Austria Extends Phantom Shares Regulation Until End of 2026
The Finance Committee of the National Council has today decided to extend the transitional regulation for virtual employee participation (Phantom Shares). Startups can thus convert existing Phantom Shares into genuine employee participation tax-neutrally by the end of 2026. The measure applies retroactively from January 1, 2026 and will be finally decided by the National Council tomorrow. Crucially: no immediate taxation occurs during the conversion—tax treatment only takes place later when actual proceeds are realized.
State Secretary for Startups Elisabeth Zehetner puts the decision into perspective: “This extension is a clear signal: Austria is continuing its reform course for startups. Anyone who contributes daily with commitment, ideas, and expertise to a company’s success should be able to participate in it.” The extension implements a concrete point of Austria’s Industrial Strategy 2035. Zehetner emphasizes: “Startups especially thrive on engaged key personnel and have a strong interest in keeping them on board long-term. Employee participation models are a powerful instrument for this.”
Tax-Neutral Conversion
Startups frequently use virtual participation models because they are simple to implement and do not require classic company shares. However, conversion to genuine participation requires time—organizationally, contractually, and in execution. The extension is intended to ensure that conversions are not blocked by an immediate tax burden.
An example: An employee holds 1 percent of economic success via Phantom Shares. When converting to genuine shares or company value shares without voting rights, tax neutrality applies—no immediate valuation, no immediate tax payment. Taxation only occurs upon actual exit or sale.
FlexCo and Existing Framework Conditions
Since January 2024, Austria has had a tax relief for virtual employee participation. Companies can grant employees shares free of charge without immediate tax consequences. Prerequisites:
- Maximum 100 employees
- Maximum 40 million euros in revenue
- Participation within ten years of founding
- Employees previously held less than ten percent
In parallel, the Flexible Capital Company (FlexCo) has created new opportunities since January 1, 2024. FlexCo enables flexible arrangements for voting rights, share transfer, and employee participation. Employees can receive company value shares—economic participation in profit or sale proceeds, but without voting rights. Currently, 1,535 Flexible Capital Companies are already registered in the Austrian commercial register.
KMU Forschung Austria has already been commissioned to conduct a study on employee participation. The study evaluates the improvements introduced since 2024 from both tax and corporate law perspectives. Background: Many startups and young SMEs have only limited liquid funds, so participation models are gaining importance as an alternative to high salary costs. The study is intended to show where the new rules work well and where adjustments are still needed to continue closing the gap internationally.
