Income Tax Exemption on Stock Option Benefits

Per the criteria set by the Ministry of Industry and Technology, stock option benefits provided to employees at no cost or at a discount by techno-enterprise companies, and considered as wages, are exempt from income tax if their market value on the grant date does not exceed the annual gross wage amount for that year. The relevant details about this exemption have been published on the Official Gazette dated 27.09.2024 and numbered 32675.

The scope of this exemption:

1. Benefits provided by employers through free or discounted shares to employees are considered wages and are taxed according to wage provisions.
2. When shares are given free of charge under the exemption, the date the shares are provided is regarded as the date of benefit. Conversely, when employees are granted the right to purchase shares at a discount, the benefit is recognized on the date this right is exercised.
3. For shares given free of charge, the market value of the shares is considered wages. For shares purchased at a discount, the difference between the market value on the date the right is exercised and the cost to the employee is considered wages.
4. The portion of the market value of shares, regarded as wages on the date they are provided, that does not exceed the employee's gross annual wage for that year, is exempt from income tax.
5. The market value determination will be based on the normal trading value of the shares on the valuation date, in accordance with Article 266 of Law No. 213.
6. The wage basis for determining the exemption amount includes the total gross sum of the employee's continuous taxable payments—such as monthly salaries, premiums, bonuses, social aids, and raises—paid by the employer in return for services rendered.
7. The market value of amounts paid as compensation for expenses—regardless of whether they are linked to actual expenses—and the value of stocks given to employees free of charge or at a discount, which are considered wages, will not be included in the calculation of the annual gross wage.
8. Stocks provided to employees at no cost or at a discount prior to the enactment of Law No. 7524, and which are taxable under wage provisions based on their market value, are not eligible for the exemption provision.

Conditions for Benefiting from the Exception:

1. Only companies designated as techno-enterprise companies, according to the criteria set by the Ministry of Industry and Technology, are eligible to process stock options/units to their employees.
2. The portion of the benefit derived from processing stocks that qualifies for the exemption must not exceed the employee's annual gross wage for that year.
3. For the exemption to apply, it is crucial that the stocks are issued on a specified date and held by the employee for a designated period.

From the date employees acquire shares:

• If sold within three full years, the entire amount of exempted tax,
• If sold within four to six years, 75% of the exempted tax,
• If sold within seven to twelve years, 25% of the exempted tax,

will be collected from the employer, along with default interest and without any penalty for tax loss.

You can reach the relevant example details via the Official Gazette link (In Turkish).

Should you have any queries or need further details, please contact your customer representative.