Changes in the tax treatment of share option schemes

11 July 2022

On Tuesday 28 June, the Lower House agreed to changes in the tax treatment of share option schemes. Many start-ups and scale-ups have, in view of their liquidity position, limited scope for attracting talented personnel. However, by offering a share option scheme, they can still make an attractive offer as an employer to potential employees who are necessary to further professionalise and grow the company.

Current situation
Currently, a share option scheme is taxed when the option right is sold or exercised. However, in the case of start-ups and scale-ups, the situation can arise that the shares obtained upon exercise are poorly traded or not tradable, as a result of which the employee may have a liquidity shortage in order to be able to pay the tax. In addition, in the situation where the shares are not traded, it is often difficult to determine the fair market value of the shares. This value is of importance when calculating the tax due. Therefore, under the current legislation, it is less attractive for start-ups and scale-ups in particular to offer a share option plan to their employees.

What will change?
Under the new proposal, taxation will take place at the moment the shares obtained upon exercise become tradable at the then current value. This will eliminate the potential liquidity problem. Tradable means the moment at which any transfer restrictions are lifted and the employee concerned can sell the shares obtained upon exercise. In addition, a possibility has been introduced whereby the employee can still opt to have the share option right taxed at the time of exercise and then enjoy the further increase (or decrease) in value of the shares in Box 3. To this end, the employee must submit a written request to the employer / withholding agent. The aim of the new scheme is to bring the situation closer to the moment that income is actually received from the shares/option rights.

Also, a regulation will be introduced to prevent long-term tax deferral. If an employee is not allowed to dispose of the acquired shares based on a contractual restriction, the moment of taxation will be postponed for a maximum of 5 years after the listing of the company in which the shares are held. If the company is already listed when the share option right is exercised, the moment of taxation will be postponed for up to five years after the share option right is exercised. Interim dividend payments are also considered as salary from employment.

After settlement, the shares will leave the employment sphere and be taxed in box 3 of the income tax (or box 2 if the shares constitute a substantial interest). The intention is for this amendment to take effect on 1 January 2023.

We trust that we have provided you with sufficient information. Should you require further information on employee options, please contact us.