NETHERLANDS Law and Practice Contributed by: Marc Habermehl, Jeroen Smits, David de Groot and Max de Heer, Stibbe
5.3 Taxation of Instruments General
STAK is typically composed of representatives of the investor and sometimes also a representa - tive of the employees, with only specific rights protecting the economic interest of the employ - ees. Cash-based incentives (including SAR plans) Cash-based incentives (such as performance bonuses), which become payable upon certain milestones, provide for an efficient way to incen - tivise employees without a structural impact and/ or dilutive effects. Another cash-based incen - tive that provides an alternative to shares could be the issuance of “stock appreciation rights” (SARs) pursuant to a SAR plan. These SARs give the participant a right to a share of the com - pany’s value increase (whereby the payment to which the participant is entitled is determined by reference to the increase of the share price over a certain reference value). SARs are typically due and payable at the time a certain trigger event occurs, such as an exit. Option-based plans An alternative to the issuance of shares may be the use of an option-based employee incentive plan. Such plan typically provides participants with the option to purchase (depositary receipts Typically, these incentives take the form of ratchet shares or subordinated ordinary shares (typically referred to as “sweet equity” ), which provide for a leveraged return after a certain pre - ferred return is realised (in which case, a rela - tively large portion of (the remaining) profits is typically allocated to the ordinary shares). of) shares at a fixed price. Management equity plans
When structuring an incentive pool, a key point from a Dutch tax perspective is typically the moment at which the taxable event for Dutch wage tax purposes occurs. In situations involv - ing growth or start/scale-up companies of which the share value can exponentially increase over time, it is generally preferable to have the taxable event occur as early as possible (when the value may still be relatively low, compared to the value at a later stage). Other key points are: • the Dutch tax treatment of the pay-out under an incentive for the recipient thereof; and • any tax benefit available to the company issu - ing the incentive, such as the deductibility for corporate income tax purposes of the costs associated with the incentive. Tax Considerations Applicable to Commonly Used Incentives Equity plans For equity plans, in principle the taxable event occurs at the moment the shares or depositary receipts corresponding to the shares are uncon - ditionally granted. Whether an unconditional granting of shares or depositary receipts gives rise to the levy of Dutch wage tax depends on whether the fair market value exceeds the price paid by the employee for such shares or deposi - tary receipts. If the fair market value exceeds the price paid by the employee, the excess is taxed as a benefit from employment at the progressive Dutch personal income tax rates, ranging up to 49.5% (maximum rate for 2025). If an equity plan is subject to vesting, it is usually important to consider the structuring of the vest - ing mechanism. The reason for this is that, if an equity plan is subject to time- or performance- based vesting, for Dutch tax purposes each
5.2 Securities See 5.1 General .
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