Legal Updates

The establishment of management participation plans (MPP) often gives rise to German tax issues when the German management team shall benefit as well. First, the granting of the management participation may qualify as a taxable fringe benefit; and, second, the income resulting from the management participation as regular wage income (subject to ordinary taxation with progressing tax rates of up to approx. 50%) shall be avoided. The income derived from the MPP should rather be treated as investment income which is subject to a preferential tax regime (either flat tax of 26.375 per cent – Abgeltungssteuer – or partial tax exemption of 40 per cent of the income – Teileinkünfteverfahren).

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