B2B contracts (which is very popular in Poland).

Implementing an effective incentive programme
To successfully implement an incentive scheme, the employer should:

• First, conduct a needs assessment, to evaluate organisational goals and determine how an incentive programme can support these objectives
• Engage legal and tax advisors to consult professionals to navigate the complex legal and tax landscape, ensuring compliance and optimisation of benefits for both the employer and employees
• Develop clear documentation outlining the terms, conditions, and procedures of the programme. Clear communication helps prevent misunderstandings and sets transparent expectations
• Communicate with employees to educate them about the benefits and responsibilities associated with the programme
• Monitor and adjust the programme to review the scheme’s effectiveness and adjust as necessary to align with changing organisational needs and external conditions

Conclusion
Share-based incentive schemes are powerful tools for aligning employee interests with company success. By offering a stake in the company’s future, employers can motivate their workforce, enhance retention, and attract top talent. Careful planning, a thorough understanding of the legal and tax implications, and clear communication are essential to designing and implementing an effective incentive scheme that benefits both the company and its employees.