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Dutch rules for employee stock option plans

Last updated: 19-11-2021

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

As per 1 January 2005, the rules for taxation of employee stock options have changed in the sense that employee stock options are only taxable at the moment the option is exercised. It is no longer possible for employees to choose the moment that the stock options become taxable. These rules apply to employee stock options granted after 1 January 2005 and to options that were 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 for the stock options to become taxable:

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

This means that if the actual exercise of the stock options never took place taxation could be avoided when the employee elected to defer taxation until the moment of exercise.

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 that have to be fulfilled prior to the employee's right to exercise the option, other than the mere passing 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 options to vest.

New regime - options granted from 1 January 2005

Under the new regime, the election procedure is abolished. Stock options granted after 1 January 2005 are always taxable at the date on which the options are exercised or alienated. The taxable gain arising at that moment equals the fair market value of the underlying shares at the moment of exercise minus the option exercise price. The Dutch employer - as withholding tax agent for wage tax purposes - should calculate wage tax and employee insurance premiums on the actual benefit realised at the moment the options are either exercised or alienated. If the employee had to pay for the option, this amount may be deducted when calculating the benefit. This regime also applies to stock options that were still fully conditional on 1 January 2005. Options that have already been (partly) taxed remain in principle 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 (unless they represent 5% or more of the total shares). The applicable fictitious 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 savings and investments'. This fictitious income from savings and investments is subject to 30% personal income tax. The value of the assets quals the value on 1 January of the year.

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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