NETHERLANDS Law and Practice Contributed by: Marc Habermehl, Jeroen Smits, David de Groot and Max de Heer, Stibbe
vested portion is generally regarded as being received – and therefore as potentially taxable as a benefit from employment – at the time of vesting. If the value of the shares increases over time, then the later the time of vesting, the higher the potential taxable employment benefit. There - fore, the vesting mechanism is typically struc - tured such that the entire equity incentive enti - tlement is unconditionally granted at the outset, in combination with a cancellation mechanism, which provides that, upon an employee becom - ing a leaver, they would forfeit the unvested por - tion of their employee participation. Cash-based incentives The taxable event in respect of cash bonuses or payments made as part of a SAR plan occurs at the moment the entitlement to the cash bonus or SAR payment becomes unconditional. Although typically cash-based incentives are beneficial in the sense that they enable incentivising employ - ees without structural impact and/or dilutive effects, the downside is that these are typically taxed as ordinary income against progressive Dutch personal income tax rates, ranging up to 49.5% (maximum rate for 2025). However, it should be noted that such cash bonuses or SAR payments may, under certain circumstances, be deductible for Dutch corporate income tax pur - poses in the hands of the company, which may potentially reduce the corporate tax burden. Option-based plans For stock options, in principle the taxable event occurs at the moment the shares become “tradeable” , which – in short – is the case if the employee is able to sell the shares to another person (and is not or is no longer contractually restricted from doing so). However, an employ - ee may also elect to have the taxable moment occur at the moment the option is exercised (for this, a written request should be made in a timely
fashion to the employer). The taxable amount is determined based on the difference between the fair market value of the shares once becoming tradeable (or, if taxation at exercise is chosen, the fair market value of the shares at exercise) and the purchase price or exercise price paid by the employee, which is taxed as ordinary income against progressive Dutch personal income tax rates, ranging up to 49.5% (maximum rate for 2025). In April 2025, the Dutch government announced that it envisages the introduction of a more ben - eficial tax regime for stock options granted to employees of certain qualifying start-ups and scale-ups. This beneficial tax regime would comprise of a lower effective tax rate (equal to 65% of the regular personal income tax rates, ranging up to 49.5% (maximum rate for 2025)) and a deferral of taxation to the moment the shares acquired upon the exercise of the stock options are sold. It is envisaged that this new regime will apply as of 2027. Management equity incentives For typical management incentives such as ratchet shares or subordinated ordinary shares ( “sweet equity” ), there are typically two relevant distinguishing events from a Dutch tax perspec - tive: • the moment of the (unconditional) grant/pur - chase; and • the moment income and/or gains are derived therefrom. As for the moment of granting, it is decisive whether the ratchet shares or sweet shares can be considered to have value at the time of the (unconditional) grant and, if so, what such (fair market) value is. Any difference between such
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