Stock Option — what is it? Employee stock options
What are stock options (employee stock options)? How do they work, how are they taxed in Poland and when is it worth exercising them.
Definition
Stock option is the right, but not obligation, to purchase company shares at a predetermined price (strike price) within a specified timeframe. Technology companies and startups often grant stock options to employees as part of their compensation package.
How do stock options work?
- Grant — company grants you e.g., 10,000 options at 5 PLN/share price
- Vesting — options "unlock" gradually (typically 4 years with 1-year cliff)
- Exercise — you buy shares at 5 PLN price, even if market value is 50 PLN
- Sale — you sell shares at market price, earning the difference
Types of options
- ISO (Incentive Stock Options) — mainly used in USA, tax-advantaged
- NSO (Non-Qualified Stock Options) — more flexible, but less tax-advantaged
- ESOP (Employee Stock Ownership Plan) — employee profit-sharing plan
- RSU (Restricted Stock Units) — not options, but direct shares with vesting (increasingly popular)
Strike price vs market value
Key to profit: if strike price < market value, your options are "in the money" — they have real value.
Example:
- Strike price: 10 PLN
- Market value: 60 PLN
- Profit per option: 50 PLN
- With 5,000 options: 250,000 PLN profit
If market value falls below strike price, options are "underwater" — worthless (but you don't have to exercise them).
Taxation in Poland
Stock options are taxed in Poland in two stages:
- Upon exercise — difference between market value and strike price subject to PIT (tax scale, up to 32%)
- Upon share sale — capital gain taxed at 19% (PIT-38)
Note: Tax interpretations vary depending on program structure. It's worth consulting with a tax advisor.
When to exercise options?
- Options expire — typically 10 years from grant or 90 days after leaving the company
- Company goes public (IPO) — classic exercise moment
- Company is acquired — often automatic vesting acceleration
- You need liquidity — secondary markets (e.g., EquityBee, Forge) allow selling options before IPO
How can Freenance help
Freenance allows you to add stock options to your portfolio and track their estimated value. You see what percentage of your wealth consists of company equity, helping you make decisions about diversification and option exercise.
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