more certainty concerning stock option plans for consultants active through management companies

The implementation of a stock option plan is possible using either options or warrants. Many companies wish to reward certain ‘ key persons ‘ well and commit them for a long time to the company. Because of its favorable tax treatment, the granting of stock options is an interesting tool. Until recently,  it was unclear whether this tax system also applies where the relevant person is active through a management company. On 2017, April 13, the tax administration has introduced a circular and set out how such stock options should be treated and thus implicitly confirmed that the tax system of the stock options indeed applies at “the granting by a company of stock options on its shares to the Managing Director of a management company that provides services to the former company”.

This circular also clarifies the calculation of the benefit: the tax base is basically equal to 18% of the actual value of the underlying shares. However, when the option is granted for a period exceeding five years, the taxable benefit is increased by 1% per year (or part of a year) that exceeds five years. The rate of 18% cannot be reduced by 50% even if the management company is appointed as a director of the company that has issued the stock options.

Do not hesitate to contact us if you would like more information about the practical application of this system.