BDO is a global top-five accounting firm, with more than 2.000 skilful and experienced employees in the Netherlands.
As the Dutch economy faces its strongest growth in 10 years, it’s easy to notice the advantages. Nowadays, employers are eager to find good employees and keep them. They are looking for ways to keep their employees interested and invested in their company.
Whilst a higher salary is a great way to reward employees, there are a lot of other incentives, such as stock option plans. These benefits are a bit more unconventional but can be a great way to keep you, the employee, interested and motivated, and can give you great benefits in the long run.
It is our experience that start-ups are opting for these kinds of incentives more and more as the turnover might be limited during the first years. With these types of equity-based compensations, start-ups can make sure that you, the employee, are receiving a good salary, even though they might not be able to pay you that much during their first years.
Types of incentives
Below is an overview of the most common incentives and their moment of taxation.
The most common incentive: money. The bonus may, of course, be linked to your performance during a specific period of time and is taxable at the moment of payment.
2. Stock appreciation rights (SAR)
This is a right which is linked to the capital gain of the shares of the company. You will not receive actual shares but a right to an additional payment/bonus, which is linked to the value increase of the company’s shares. In general, the taxable moment is the moment of payment.
For example: Employee A gets a SAR linked to shares 1-100. The value of the shares is now 1 euro per share. The employee has the right to exercise the SAR at any given moment after January 1, 2020. He does so on June 1, 2020, when the shares have a value of 3 euros each. Therefore, the payment the employee will receive is (€ 3 -/- € 1) * 100 = € 200.
3. Profit rights
You receive a right to part of the profits made by the company. The taxable moment is the moment of payment. The above three options do not give you any say in the company. However, shares and stock options may give you such a say, dependent on the type of shares/options and the agreed-upon conditions.
4. Share incentive plans
These types of plans give you the possibility to buy or receive company shares. Do you want a loan to buy the shares? Or, have you agreed with your employer that you do not have to pay anything for receiving the shares? This may lead to taxable salary. The shares are taxable from the moment you receive them against the market value at that moment minus the amount you paid for the shares.
For example: On October 1, 2018, you receive 100 shares in company X. The value at that moment is 10 euros per share. You pay 6 euros per share. The taxable salary is (€ 10 -/- € 6) * 100 = € 400.
If your employer provides you with a loan for the 6 euros and you do not pay interest on this loan or a low interest, the difference between the fair market interest and the interest you are paying is also considered taxable salary.
5. Stock options / employee stock options plan (ESOP)
A stock option will give you the right to buy company shares at a particular moment in the future. You don’t receive the shares immediately, but after a certain period of time, once the stock options may or can be exercised. Sometimes, additional conditions have to be met. The taxable moment is the moment you exercise the options.
The calculation of the taxable benefit is similar to the benefit as mentioned under 4 (share incentive plan). Note that the fair market value is the value at the moment of exercising the options.
Of course, the above list is not exhaustive. Each incentive plan may vary a lot and other versions could be applicable, but these are the most common types of incentives. The moment of taxation could also vary depending on the conditions etc. incorporated in the plan. Therefore, it should always be determined based on the content of the incentive plan what the actual moment of taxation (and the taxable value) for Dutch tax purposes is.
Other relevant factors to consider
Above we have specified the moment of taxation per incentive, however, there are more factors that can be of influence on the taxation and the amount of tax due. Examples include:
Will you receive the incentive in person or via a personal holding? Receiving the incentives via a personal holding can be beneficial and worth looking into when you receive share options.
As the incentives are provided by your employer, they are taxable as employment income. The 30% ruling can be applicable to this employment income.
However, the 30% ruling is only applicable for wages from a current employer and not a former employer. If the taxable salary from, for example, your options will occur after you leave the job and return to your state of origin, the chances are that the 30% ruling will not apply to this income.
Taxable outside the Netherlands?
Also, if the incentive is partly or fully based on your performance during a specific period during which you were (also) working (and taxable) outside the Netherlands, it could be that part of the incentive is taxable abroad.
To determine whether or not the Netherlands has the right to levy taxes in international situations, it is important to know for which activities the incentive is granted to you. Besides, the state in which it is taxable may have very different rules on how and when the incentive will be liable to tax.
To keep in mind
When discussing compensation with your employer in the form of an incentive, please consider the following (not limitative):
- Do I agree with the conditions?
- What is the taxable moment? And what is the taxable base?
- If I do not receive any cash yet but do have to pay taxes, do I have the funds for this? If not, will I receive a loan from my employer and what will this mean for my taxation in the Netherlands?
- Do I want to receive the incentive in person or via a personal holding, if possible?
- Is part of the incentive taxable outside the Netherlands?
Is your employer considering offering you incentives? And do you want to know more about any kind of employee incentives or your taxation? The BDO expat tax team has a wide knowledge regarding wage and income tax, social security and is also specialised in employee incentives. Please feel free to contact BDO via Peter.Bos@bdo.nl.