Taxation of Share Options in Malta: Grant, Vesting, Exercise and Sale
Employee share options are a common tool for attracting and retaining talent, but their Maltese tax treatment catches many employees and employers by surprise, largely because the tax point falls at exercise rather than at grant or vesting. This article summarises how each stage of the lifecycle of a share option is taxed under Maltese law.
1. Grant of the option
The grant of a share option, that is the moment the employer confers on the employee the right to acquire shares at a future date and at a predetermined price, is not a taxable event in Malta. No income tax on a deemed fringe benefit arises simply because an option has been granted, since the employee has not yet received anything of certain value; they merely hold a conditional right.
2. Vesting
Vesting (the point at which the employee's right to the option, or to the underlying shares, becomes unconditional) is likewise not, in itself, a taxing point for a genuine share option. Malta's tax rules are keyed to the acquisition of shares, not to the lapsing of conditions attached to the right to acquire them. The practical consequence is that an option can vest without any tax being due, provided the employee has not yet exercised it.
The position is different for restricted share or share award schemes, where shares (rather than options) are conditionally awarded up front and vesting is the moment the shares are actually transferred to the employee. In that scenario, vesting and "exercise" collapse into the same event, and it is taxed in the same way as the exercise of an option (see below), because that is when the employee first acquires the shares.
3. Exercise of the option
Exercise is the key taxing event. Under the Fringe Benefits Rules (Subsidiary Legislation 123.55), read together with article 4(1)(b) of the Income Tax Act (Cap. 123), the benefit an employee derives from exercising a share option is treated as a fringe benefit arising from employment.
The taxable value is the excess of the market value of the shares on the date they are acquired (i.e., the date of exercise) over the price actually paid by the employee for those shares. In other words:
Taxable fringe benefit = Market value of shares at exercise − Exercise (strike) price paid
This fringe benefit is charged to tax at a flat rate of 15%, as a separate and distinct item of income from the employee's other employment income — it is not added to salary and taxed at the individual's marginal rate (which can otherwise run up to 35%). The employer is responsible for accounting for this tax, typically through the payroll/FSS system, at the time the option is exercised.
4. Subsequent sale of the shares
Once the shares have been acquired, any later disposal is taxed under the ordinary capital gains rules in article 5 of the Income Tax Act. To prevent the same value from being taxed twice, the cost of acquisition used to calculate the capital gain on a future sale is not the low exercise price the employee actually paid, but the market value of the shares as at the date of exercise (the same figure used to compute the 15% fringe benefit charge). The gain subject to tax on sale is therefore:
Taxable capital gain = Sale price − Market value of shares at exercise
For shares in an unlisted (private) Maltese company, this gain is generally taxed at the flat 35% rate applicable to capital gains on the transfer of shares. Two further points are worth flagging:
If the shares are listed on a recognised stock exchange (which includes the Malta Stock Exchange and a number of approved foreign exchanges), the capital gain on their transfer is generally exempt from income tax altogether.
Separately from income tax, the transfer of shares in a Maltese company usually attracts stamp duty of 2% of the higher of the market value or the transfer price (rising to 5% where the company's assets are predominantly Maltese immovable property), and the transfer must be notified to the Commissioner for Revenue.
Summary
Stage | Taxable event? | Basis of charge | Rate |
Grant | No | — | — |
Vesting (pure option) | No | — | — |
Exercise | Yes | Market value at exercise less price paid | 15% flat and separate from other income |
Sale of shares | Yes | Sale price less market value at exercise | 35% flat (unlisted shares); generally exempt if listed on a recognised exchange |
A practical note
Because the 15% fringe benefit charge is crystallised at exercise regardless of whether the employee sells the shares at that point, employees who exercise and hold can face a tax bill before they have realised any cash from a sale.
Get in Touch:
Josef Mercieca
jmercieca@quazar.mt / +356 2388 4600
