The benefit resulting from stock options, granted in the context of a professional relationship, is taxable at the moment of grant , irrespective of whether the options are conditional or not. If written acceptance is given after the 60th day, the Belgian Minister of Finance will consider that the stock options no longer fall within the scope of the Act of 26 March and are, therefore, taxable at the date of exercise, as a purchase of shares at a reduced price.
If the offered stock options are not accepted at all, there is no benefit arising from the offer. If a beneficiary validly accepts the offer, within 60 days of the offer date, the amount of the taxable benefit will depend on whether the option is quoted on a stock exchange. If the option is quoted, the taxable benefit is calculated on the basis of its closing price on the day immediately preceding the offer date. Reduced rate The above percentages can be reduced by half, if certain conditions are met:. If an option is in the money, the taxable benefit, calculated using the formula indicated above, will be increased by the amount of the discount.
In principle, Belgium does not tax capital gains, realised by private persons, on the sale of shares, if the sale comes. In case stock options were granted by a foreign based group company, the Belgian employing entity whose employees received and accepted the stock option offer must report the benefit on the annual tax form as well.
Payroll taxes are only to be withheld in such case insofar the Belgian employing entity intervened in the stock option grant. Under the Royal Decree of October 5, , taxable benefits derived from stock options granted to employees, are generally exempt from Belgian social security charges.
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Social security will nevertheless be due if:. Stock options granted to self-employed Directors will trigger self-employed scale social security contributions, unless their other income equals or exceeds the ceiling up till which self-employed social security contributions are due. Where stock options are concerned, the underlying security is a share. Key conditions relating to options are the purchase time and purchase price. The basis of the benefit arising from the stock options is that you can buy an underlying security below the market value.
If the stock options are transferable and a secondary market exists, you can also benefit from the employee stock option ESO scheme by selling the options. Employee stock options refer to stock options received based on an employment contract. The definition of the employee stock option is discussed in greater detail in section 2. In limited liability companies, a decision on the grant of employee stock options is usually made by the Annual General Meeting AGM. The terms and conditions of the ESO scheme may also include a vesting period.
Certain requirements are set for the employee, and the number of options depends on how well they meet the requirements during the period. The terms and conditions also determine when the employees can start exercising their stock options. After this date, the employee can subscribe for underlying shares and maybe also sell or transfer their employee stock options to third parties. The shares subscribed for may be subject to a restriction period, during which the employee is not allowed to sell or transfer the shares. Depending on the terms and conditions of the scheme, the employee may also lose the shares they have subscribed for if their employment contract terminates during the restriction period.
Section 66, subsection 3 of the Income Tax Act prescribes on the taxation of employee stock options as follows:. Taxable earned income also includes the benefit arising from an employment-based right to receive or buy shares or stakes in a corporation below the market price based on a convertible bond, bond with warrants, option right or other such agreement or other commitment employee stock option.
The value of the benefit is the fair market value of the shares or stakes when the employee stock options are exercised, minus the price the taxpayer has paid for the shares or stakes and the employee stock options in total. The benefit is regarded as income for the tax year during which the stock options are exercised.
The employee stock options are considered to be exercised when the taxpayer receives or buys the underlying shares or stakes. Transfer of employee stock options is comparable to their exercise. In this case, the value of the benefit is the sale price minus the price paid by the seller.
Such transfers are not regarded as exercise of employee stock options. Section 66, subsection 3 of the Income Tax Act includes an independent tax-law definition of employee stock options. Based on the wording of the law, the definition is wide-ranging. Based on the legal provision, employee stock options are an employment-based benefit to receive or buy shares or stakes in a corporation below the market price on the basis of an agreement or commitment.
Further, in legal and tax practise the provision has been interpreted in the wide sense see e.
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Examples of employee stock options mentioned in section 66, subsection 3 of the Income Tax Act include schemes relating to convertible bonds, bonds with warrants and stock options. In addition to these, various share award schemes and schemes based on restricted stock can be regarded as employee stock options.
Examples of different ESO schemes are described in section 2. A key condition for the application of section 66, subsection 3 of the Income Tax Act is that the scheme allows the employee to receive or buy shares below the market value. If no such possibility exists, the provision does not apply. On account of this, synthetic options, for example, are beyond the scope of application of the provision. The employees does not have to receive shares from their employer, nor are the shares required to be of the company where the employee is employed.
The provision on employee stock options can therefore be applied for example when employees employed by a subsidiary are granted a right to subscribe for the parent company shares based on a stock option scheme.
Another key requirement for the application of the provision is that the benefit is based on an employment contract. If the taxpayer has not received the benefit based on an employment contract, it is not treated as an employee stock option.
Issuing Stock Options to Employees of a Foreign Subsidiary
An exception to this are benefits granted to a CEO and members of a Board of Directors or an Administrative Council: the provision is applied to them even though they do not have an employment relationship see section 3. The scope of application of section 66, subsection 3 of the Income Tax Act is not limited to a scheme of a specific legal form. For example, subscription rights granted can be regarded as employee stock options if the share subscription period is notably long the Supreme Administrative Court ruling KHO Different holding company schemes are, as a rule, employee stock options referred to in the law the Supreme Administrative Court ruling KHO In addition to the provisions on employee stock options, section 66 of the Income Tax Act also includes provisions on the taxation of an employee share issue.
Legal provisions on the employee share issue are provided in subsections 1 and 2. They are not applied to employee stock options.
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In the employee stock option, on the hand, the benefit is based on the increase in value following the grant of the option. The employee share issue is explained in greater detail in the guidance Tax assessment of a share issue based on an employment contract. In certain situations, however, it may not be clear whether legal provisions on the employee share issue or on the employee stock option should be applied. This was implemented by determining the share subscription price and period such that those entitled to share subscription could benefit from the increase in share value following the decision on the share issue.
Based on the decision, the benefit granted to the employee in the form of shares must be treated as employee stock options when the employee can benefit from the increase in share value. Typically, this may happen when the subscription price is the fair market value that was determined for the share when the compensation plan was launched, but the period between the launch of the plan the date on which the subscription price is determined and the termination of the subscription period lasts several months or even longer.
The share issue and the effect of the subscription period are discussed in greater detail in section 3. Typically, it is possible to benefit from the increase in share value when the terms and conditions of the compensation plan specify the number of shares that the employee receives or the grounds that determine the number of shares that the employee can receive under the scheme. If the ESO scheme is implemented by the use of option right or other special right e.
The same principle also applies to corresponding foreign schemes.
In share award schemes or in ESO schemes implemented by the use of restricted stock or other such arrangements, the stock options are regarded as having been received on the day the employee agreed to participate in the scheme. The following examples are for schemes that can be regarded as concerning employee stock options referred to in section 66, subsection 3 of the Income Tax Act.
It is important to note, however, that the name of an individual compensation plan does not say anything about its tax treatment. The tax treatment of each compensation plan must be decided separately based on the terms and conditions of the plan in question. Basically, employee stock options are implemented by granting the employee special rights under chapter 10, section 1 of the Limited Liability Companies Act that entitle them to receive new or treasury shares in exchange for payment.
The holder of the right may be entitled to decide whether or not they subscribe for shares option right. The share subscription price may be equal to the fair market value of the share at the time the options are granted, or it may be lower or higher. The option right may be granted for free or in exchange for payment.
The option right does not entitle to shareholder rights until after the share subscription. Option rights can be registered for public trading, which generates a secondary market for them. In a share award stock award scheme, the employee is granted a right to receive a certain number of shares for free after a predefined period. A usual requirement is that the employee must meet certain predefined requirements. Where the senior management is concerned, their performance can be measured for example based on the key figures of the financial statements.