Developments in Employee Stock Option Participation in the Netherlands

In a previous article (in Dutch), we discussed potential upcoming changes to the Dutch taxation of employee stock options in the Netherlands. Due to criticism from the House of Representatives, the implementation of the draft proposal for the Adjustment of the Taxation Scheme for Stock Option Rights (the “Proposal”) was postponed.

Several positive developments have occurred in this area since then, including examining the scope of the regulation, potentially limiting its application to start-ups and scale-ups. Attorney Dirk de Waard, specialising in corporate law, elaborates on these developments.

Employee stock options tax implications: A recap

Instead of providing regular salary payments, an employer can choose to reward employees by issuing shares or granting them the right to acquire shares at a later time (stock options). The current tax legislation treats stock options as income (box I). It’s only when an employee acquires the shares that they are categorized under box III (savings and investments), which involves different tax treatment.

Apart from employees paying taxes even when they don’t possess the actual shares, the taxation of shares in the Netherlands is comparatively heavy when compared to other countries. This unfavorable tax climate regarding employee stock options has resulted in limited utilisation of this option, representing a missed opportunity.

The Proposal: What was intended to change?

The Proposal primarily concerned the timing of taxation. In essence, under this revised scheme, an employee would only become liable for taxation once the shares became tradable. The main reason for this shift in taxation timing was to prevent potential liquidity problems for start-ups. For a more detailed explanation of the modifications, refer to our previous blog post (in Dutch).

New developments surrounding the Proposal: Minister’s letter to Parliament

In response to the Proposal, the Christian National Trade Union (CNV) submitted a position paper (in Dutch) about financial employee participation, presenting several suggestions to promote employee participation in the Netherlands.

In reaction to these suggestions, Secretary of State Van Rij (Fiscal Affairs and Taxation) issued a letter to Parliament (in Dutch). The letter primarily addresses the fiscal obstacles around employee participation, as perceived by CNV. The secretary of state asserts that, from a tax perspective, the legislator does not intend to differentiate based on the form in which an employee is rewarded.

Furthermore, with the introduction of the revised Proposal, the liquidity problem would largely be resolved. This is because the employee could pay their tax by selling (a portion of) their shares. For now, the secretary of state sees no reason to adopt a more favorable tax policy concerning employee participation.

A glimmer of hope: Tax scheme for start-ups and scale-ups

Although the secretary of state doesn’t see reason to propose measures beyond the Proposal to generally enhance the attractiveness of employee participation, there is cause to explore options for a specific scheme tailored to start-ups and scale-ups. This stems from the fact that the Dutch start-up environment lags behind other countries. While there are numerous start-ups, they often don’t progress to become scale-ups or further.

To foster healthy growth within a start-up, talented personnel is essential. However, funding to pay these employees is frequently lacking. By using employee participation in the form of shares (options), a start-up can make working there appealing. In doing so, employees also become stakeholders in the potential growth of the company.

In addition to the intention to develop a tax scheme for stock options in start-ups and scale-ups, the secretary of state, in collaboration with the Minister of Economic Affairs and Climate Policy, also plans to continue discussions with various stakeholders on this topic.

While no concrete actions have been taken yet, the future looks promising for employees of start-ups and scale-ups.

Need legal advice on employee participation? Do get in touch. Despite the current unattractiveness of employee participation in the Netherlands, the future appears promising in this regard. The amended Adjustment of the Taxation Scheme for Stock Option Rights is certainly a step in the right direction.

Our attorneys at Blenheim provide advice to businesses on various forms of employee participation, including Stock Appreciation Rights. To learn more about the possibilities, feel free to contact Dirk de Waard. He would be happy to assist you further.