How employer-based stock options are taxed in the Netherlands
Exercising stock options and dealing with related taxes is a subject that comes up often, but is not always well understood. How are your investments taxed in the Netherlands? The team from Tax is Exciting is here to break down everything you need to know.
When you as an employee are given stock options, it can feel exciting - it’s almost exotic! You can be granted a stock option based on having an employment relationship with a company.
Exercising stock options and tax
As a reward for your efforts with your employer, you might be awarded stock options. Looking at the stock option from a tax point of view, it is simply a fancy name for salary. Generally, everything that you receive from an employer is taxed as part of your salary in the Netherlands.
How is the stock option taxed?
Let's say you work in a company and you are awarded the right to purchase a share for €10 under the condition that you are still employed by that company. It also works both ways: you may get a benefit and the employer is able to keep you with the company as long you retain the benefit.
If the share is worth €5, you are not going to exercise paying €10 for getting a €5 value. However, the moment the value of the share exceeds €10, it starts getting interesting. Assume the value is €30, then you are entitled to purchase, using the €10, a share with a value of €30.
The main rule is that everything that you earn with your employer is taxed, hence this advantage is taxed. If you actually paid €10 for the option, the advantage is €20 in this example. If you paid nothing, which happens often, the taxable advantage is €30.
Where is the stock option taxed?
The exercised stock option is taxed in the country where you worked at the time when the options were granted to you. For example, let's say you worked in the US, where options were granted, and you then worked for that same US company in Sweden. Let's say you also got additional options while working in another country and the organisation of that stock option is located in the Cayman Islands.
While you worked in the US, your salary was taxed there. The options issued to you during that period, if exercised now, are taxed in the US. Regardless of where you are a tax resident currently, this income is still taxed in the US.
As for the options granted during your time working in Sweden, the exercised profit is taxed in Sweden. The fact that your employer is an American company and the option organisation is located in the Cayman Islands is irrelevant and does not impact your taxation.
Who is in charge of the correct tax collection?
Many employees are concerned about where the result of the stock options will be subject to taxation. That worry is understandable if you are moving to a country outside of your employment base. Then again, it is not the individual employee who is in charge of taxation, but rather the employer.
The employer that facilitates the exercise of the stock options must know where the result is taxed, how it is taxed and what amount of tax should be collected. It is not the responsibility of the employee.
Can you delay taxation in the Netherlands?
Yes, under special circumstances you can indeed delay taxation in the Netherlands. In order to do this, your company has to exercise an Initial Public Offering (IPO) on the stock exchange, which could have a positive impact on the share’s value.
However, until the IPO becomes active, the company could demand nothing be sold for the time being, as that might have a bad impact on potential investors. For instance, it may signal that if the employees are all dumping their shares, and that something must therefore be off.
At the same time, when the employee does exercise their options and has to pay 49,5% in taxes in the Netherlands for the result, this can only be paid if the shares are actually sold - and companies usually don’t want that. So, how can you pay the tax? This is actually a problem and for this specific situation, the Dutch tax authorities (Belastingdienst) created a delay in payment until the IPO has been concluded.
This implies that in regular situations, no delay is possible. The employer is thus in charge of collecting the tax. The employer is then also not interested in having a delay in meeting their obligations.
Tax status after exercising stock options
The moment you exercise a stock option, you take the opportunity to purchase shares at the lower value. The advantage is then instantly taxed as part of your salary and you now hold the shares. The shares are now part of your worldwide assets and - if you did not sell all of them - the remaining ones that you keep are assets, which are taxed in Box 3. The moment that you sell these shares, the gain will be tax-free. Currently in 2023, the concept of capital gains tax does not apply.
Take advantage of stock options
Now you know more about your options about making investments with your employer and how they are subject to tax in the Netherlands and abroad.
Do you have an employer who can grant you stock options? Want to learn what you can gain from this opportunity? Visit the Tax is Exciting website to learn more about taxes in the Netherlands. You can get in touch with a professional tax advisor at [email protected] or +31 (0) 205 207 991.