On 18 March 2026, the European Commission (the “Commission”) presented its proposal for the introduction of “EU Inc.”, a new corporate form that companies established in EU member states can choose to adopt and which will allow such companies to be governed by a single harmonised set of corporate rules applying across all EU member states. The proposal is designed to increase the competitiveness of EU companies and encourage the growth of new startups within the EU.

One aspect of the Commission’s proposal is to allow EU Inc. companies to establish EU employee stock option plans (“EU-ESOs”) for their directors and employees. Under EU-ESOs, EU Inc. companies can grant options to their directors and/or employees, giving them the right to acquire shares in the company after a holding period of at least two years. EU‑ESOs are designed to be legally portable across EU member states, reducing legal complexity for companies with cross‑border workforces and improving certainty for employees who move between countries.

A notable aspect of the proposed new regime is the harmonisation of the timing of taxation for EU‑ESOs. Under the Commission’s proposal, tax on EU-ESO options will be deferred until the disposal of the shares acquired under the option, rather than at grant, vesting, or exercise of the option. This is intended to eliminate “dry tax” outcomes, where employees are taxed on unrealised gains and face liquidity issues. Tax rates and the characterisation of income from the disposal of shares acquired under EU-ESO options (i.e. as employment income or capital gains) will remain within national competence, although member states are required to ensure that EU-ESOs are subject to a tax treatment that is no less favourable than that applicable to other employee stock options or similar instruments under national laws.

At present, unapproved share options granted by Irish companies are subject to income tax on exercise on the difference between the market price and acquisition price of the shares subject to the option. Any further gain on the shares is then subject to capital gains tax on disposal. The proposed treatment of options granted under EU-ESOs would differ from the standard treatment of Irish unapproved share options as no tax would arise on exercise of the options and all tax would instead be deferred to the date of disposal of the underlying shares, at which point tax would be charged on the difference between the market value of the shares on disposal and their acquisition price. The tax treatment of EU-ESOs would, however, align with the treatment of share options granted under the “Key Employee Engagement Programme”, which the Irish Government has now extended until 1 January 2029.

The Commission’s proposal has now been submitted to the European Parliament and European Council for discussion. The Commission’s objective is for all parties to reach an agreement on the proposal by the end of 2026.

The Arthur Cox Incentives team will continue to monitor the progress of the proposal.