Employee stock option plan – Rules Netherlands
Rewarding employees by means of a stock option plan is not only popular with large multinationals, but also for example with internationally active SME’s and startups to attract skilled employees and give them the right incentives and bonuses. It’s common practice to reward employee stock option plan(s) after certain conditions are fulfilled (vesting period), e.g. performance and years of service. Examples are Restricted Stock and Restricted Stock Units. Furthermore, employees can participate in Stock Purchase Plans to acquire company stocks at a discount or can be rewarded with cash settled financial products based on the value of company stocks, the so-called Stock Appreciation Right or Stock Option Plan.
Besides the questions when and how much tax is due on such rewards, it is important to determine the country in which the tax has to be paid.
In this article we briefly discus the international tax aspects regarding stocks, stock options and related financial products from a Dutch tax perspective. This may be relevant for people residing in the Netherlands during their secondment / detachment and (partly) working in other countries or people who migrated to the Netherland, and during the non-Dutch period received stock options, stock and / or other related financial products or rights thereto.
Stock option plan – Dutch tax treatment
In general, exercising or selling rewarded stock options and receiving stocks as income from employment (wage) is taxable in the Netherlands. For this there need to be causality between the rewarded financial products and the employment. The facts and circumstances need to be carefully considered in order to regard the financial products as income from employment.
As per 1 January, 2015 the taxable event for stock options is the moment they are sold or exercised. Therefore, stock options with or without vesting period are treated equally. The taxable amount is the market value of the underlying stocks minus the exercise price of the stock options, or, in case of selling, the amount received. Certain costs can be deducted from the previously mentioned amounts, limited to a taxable amount of nil.
The taxable moment for stocks is the moment the stocks are received, paid, settled, made available, become interest-bearing, or claimable and collectible. This means for instance that Restricted Stock Units are not taxable as long as the conditions are not yet fulfilled.
International aspects – Stock option plan
For stock options, stocks and related financial products received as income from foreign employment it needs to be determined if and to what extend the Netherlands is allowed to tax this income. This is usually concluded in tax treaties. In case the tax treaty (partially) allocates the right to tax to the other country, the Netherlands will provide for methods to prevent double taxation. However, first it needs to be determined to what extend the financial products are allocated to employment performed in the Netherlands and in other countries. The before mentioned causality applies here as well. Therefore, the facts and circumstances are of utmost importance.
Principles regarding the allocation of stock option plan(s)
The Dutch secretary of state announced by decree some principles regarding the allocation of stock options, which can be summarized as follows:
Non-restricted stock options
The taxable income an employer receives regarding non-restricted stock options will be allocated to employment activities already performed. It is irrelevant whether the stock option is exercised or not.
Restricted stock options
The taxable income an employer receives regarding restricted stock options will be allocated to the period in which the conditions still apply. In case the conditions can be partially fulfilled then the allocation also takes place partially.
The Dutch taxation of a stock option plan and/or related financial products in international situations depends on the facts and circumstances. The determination of the taxable event, taxable amount and the allocation of income to certain activities are important aspects. It is therefore advisable to consult a tax professional.