You can definitely grant non-qualified stock options (NSO) to local residents in Belgium! It’s safe, and is probably one of the easiest options to incentivize your team members.
Belgium has a strange taxation system for ESOP, which can be summarized as a choice for the grantee between “tax me now, for sure, but softly” (option 1) and “tax me later, maybe, but hard” (option 2)
- The grantee can choose between being taxed (1) at the time of grant, on a certain percentage (between 18% and 23%) of the fair market value (FMV) of the shares at grant or (2) at the time of exercise, on the difference between the fair market value (FMV) of the shares at the time of exercise and the exercise price.
- In both cases, it’s taxed as professional income (highly taxed in Belgium), but the taxation basis is much smaller in case of option 1, so grantees in early stage companies tend to follow that route.
- If the grantee wants to be taxed at the time of grant, he/she should sign the award documentation in the 60 days that follow the date on which the stock options have been granted and he/she needs to report the taxable amount in his/her annual tax return of the year following the year of grant!
- As a rule, Belgium doesn’t tax capital gains, so the grantee won’t be taxed when the grantee sells his/her shares, but when the grantee has not chosen option 1 (taxation at grant), the tax authorities could possibly try to tax the gains as a “miscellaneous income” or “professional income” (even though it is not likely at the moment). If the grantee chooses for option 1, the law is clear: there’s no taxation at the time of sale.
Employee via EoR
The company will not have to report anything, and the EoR doesn’t need to withhold or report anything either.
The company won’t legally have to do anything vis-à-vis the local authorities as it will be the grantee’s responsibility to report the taxable gains and pay the taxes.
Some contractors may work via a personal management company (which is common in Belgium). If that’s the case, the stock options should be granted to the management company, not to the natural person, because granting the stock options directly to the natural person would raise some legal and tax issues.
The grantee (i.e. the natural person providing services) should check with his/her tax advisor how to make sure the stock options can then be transferred to him/her.
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