Action required from employers to take advantage of amendment of the Dutch share option regime
Published on 3rd Apr 2023
The Dutch share option regime has changed in order to attract more talent to start-ups – as of 1 January 2023
Companies that want to retain employees for a longer period of time and let them share in the company's business success often issue options to employees. Until 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.
Employees can now choose their tax treatment
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.
Action to be taken by employers
Employers can let their employees benefit from this change by taking the following steps:
- Inform employees of the changes;
- Consider amending grant agreements to allow employees to choose their tax treatment; and
- 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.
Connect with one of our experts if you require assistance in relation to the above.