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Dutch rules for employee stock option plans

Last updated: 19-01-2017

Under Dutch law granting stock options to employees can trigger a taxable event. At this taxable moment the remuneration is subject to income tax under box 1 (income from employment).

As per 1 January 2005, the rules for taxation of employee stock options changed in the sense that employee stock options will only be taxable at the date of exercise. It is no longer possible for employees to choose the moment upon which the stock options will become taxable. The new rules apply to employee stock options granted after 1 January 2005 and to options that are still fully conditional on that date. For unconditional options granted before this date - or options that became unconditional before this date - the old regime still applies.

Previous regime - options granted before 1 January 2005

Under the previous regime , employees in the Netherlands could choose between 2 moments upon which the stock options become taxable:

    1. taxation at the date of grant or date of vesting
    2. taxation at the moment the options are exercised

Taxation could be avoided only when the employee elected to defer taxation until the moment of exercise, but the actual exercise of the stock options never took place.

The previous regime still applies to unconditional options granted before 1 January 2005 and options that became unconditional per that date, if at that moment the employer included the options in the employees' remuneration. An unconditional stock option grant is defined as a grant of an option that is not subject to any conditions precedent to the employee's right to exercise the option, other than the mere passage of time. A conditional stock option is generally any stock option that does not qualify as an unconditional stock option. Most American stock options, for example, are considered conditional stock options due to the requirement that the employee continues to be employed by the employer in order for the employee to vest in the options.

New regime - options granted after 1 January 2005

Under the new regime, the election procedure is abolished. Stock options granted after 1 January 2005 will always be taxable at the date such options are exercised or alienated. The taxable gain arising at exercise is the difference between the fair market value of the underlying shares at exercise minus the option exercise price. The Dutch employer - as a withholding tax agent for wage tax purposes - should then calculate wage tax and employee insurance premiums over the actual benefit realised at the moment the options are either exercised or alienated. If the employee had to pay a certain amount for the option, the employer may deduct this amount when calculating the benefit. This regime thus also applies to stock options that are still fully conditional in 1 January 2005. Options that have already been partly taxed in principle remain under the previous regime.

Taxation after exercise

From the moment the employee has exercised the stock options, the stocks obtained will be taxed as income from savings and investments. A standard 4% rate of return on the average assets over the course of one year is calculated. The result of this calculation is defined as 'income from assets'. One is charged 30% on this calculated income. The assets will be considered twice every year, on 1 January and 31 December.

Corporate income tax consequences

For corporate income tax purposes the deduction of options granted to employees on own shares is abolished. Options granted prior to 24th of May 2006 in principle continue to fall under the old regime, meaning that the corporate taxpayer will be entitled to claim a deduction for the costs in connection with the option plan.

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