Incentive Stock Options (ISO)

Incentive Stock Options (ISOs) are a type of equity compensation commonly offered to employees, particularly in startups and growth-stage companies. ISOs grant the right to purchase company shares at a predetermined exercise price, typically lower than market value, subject to vesting conditions and a holding period.

The primary benefit of ISOs lies in their favorable tax treatment. In certain jurisdictions, if specific holding period requirements are met—typically two years from the grant date and one year from exercise—any profit realized upon selling the shares is taxed at capital gains rates rather than as ordinary income.

Incentive stock options are a powerful talent retention tool. By offering future financial upside tied to company growth, they align employee interests with long-term organizational performance. Businesses operating in competitive markets like the UAE’s startup ecosystem often leverage ISOs to attract top-tier talent while managing cash flow constraints.