Tax Plan 2022: Legislative proposal for elective share option scheme
The Tax Plan 2022 includes a legislative proposal for the share option scheme. The legislator expects that an adjustment to the fiscal scheme will make it more attractive for employers to issue share options to employees. Additionally, this measure should improve the competitive position of the Netherlands in comparison to the neighbouring countries.
Issuing share options to your employees
A share option is a scheme based upon which an employee has an option to buy shares in the company he or she works for, during a predetermined period and for a predetermined price and quantity. At the moment the share option is exercised, the employee acquires the shares. Consequently, the employee also becomes a shareholder of the company. Share options are frequently used by start-ups and scale-up companies. For example, a start-up may not be in the position to offer its employees high salaries in its early stages. To compensate for this lower salary, a company may issue share options to its employees. A share option is a way for employees to benefit from the growth of the company for which they work.
Taxation of share options
There is no immediate taxation at the moment of the issuing of a share option to an employee. Under the current rules, a share option is subject to taxation at the moment the option is exercised. However, at that moment of exercising, the holder of the option (or share) does not always have sufficient funds available to pay the taxes due. Sometimes, the shares cannot (or may not) be sold, so there may not be sufficient cash to pay the immediate tax burden.
Consequences of the legislative proposal
The legislative proposal that has been included in the Tax Plan 2022 should solve this problem by changing the moment the tax is levied.
Based on the legislative proposal, the shares are subject to taxation at the first instance at which the employee can sell the acquired shares (so: the moment that these shares are tradable). It is irrelevant whether or not the employee actually sells the shares. By moving the moment that the tax is levied, it is expected that sufficient funds to pay the taxes due can be made available through a sale of shares.
The legislative proposal includes an elective scheme. An employee may choose to diverge from the main rule (taxation at the moment selling is possible), if the employee informs his employer of this beforehand, in writing. If the employer is informed on time and in the right manner, the share options are taxed in accordance with the old scheme; that is to say, at the moment the option is exercised.
Please note: The calculation of the taxes due is based on the fair market value at the moment the taxes are levied. It may therefore be fiscally beneficial to opt for taxation at the moment the share option is exercised.
The legislative proposal that has been announced is primarily aimed at making it easier for start-ups and scale-up companies to recruit and retain suitable employees.The proposed amendment should solve an important issue with regard to issuing share options to employees.
Is your company considering issuing share options, or are you looking to let your employees participate in other ways? Please feel free to contact our tax specialists at Baker Tilly.