Stock options give the employee the right to buy shares at a fixed price; phantom shares pay them in cash for their appreciation, without making them a shareholder. ESOP, the employee share plan, delivers real shares. In a startup, the delivery of shares is exempt up to €50,000 per year per worker (art. 42.3.f of the Personal Income Tax Law).
Choosing wrong is expensive. In a startup, anything above €50,000 can be deferred. A phantom shares plan, by contrast, is taxed entirely as salary, and options outside the startup regime can force the employee to pay taxes on shares they cannot yet sell. This guide compares the three instruments, calculates the same incentive with each one, and tells you when it makes sense to grant real shares.
Three instruments with different legal natures
| Aspect | Phantom shares | Stock options | Delivery of shares (ESOP) |
|---|---|---|---|
| What the beneficiary receives | A right to receive cash, calculated on the value of the shares | A right to buy shares at an exercise price | Shares or interests, free of charge or at a discount |
| Is the beneficiary a shareholder? | No: no voting rights or dividends | Only upon exercise | Yes, from delivery |
| Is it a security? | No: it is a contract | The option is a contract; the shares of an S.A. that the beneficiary receives are indeed securities | Shares in an S.A., yes; interests in an S.L., no |
| Dilution | None | Upon exercise | On delivery |
| Company cash | Pays the incentive in cash | Receives the exercise price | Does not pay, unless it repurchases shares |
| Accounting record | Liability, as it is settled in cash | Personnel expense against net equity | Personnel expense against net equity |
Phantom shares are not shares or securities. They are a contractual promise of payment referenced to the value of the company. The company records them as a liability because it will settle them in cash (recognition and measurement standard 17.ª of the General Accounting Plan). Interests in an S.L. are also not securities, even if the plan delivers them (art. 92.2 of the Capital Companies Law, LSC).
What it means for you: before talking about taxation, decide whether you want shareholders or just want to pay a value-linked bonus. They are different legal products, with different effects on your cap table.
How each is taxed for the employee
Phantom shares: employment income in cash
The payment is cash remuneration and is taxed as employment income when it is due, with the corresponding withholding (arts. 14.1.a and 17.1 of the Personal Income Tax Law, LIRPF). The exemption of €12,000 or €50,000 does not apply to it, as it only covers the delivery of shares or interests (art. 42.3.f LIRPF).
If the generation period exceeds two years and it is collected in a single payment, the income is reduced by 30%. The reduction applies to a maximum of €300,000 and is not available if the employee used it for another multi-year income in the previous five tax years (art. 18.2 LIRPF).
Stock options in a company that is not a startup
When exercising the option, the employee receives shares below their value. The difference between that value and the price paid is employment income in kind. The delivery of shares is exempt up to €12,000 per year with three conditions: an offer equal for the entire workforce, the employee's and their family's interest not exceeding 5%, and holding the shares for three years. The law only expressly mentions options in the startup regime, so confirm with your advisor whether this exemption reaches the exercise of your options before counting on it (art. 42.3.f LIRPF and art. 43 of the Personal Income Tax Regulations, RIRPF).
The rest is taxed in the year of exercise, even if the employee has not sold. If more than two years pass between grant and exercise, the 30% reduction may apply with the limits of art. 18.2; confirm with your advisor how the generation period is calculated in your plan. Any subsequent appreciation will be taxed as a capital gain when they sell.
Stock options and delivery of shares in a startup
Law 28/2022 improved by four points for companies certified as startups (final provision 3.ª of the Law 28/2022):
- Exemption of €50,000 per year per worker. It does not have to be offered to the entire workforce, but it must form part of the company's general remuneration policy (art. 42.3.f LIRPF). The 5% limit and the three-year holding requirement still apply (art. 43.2 RIRPF).
- Requirements measured at grant. If the shares come from exercising options, the company must be a startup when it grants the option, not when it is exercised (art. 42.3.f LIRPF).
- Objective valuation. The shares are valued at the price paid by an independent third party in the last capital increase of the year before delivery. Without that capital increase, market value is used (art. 43.1.1.º.g LIRPF).
- Deferral of the excess. Anything above €50,000 is recognized when the shares are admitted to trading on a stock exchange or a multilateral trading facility, or when they leave the employee's assets. At the latest, ten years after delivery (art. 14.2.m LIRPF).
What it means for you: in a startup, the delivery of shares no longer creates a tax liability for the employee with no liquidity. That was the big drawback of options compared to phantom shares.
Example with figures: the same incentive, three outcomes
A public limited company grants an employee options over 4,000 shares in 2026, with an exercise price of €5. In 2028, an independent fund subscribes to a capital increase at €30 per share. In 2029, the employee exercises all the options and pays €20,000. The alternative would be a phantom shares plan that pays them in 2029 the appreciation of 4,000 shares above €5.
| Concept | Options in a startup | Options in a non-startup company | Phantom shares |
|---|---|---|---|
| What they receive in 2029 | 4,000 shares | 4,000 shares | €100,000 in cash |
| What the employee pays | 20,000 € | 20,000 € | 0 € |
| Employment income | (30 – 5) × 4,000 = €100,000 in kind | €100,000 in kind | €100,000 in cash |
| Exempt | 50,000 € | €12,000, if the offer is equal for the entire workforce and the exemption reaches the options | 0 € |
| Taxed in 2029 | €0; €50,000 are deferred | €88,000 (€61,600 if the 30% reduction applies) | €100,000 (€70,000 if the 30% reduction applies) |
| Company cash | Pays in €20,000 | Pays in €20,000 | Pays €100,000 |
| Dilution | 4,000 shares | 4,000 shares | None |
The startup column assumes that the company was certified when granting the options in 2026 and that the employee does not exceed 5% of the capital and holds the shares for three years. The deferred €50,000 will be taxed when the employee sells, when the company is admitted to trading, or in 2039, whichever occurs first. The value of €30 is not chosen by the company: it is that of the 2028 capital increase subscribed by an independent third party.
In a non-emerging company, and assuming that €30 is also the market value in 2029, the employee pays tax on €88,000 of income without having sold any shares, or on €100,000 if the exemption is not allowed. With phantom shares, they receive cash and can pay the tax, but the company needs €100,000 in cash that year.
What changes if your company is an S.L. or an S.A.
| Issue | Private limited company | Public limited company |
|---|---|---|
| Where the securities come from | Capital increase or treasury shares; treasury shares are highly limited (art. 140 LSC), except in emerging companies, which may hold up to 20% for remuneration plans | Capital increase or treasury shares up to 20% of capital, with authorization from the general meeting that states that purpose (art. 146 LSC) |
| Transfer | Subject to the rules of the articles of association or of law, with the company's consent (art. 107 LSC) | Free unless restricted by the articles of association |
| Plan for directors | According to the articles of association | Provision in the articles of association and a general meeting resolution if it includes shares, options or remuneration referenced to the share value (art. 219 LSC) |
| Representation | Interests in the shareholders' register; they are not securities | Securities or book entries; it may use a distributed ledger with ERIR |
In the emerging S.L., the plan for delivering shares must be provided for in the articles of association and approved by the general meeting, with the maximum number of shares per year, the reference value and the duration (art. 10 of Law 28/2022). In the S.A., art. 219 also covers phantom shares of directors, because they are remuneration referenced to the share value (art. 219 LSC).
Vesting and cliff are contractual agreements. Vesting sets how many options the beneficiary vests each period; cliff, the minimum time before vesting any. Exit clauses (good leaver and bad leaver) decide what happens if the employee leaves. In an emerging S.L., the shareholders' agreement that includes them can be registered at the Commercial Registry (art. 11.2 of Law 28/2022). Review how to draft them in the guide on the shareholders' agreement and its relationship with tag along and drag along.
When it makes sense to issue actual shares
| Situation | Typical fit | Reason |
|---|---|---|
| Certified startup that wants to retain the team for several years | Options or delivery of shares | €50,000 exempt per year and deferral of the rest |
| Shareholders who do not want new shareholders or dilution | Phantom shares | Without political or economic rights as a shareholder |
| You want the team to vote and receive dividends | Actual shares | Phantom shares do not grant shareholder rights |
| Company sale expected within a few years | Phantom shares or options exercisable upon sale | Payment coincides with the liquidity event |
| Many beneficiaries, frequent joiners and leavers | Shares of an S.A. with a share register | Every transfer of interests in an S.L. requires formalities |
If you choose real shares and the company is an S.A., the plan shares can be registered in the same tokenized registry as the rest of the capital, with their vesting and lock-up period. That registry is kept by an ERIR, the entity responsible for managing the registration and record (art. 8 of Law 6/2023). Phantom shares never go into that registry, because they are not securities. The fit with the cap table is in the guide on tokenization for startups and in the cap table guide; if your company is an S.L., first compare the difference between S.L. and S.A. for issuing.
An effect worth planning for: admitting the shares to trading on a multilateral trading facility, including one based on distributed ledger technology, makes the deferred income of all employees taxable that same year (art. 14.2.m LIRPF). If you foresee it, warn the team in time so they can sell part and pay.
Checklist to design the plan
- Decide whether you want shareholders or a value-linked bonus.
- Check whether the company is a certified emerging company on the date you grant the options.
- Set the exercise price and the reference value; for emerging companies, document the last capital increase subscribed by an independent third party.
- Check the 5% limit per beneficiary and family, and the three-year holding period.
- Provide for in the articles of association and approve at the general meeting what arts. 146 or 219 LSC, or art. 10 of Law 28/2022 require.
- Draft vesting, cliff and exit clauses in the plan and in the shareholders' agreement.
- Calculate the cash the company will need (phantom shares) or the employee will need (options outside the emerging company regime).
To continue: emerging company certification and how to convene the general meeting and draft the minutes.
If you need a law firm to prepare the transaction, at HokenFi's partner law firms you can request proposals from the platform.
Do you want to give real shares to your team and keep your S.A.'s capital in a tokenized registry? Take the issuance diagnosis (2 min) or request a proposal.
This content is informative and educational. It does not constitute legal, tax, or investment advice. Check the current version of each regulation in the BOE and on EUR-Lex.
HokenFi is a software and infrastructure provider; it does not provide regulated services (CASP, ESI, EAF, or ERIR). This article is informative and does not constitute financial or legal advice.
Frequently asked questions
What is the difference between stock options and phantom shares?
Stock options give the right to buy shares at a fixed price and, when exercised, the employee becomes a shareholder. Phantom shares only give the right to receive in cash the appreciation of a number of shares: there are no voting rights, no dividends, and no dilution, and they are not securities. The company pays phantom shares from its own cash; the employee pays the price of the options.
Are phantom shares taxable?
Yes. The payment is cash employment income taxable under IRPF when it is due, with withholding. It does not have the €12,000 or €50,000 exemption for the delivery of shares. If the generation period exceeds two years and it is received in a lump sum, it can be reduced by 30%, with a maximum of €300,000 (arts. 17, 18.2 and 42.3.f of the IRPF Law).
How are stock options taxed in an emerging company?
When exercised, the difference between the value of the shares and the price paid is in-kind employment income. It is exempt up to €50,000 per year if the company was emerging when the option was granted. The excess is deferred until the sale, admission to trading or ten years later, and the shares are valued at the price of the last capital increase subscribed by an independent third party (arts. 14.2.m, 42.3.f and 43 of the IRPF Law).
What are ESOPs?
ESOP (employee stock ownership plan) is the generic name for a plan that turns employees into shareholders, with free shares, at a discount or through options. In Spain it is not a legal figure of its own: for tax purposes, the regime for delivering shares to employees under art. 42.3.f of the IRPF Law applies, with an exemption of €12,000, or €50,000 in emerging companies.
Do phantom shares give voting rights or dividends?
No. They are a compensation contract referenced to the value of shares, not shares. The beneficiary is not a shareholder, does not vote at the shareholders' meeting, and does not receive dividends, unless the contract provides for equivalent payments. Nor are they securities, so they are not recorded in the share register or in the register of an ERIR.
Can an S.L. grant stock options to its employees?
Yes, but with more formalities. Shares in an S.L. are not securities and their transfer is subject to the articles of association and the company's consent. Treasury shares in an S.L. are highly limited, except in emerging companies, which may reserve up to 20% of capital for remuneration plans provided for in the articles of association (art. 140 of the Capital Companies Act and art. 10 of Law 28/2022).
