In order to reward employees, and to have them invest in the company, employers can offer employee stock option plans. Stock options are often used by start-ups and scale-ups to attract highly skilled employees at a lower basic salary.
Using a stock option plan, employees receive the right to buy a number of shares in the company, at a predetermined price (exercise price) for a certain period of time. If the company performs well, the actual value of the shares can turn out to be significantly higher than the (exercise) price paid for these shares. This capital gain will be subject to tax in the Netherlands.
Current tax regime
Currently, personal income tax is levied at the moment the employee exercises its options, and acquires the shares in the company. A fair amount of tax may be due on the taxable income from this event, while the shares are often not freely transferable, for instance due to vesting schemes, or lock-up clauses. Since the employee basically has to prefinance the tax, this can lead to financial problems for the employee having to pay the tax upfront.
New tax regime
As of January 1st 2023, a new tax regime will enter into force through which employees may opt to defer the payment of tax on stock options in situations where the transfer of shares are restricted at the moment they have been acquired. Under the new regime, the employee may choose to defer the payment of tax until the moment the shares become transferable, for instance because the company holds an IPO, or the restrictions on the sale of shares as set in the stock options agreement expire.
Under the new regime, a potential capital gain realized with the stock options will be calculated based on the share value at the time the shares become transferable minus the exercise price. Should the shares increase in value between the time of exercise and the moment the shares become transferable, this could eventually lead to a higher tax.
Employees who are able to pay the tax at the moment of exercise should carefully consider the potential changes in value of the shares acquired before opting to defer the tax to a later moment.
For more information on the taxation of employee stock options, the consequences of these changes for your employees or assistance in deciding the most beneficial course of action, don’t hesitate to contact Hub van Grinsven ([email protected]) at Maprima Business Support BV.