Background

An international comparative study commissioned by the Dutch Ministry of Economic Affairs revealed that the Netherlands ranks 22nd out of 25 in terms of international employee participation schemes. Employee participation is less attractive in the Netherlands compared to other countries, partly due to a relatively high progressive rate in box 1 and the timing of taxation, which in many countries coincides with the actual sale of the shares.

The growth of startups into scale-ups in the Netherlands lags behind the EU average. One of the biggest obstacles is access to talent. To attract talent, companies need to offer a competitive benefits package, with employee participation being a crucial component. Startups and scale-ups often lack the financial means to offer such a competitive package to the talent they wish to recruit. However, they can offer the potential for growth. Talent that chooses to work at a startup is often willing to accept a lower salary in exchange for a share in this potential growth, which can be realized through stock options.

Under current Dutch tax legislation, employee stock options are subject to wage tax at the time the shares obtained through the exercise of the stock option become tradable, unless the employee opts for taxation at the time of exercise of the stock option.

In the startup and scale-up sector, stock options are particularly important for attracting and retaining talent. However, in this sector, it is not always desirable or possible to sell part of the shares to free up cash for the payment of taxes at the time of exercise of the stock option or the tradability of the underlying shares.

Introduction of a new tax regime

Last Friday, the introduction of a favourable tax regime for stock options for employees of startups and scale-ups was announced. The announced regime provides for a lower tax rate in box 1 for employees of innovative startups and scale-ups, with the aim of stimulating innovative companies and attracting talent.

The lower rate is achieved by reducing the taxable base of income from stock options to 65% instead of 100%. As a result, the effective rate is comparable to the tax rate that would apply if the stock options were taxed in box 2. The base reduction is applied within wage tax.

Additionally, there will be an option for deferred taxation, specifically at the time of the actual sale of the acquired shares. The target date for implementation of the favourable regime is January 1, 2027.

For the question of when a company is considered an innovative startup or scale-up, the definition of startups and scale-ups in box 3 in the proposed system as of 2028 will be used. Currently, a process is underway with the Netherlands Enterprise Agency (RVO) to explore whether the RVO can play a role in determining whether a company qualifies as an innovative startup or scale-up.

If you have any questions after reading this news item, please contact your Loyens & Loeff advisor or one of our tax advisors from the Employment & Benefits team.