20 September 2022
Employment Tax
Impact High
Summary
The Dutch House of Representatives (Tweede Kamer) has passed a bill to change the Dutch tax treatment of employee stock options as per 1 January 2023. This new legislation is subject to approval by the Dutch Senate, which is expected in the upcoming months. It is important for employers to review the impact of this new legislation on their equity based remuneration.
The Detail
What does this mean?
Current legislation
Under the current legislation, (qualifying) employee stock options are taxable when the option is exercised. This taxable moment applies regardless of the type or tradability of the underlying shares. The taxable benefit is the market value of the shares at the time of exercise, minus the costs related to the exercise (including e.g. the strike price).
Potential change in the taxable moment of stock options
Under the new legislation, the taxable moment of the stock options will be dependent on whether the underlying shares received upon exercise of the stock options are immediately freely tradeable. In short, there are three different possible scenarios:
For completeness’ sake it is noted that the aforementioned potential changes only apply to employee stock options and not other types of equity, such as restricted stock units.
Tax treatment of dividends
It is of importance to note that as a result of the above, all benefits accruing following the untradeable shares before they have been subject to Dutch wage tax will be taxed as employment income as well. As an example, dividends paid to an employee who owns untradeable shares and who has not opted for the elective regime will be subject to Dutch wage tax (and will therefore have to be reported in the wage tax administration and as employment income in the personal income tax return, taxed at the progressive rates).
As a result, there is a potential risk of international mismatches when in the Netherlands the dividends following a blocked share would be seen as wage while these would be regarded as dividends abroad.
Similarly, attention is required for internationally active employees in relation to capital gains taxes other jurisdictions might levy upon alienation of the shares. For instance in case the employee was living and working in the Netherlands during (part of) the vesting period of the stock options, but is no longer residing in the Netherlands at the time the underlying shares (acquired at exercise) become freely tradable.
Action required
As a result of the aforementioned legislative changes, it is important for employers to review their equity plans to determine whether or not the respective plans could be impacted by the changed methodology of taxation. Especially non-listed companies are potentially impacted in this respect, but the changes are also relevant for listed companies who operate stock option plans that provide for shares to which lock-up restrictions apply (and which shares are therefore not freely tradable upon exercise of the stock options).
How we can help
As Vialto Partners, we can assist you with reviewing your equity plans from a Dutch and international tax perspective in light of the aforementioned legislative change. This to determine whether any action would be required, for instance in relation to the share plan rules, employee communication and alignment of the compliance process with respect to HR, payroll and external share plan administrators.
Contact us
For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:
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