The Future Financing Act

Back to Atlas

The Future Financing Act is legislation designed to bolster Germany's position as a financial hub and includes measures to encourage employee stock ownership.
What are the main aims and objectives?

Overall, the main objectives of the legislation are to modernize the capital market, facilitate capital raising, enhance shareholder rights, foster international participation, and regulate crypto custody in Germany. Specific reforms to employee stock options are intended to intended to promote entrepreneurship, innovation, and employee participation in the success of companies. The package as a whole aims to promote growth, and investor confidence in the German financial sector.

How does the program work?

The Future Financing Act in Germany contains significant reforms to employee stock ownership programs as part of its broader goals to improve the country's financial landscape and to encourage employee participation in the economic success of their employers. Here are the main reforms that the Act introduces:

  1. Shares will be taxed upon sale

Prior to the reforms, employee stock options were taxed as “dry income” which means that employees had to pay taxes on their stock options at the time of granting instead of when they cashed out. In practice, this meant that they were paying tax on money they hadn’t yet received and acted as a huge disincentive to participate in such schemes. Easier access to the stock exchange. The legislation fixes this problem by ensuring tax only occurs upon the sale of shares.

  1. Raising tax-free allowances

The Act increases the limits for tax-free issuance of employee shares from €1,440 to €2,000. This makes it more financially attractive for employees to participate in ESOPs as they would benefit from a higher allowance before any taxation on stock options or shares kicks in.

  1. Dual class shares

Founders will be able to issue multiple voting shares which allow them to retain control of their company whilst raising equity.

  1. Easier access to the stock exchange

The minimum capitalization is lowered from €1.25 million to €1 million

  1. Electronic and crypto shares

The bill allows companies to issue shares on the basis of a register managed by using blockchain technology. Registered electronic shares can then also be issued as shares and entered in the electronic crypto securities register.

  1. New regulatory framework for SPACs

Special purpose acquisition companies (SPACs) are a form of empty shell company that is listed on a stock exchange and operational companies the opportunity to enter it. The goal of this Initial Public Offering (IPO). While SPACs have been a popular tool in the US, German investors have not been keen. Consequently the legislation provides investor protection in an attempt to encourage investment in SPACs in Germany.

What is the overall cost?

The legislation was passed without cost and there is currently no information on the expected cost of changes to employee stock ownership in terms of lost tax revenue.

How was it implemented?

The Future Financing Act was passed into law on November 15th 2023 and came into force on January 1st 2024. The success of the legislation was the result of a concerted effort by the startup community to lobby for reform of the system. For years, Germany has been seen as one of the worst countries for employee share ownership due to burdensome tax rules.

What impact has been measured?

As the legislation only came into force on January 1st 2024, there has yet to be any assessment of its impact.

What lessons can be learned?

The legislation was described as the biggest reform in the history of the German startup scene by Christine Miele, general partner at VC firm Headline and chair of the German Startup Association. However, he also caveated that whole they had made a huge jump, the reforms will not make Germany number because other countries have a significant head start.

CURATED BY

Tom Hancock

Research Associate
Global Entrepreneurship Network
United Kingdom