Netherlands | changes to the Dutch share option regime
Published on 10th May 2023
The regime has been changed to address potential cash-flow problems
The Dutch share option regime changed on 1 January 2023 in order to enable companies (in particular start-ups) to attract more talent
Start-ups often pay options to their employees as a way to incentivize and retain top talent. Options give employees the opportunity to buy company stock at a set price in the future, regardless of the actual stock price at that time. Additionally, options can help start-ups conserve cash in the early stages when they may not have the resources to offer competitive salaries.
Prior to 1 January 2023, cash flow problems could arise for employees participating in an employee share option plan because of income tax becoming due at the moment of the exercise of share options.
The Dutch share option regime has recently been changed in order to solve these (potential) cash flow problems. The amendment gives employees the option to defer taxation on their options until the shares that were acquired through the exercise of options become tradable, or to pay tax at the time the options are exercised (subject to conditions).
Previously, employees had no choice in this regard. They had to pay income tax at the moment of exercise of the option, even if they were bound by share transfer restrictions, and realising a consideration in cash for the sale of the shares was not possible.
Under the new Dutch share option regime, the taxable moment will be deferred to the moment the acquired shares become tradable, unless an employee decides to keep the taxable moment at the exercise of the options, even though the shares are not yet tradable. The employee's choice must follow from the legal documentation applicable to the employee's options. The regime applies to both public and private companies.
Employers may wish to consider amending grant agreements to allow employees to choose their tax treatment. In addition, employees may check whether there is a de facto transfer restriction applicable to an employee exercising options, in order for the employee to know whether the exercise leads to taxation.
Please get in touch with your usual Osborne Clarke contact or one of the experts below if you have any queries or would like to discuss further.
