An employer can decide to grant stock options to employees as a form of incentive or bonus.
Until 1 January 2023, the actual advantage which the employee ultimately realized with the employee stock options was taxable at the date when the options were exercised, alienated or otherwise converted into value for the employee. This regime has been changed as of 1 January 2023.
During the last decade, employee incentive plans in the form of stock options have in particularly become popular with startups and scale-ups, who have a big interest to commit their employees, but who generally do not have sufficient cash flow available for high salaries and cash bonusses. Because the shares in start ups are not always directly tradable after options are exercised, the pre-2023 regime that resulted in taxation at the moment of exercise could be very unattractive for employees of start-ups, because (wage) tax may already become due and payable at the time when the employee could not yet sell the shares.
As from 1 January 2023, the regime for stock options is adjusted. The starting point for taxation is now that the employee’s taxation on the benefit derived from employee stock options is postponed, until the shares become tradable after exercise date due to contractual or legal restrictions, and thus can actually be alienated by the employee. In this respect, being tradable is understood to mean the moment at which any restrictions on disposal are lifted, and the employee can dispose of the shares acquired upon exercise. Whether the employee chooses to actually alienate is immaterial.
The maximum deferral term for stock listed shares with contractual restrictions is five years (after listing, or for listed shares, five years after exercise). There is no maximum term of deferral in case of legal restrictions.
The new regime is applicable for all options that have not been exercised per 1 January 2023. There is no transitional regime because employees may still opt for taxation upon exercise of the options.
The income from employee stock options is considered income from employment, or, if the employment is no longer in existence at the the taxable moment, income from former employment.
Income from employment is subject to regular withholding of Dutch payroll tax by the employer, and ultimately subject to Dutch income tax in Box 1 as income from employment. The Dutch wage tax withheld can be offset against the income tax due as a pre-levy. The income in Box 1 is taxed against the applicable progressive tax rates.
Under certain conditions the 30% ruling may be applied to the taxable income. Income from former employment is usually only subject to income tax in Box 1, and can as such not benefit from the 30% ruling.
Dividends or other income derived from the shares by the employee before the taxable event occurs, are taxable as income from employment in Box 1.
As of 2023, taxation in the Netherlands is determined at the moment the shares can be alienated by the employee.
The taxable gain arising at alienation of the shares is the difference between the sales price for the shares minus the strike price of the options,. In case the sales price is not available, the taxable gain is determined at fair market value of the shares at alienation date minus the strike price of the options. If the employee had to make a sacrifice for obtaining the options, this own contribution may be deducted when calculating the taxable income.
By accepting the deferment of taxation, the employee also accepts that he or she will be taxed on the actual benefit in Box 1, which may be greater than the benefit at the moment the options were exercised.
Upon request of the employee, however, the options can still be taxed at the moment that the options are exercised.
As soon as the employee obtains the shares through the exercise of the stock options, the shares will subsequently be taxed as income from savings and investments in Box 3.
The taxation in Box 3, is determined on the basis of a fictitious return which is based on the fair market value of the shares at reference date, which under normal circumstances is 1 January of the year. The actual return on the shares, in the form of dividends or capital gains, is currently not relevant for the Box 3 taxation.
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