Taxation of Employee Stock Options in the Netherlands

An employer can grant stock options to employees as a form of incentive or bonus.

Until January 1, 2023, the actual advantage that the employee ultimately realized with the employee stock options was taxable at the date when the options were exercised, alienated, or otherwise converted into value for the employee. As of January 1, 2023, this regime has changed. 

During the last decade, employee incentive plans in stock options have become popular, particularly with start-ups and scale-ups, who are interested in committing their employees but generally do not have sufficient cash flow for high salaries and cash bonuses. Shares in start-ups are not always directly tradable after options are exercised, thus making the regime before 2023 (that resulted in taxation upon exercise) very unattractive for employees of start-ups because (wage) tax may already become due and payable when the employee could not yet sell the shares.

Taxation when the shares become tradable  

As of January 1, 2023, the regime for stock options is adjusted. The starting point for taxation is when the employee’s taxation on the benefit derived from employee stock options is postponed until the shares become tradable after the exercise date due to contractual or legal restrictions and thus can be alienated by the employee. The employee can dispose of the shares acquired upon exercise when any restrictions on disposal are lifted; whether or not the employee chooses to alienate is immaterial.

The maximum deferral term for stock-listed shares with contractual restrictions is five years (after listing, or for listed shares, five years after exercise). No deferral period applies in the case of legal limitations. 

No transitional regime 

The new regime applies to all options not exercised until January 1, 2023; Employees may still opt for taxation upon exercise of the options (no transitional regime).

The taxable income to be recognized from employee stock options

The income from employee stock options is considered income from employment, or, if it is no longer in existence at the taxable moment, income from former employment.

Income from employment is subject to regular withholding of Dutch payroll tax and ultimately subject to Dutch income tax in Box 1 as income from employment. Dutch wage tax withheld can be offset against the income tax due as a pre-levy. The income in Box 1 is taxed against the applicable progressive tax rates. 

Under certain conditions, the 30% ruling may be applied to the taxable income; Income from former employment is usually only subject to income tax in Box 1 and cannot benefit from the 30% ruling.    

Dividends or other income derived from the shares by the employee before the taxable event occurs are taxable as income from employment in Box 1.

Taxation at the moment of alienation of the shares

As of 2023, taxation in the Netherlands is determined when the employee can alienate the shares.

The taxable gain arising from the alienation of the shares is the difference between the sales price for the shares minus the strike price of the options in case the sales price is not available, the taxable gain is determined at the fair market value of the shares at the alienation date minus the strike price of the options. If the employee sacrificed to obtain the options, this contribution may be deducted when calculating the taxable income.

By accepting the deferment of taxation, the employee also accepts taxation on the actual benefit in Box 1, which may be greater than the benefit when the options were exercised. 

Opting in: taxation at the moment of exercising the options

However, the options can still be taxed when the options are exercised upon request of the employee.

Taxation of the shares after taxable exercise event 

As soon as the employee obtains the shares through stock options, the shares will subsequently be taxed as income from savings and investments in Box 3.

The taxation in Box 3 is determined based on a fictitious return based on the fair market value of the shares at the reference date, which under normal circumstances is January 1 of the year. Return on the shares, in the form of dividends or capital gains, is currently irrelevant to Box 3 taxation.   

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