You can definitely grant non-qualified stock options (NSO) to local residents in the Netherlands! It’s safe, and is probably one of the easiest options to incentivize your team members.

NSO

• There’s no taxation at grant.

• The stock options are taxed at the time of exercise, as salary income. The local subsidiary will be responsible for reporting/withholding the taxes.

• As from exercise, the company doesn't need to do anything, but the grantee needs to declare the shares every year and he/she will be deemed to derive a “virtual” income from it. It’s called a “deemed income from savings and investments''. It’s determined by taking as a small percentage of the underlying assets’ value, which is then taxed at a flat rate. The consequence is that grantees will be (lightly) taxed simply because they hold shares (and even if the shares haven’t been sold yet).

• At sale, there’s no taxation on capital gains, unless the grantee holds more than 5% of the company’s shares.  

There’s no tax-favored scheme yet, but things could change in 2023.

NSO

You can grant non-qualified stock options (NSOs) to local residents employed via EoR in the Netherlands.

• There’s no taxation at grant.

• The stock options are taxed at the time of exercise, as salary income. The EoR will be responsible for reporting/withholding the taxes so inform them asap when the grantee informs the company he/she wants to exercise.

• As from exercise, the company doesn’t need to do anything, but the grantee needs to declare the shares every year and he/she will be deemed to derive a “virtual” income from it. It’s called a “deemed income from savings and investments''. It’s determined by taking as a small percentage of the underlying assets’ value, which is then taxed at a flat rate. The consequence is that grantees will be (lightly) taxed simply because they hold shares (and even if the shares haven’t been sold yet).

• At sale, there’s no taxation on capital gains, unless the grantee holds more than 5% of the company’s shares.  

There’s no tax-favored scheme yet, but things could change in 2023.

NSO

You can grant non-qualified stock options (NSOs) to local residents employed as contractors in the Netherlands.

• When the stock options are granted to a contractor, it could theoretically increase the risk of requalification of the relationship into an employment relationship, but the fact that stock options are granted to a contractor is not as such a decisive element.
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• The taxation for contractors is not entirely clear as it depends on the nature of the activities and professional status of the contractor, and there’s no specific legal regime clarifying this for contractors (contrary to employees). Because of that, it’s recommended that the grantee contacts his/her personal tax or financial advisor to assess his/her specific situation, in particular at the time of exercise of the stock options.
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• 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.
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• Some contractors may work via a personal management company. If that’s the case, the stock options should be granted to the management company, and not directly to the natural person as granting the stock options directly to the natural person would raise some legal and tax issues.

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