An important tool for companies to attract and maintain employees, directors and consultants in the so called ‘war for talent’, is the grant of an equity stake to key personnel, resulting, amongst others, in the alignment of the interests of these directors, employees and consultants with the interests of the shareholders of the company. The existing law on the Belgian action plan for employment provides a favorable tax regime, if employees, directors and consultants are partly remunerated through the grant of stock options (the Law on Stock Options).
A stock option is the right, but not the obligation, to buy a fixed quantity of shares on a specific date or during a specific period at an agreed price. If the stock options are granted in application of the Law on Stock Options, the stock option is explicitly excluded from the notion of a “wage” for social security purposes, which means that no social security contributions are – in principle – payable by the company upon grant of the stock options. The stock option will nevertheless be taxed as “professional income” (see below).
For the application of the Law on Stock Options, four key moments/ terms must be taken into account:
- offer – by means of a written and dated document (e-mail, letter, or any other written document), the company offers a certain number of stock options to a beneficiary at a fixed price;
- grant – if the offer is accepted by the beneficiary within 60 days, the stock options are deemed to have been granted on the 60th day following the date of the offer. If the stock options are accepted after the 60-day period, the Law on Stock Options does not apply;
- vesting – this is the period during which the beneficiary definitively acquires the stock options. When the stock options have “vested”, the beneficiary can exercise the options (during the applicable exercise periods). The vesting scheme is determined by the company and will depend on time-based or performance-based targets (or a combination thereof);
- exercise – this is the moment when the beneficiary decides to exercise his/her stock options and convert the options into shares upon payment of the price per share determined in the offer. Upon exercise, the beneficiary will be shareholder of the company.
If the beneficiary accepts the stock options within the 60-day time period, the stock options are regarded as “professional income”, more specifically as a benefit in kind (‘voordeel van alle aard’), of the beneficiary and will be taxed on the 60th day following the offer. When complying with the applicable legal provisions, on the one hand, the tax will be due irrespective of whether the beneficiary exercises the options, and, on the other hand, no additional taxes will be levied on the capital gain should the beneficiary realize a capital gain on the value of the shares.
The taxable benefit of the stock options is calculated as a percentage of the value of the underlying shares, whereby a distinction is made between shares that are listed or traded on a stock exchange and other shares. Regarding shares that are listed or traded on a stock exchange, the value of the shares is either the average closing rate of the shares in the thirty days preceding the offer, or the closing rate on the day preceding the offer. Regarding all other shares, the value of the shares is the fair market value of the shares as determined by the company and confirmed by an auditor.
The base rate to calculate the taxable benefit amounts to 18 per cent of the value of the underlying shares. This percentage is increased by one per cent per year or part of a year if the duration of the option exceeds five years. Furthermore, the amount of the taxable benefit is increased with the amount with which the value of the underlying shares exceeds the strike price of the stock options.
The percentage above is reduced by half if certain conditions are met, which include, inter alia, that (i) the exercise price of the option is fixed at the time of the offer; (ii) the stock options may not be exercised before the end of the third calendar year after the calendar year in which the offer was made nor after the end of the tenth year after the calendar year in which the offer was made; and (iii) the stock options may not be transferred inter vivos.
Example of the taxable benefit
Company X offers its employee bearing the title of chief financial officer (CFO) 100 stock options in accordance with the provisions of the Law on Stock Option. These stock options will allow the CFO to subscribe to 100 shares of the company with an underlying value of EUR 75 (as attested by a board report, the methodology of which is confirmed by the company’s auditor). The strike price of the stock option is set at EUR 75 per stock option and each stock option relates to one share. The stock options have a term of 5 years. The CFO accepts all 100 stock options within 60 days following the offer. The taxable benefit upon acceptance is calculated as follows:
taxable benefit = number of options * value of the shares * tax rate
taxable benefit = 100 stock options * EUR 75 * 18 %
taxable benefit = EUR 1,350
If the reduced percentage (9%) is applicable, the taxable benefit is calculated as follows:
taxable benefit = 100 options * EUR 75 * 9%
taxable benefit = EUR 675
The final amount the beneficiary will have to pay on this taxable benefit depends on the personal circumstances and tax situation of the beneficiary and the corresponding (personal) income tax.
As stock options are beneficial to both the company, since no social security contributions are levied, and the beneficiary, as a result of the favorable tax scheme, the issuance of stock options and setting up a corresponding stock option plan under the Law on Stock Options, is a useful and convenient way to involve key personnel in the company's shareholding.
Do not hesitate to contact us, should you have any questions on this topic or should you be interested in setting up a stock option plan.
 Art. 41 and seq. of the Law of March 26, 1999 on the 1998 Belgian action plan for employment and various provisions, published in the Belgian Official Gazette on April 1, 1999, page 10904.
 If the stock options are traded or listed on a stock exchange, the taxable benefit is determined on the basis of the last closing price of the stock option preceding the day of the offer, but this is rare in practice.