Structuring Employee Token Options
Problem
Offering Employee's Company tokens as an incentive tool can cause high tax costs on the employees & the company's side – there is no optimal distribution solution in the market yet.
Solution
The solution is a smart token distribution option, which is not considered as a salary component and does not result in high tax costs at time of transferring the token.
Total to date
This is the total amount allocated to Structuring Employee Token Options.
[IMPACT] Please describe your proposed solution.
Currently, I perceive the problem of the tax costs in respect to any kind of employee options as very critical because it causes problems, costs and discussion for every Start-up.
Start-ups want to incentivize their employees with any kind of stake in the company to attract great personnel. A token option after a successful token launch is crucial and a perfect vehicle. However, whether I sell tokens for a cheaper price to employees or grant them a token option, both events result in high tax costs and social security contribution for both sides. For instance, if we grant employees options and they exercise it to a 1000x multiple in the future, then our company has to pay very high social security taxes in the future, since an option is defined a salary component.
Is my company able to pay these taxes in the future? Do I have to set-up cash reserves? Can I become financially distressed through these options?
Tax is a very complex topic and high risk at the same time. It makes our great intention to have employees participated in the success of the firm difficult to implement. Figuring out the how and when takes so much time and costs and distracts us from focusing on our actual product.
Therefore, I want to asses and discuss with experienced lawyers and tax consultant different approaches for employee tokens to find one smart solution, which bears no risks for either party. This will help all Start-ups in the crypto scene and their employees.
[IMPACT] Please describe how your proposed solution will address the Challenge that you have submitted it in.
Token distribution bring a high financial challenge for the employee as well as for the Start-up and with my approach we could find a solution, which brings neither party into a financial problematic situation
[IMPACT] What are the main risks that could prevent you from delivering the project successfully and please explain how you will mitigate each risk?
Potential risk: Due to strict tax regulations, no better solutions can be found despite the one existing on the market.
[FEASIBILITY] Please provide a detailed plan, including timeline and key milestones for delivering your proposal.
July:
Stage 1: Assess existing solutions and define the entire risk and costs
Stage 2: Evaluate with a tax consultant the token as an instrument itself and opportunities to de-categorize it as a salary component
August:
Stage 3: Set-up a clear employee token distribution plan which is in line with the Swiss tax regulations
Step 4: Address the tax department to get approval for the implementation of the new employee token option
Step 5: Evaluate the token solution for implementation under e.g. the EU regulations.
September:
Step 6: Write a Summary of the new certified token solution, which helps other Start-ups to adapt the solution to their own company in their respective country
[FEASIBILITY] Please provide a detailed budget breakdown.
Step 1 + 2: 25.000 USD
Step 3-5: 45.000 USD
Step 6: 5.000 USD
[FEASIBILITY] Please provide details of the people who will work on the project.
Tax consultant (In place, his name is Marc)
Financial Accountant (in place, her name is Rebekka)
Blockchain / Crypto Lawyer (in place, his name is Reto)
[FEASIBILITY] If you are funded, will you return to Catalyst in a later round for further funding? Please explain why / why not.
Yes, I would because I believe that so many Start-us in Crypto have the same issues. I have talked to many founders and we all have the same problems when it comes to legal / tax / regulations / accounting. Finding smart solutions can help each of us to actually focus on our product instead of spending thousands of USD per month on lawyer and consultants.
[FEASIBILITY] Are you or any member of your team working on any other proposals in this Fund9?
Yes[FEASIBILITY] Are you or your team working on any other proposals from previous Funds?
No[AUDITABILITY] Please describe what you will measure to track your project's progress, and how will you measure these?
I need to measure these KPIS for the new solution compared to today's KPIs:
- Tax costs (Company & employee)
- Social security costs (Company & employee)
- Set-up & implications costs for the company
- Accounting complexity and costs
[AUDITABILITY] What does success for this project look like?
Success means that the above mentioned KPIs are lower than for the existing solution today and that the solution can be implemented in many countries.
[AUDITABILITY] Please provide information on whether this proposal is a continuation of a previously funded project in Catalyst or an entirely new one.
no
Sustainable Development Goals (SDG) Rating
n/a
Team
Before I have joined NFT-MAKER, I was a Senior Investment Manager and managed several Spin-offs and Seed Investments, therefore, I have profound experiences with tax and legal topics especially when it comes to incentive tools for Start-ups (ESOP).
