In order to make the Netherlands more appealing for startups, the Dutch Senate has finally voted in favour of the Stock Options Bill. Now, employees of startups and scale-ups can pay taxes on their stock options issued to them when they sell them, such as in the event of an exit.
According to the new legislation, which will take effect from January 1, 2023, employees can choose when to pay taxes on their stock options — as soon as they become tradable or when the options are exercised.
In an interview with Silicon Canals, Thomas Vrolijk, Governmental Affairs lead Techleap.nl, says, “We are really happy with this change, that we have been pushing for a lot of years. We are very happy that the government (the Ministry of Finance as well as the Ministry of Economic Affairs and Climate Policy) sees the importance of this topic and the impact it can have on the ecosystem in terms of talent attraction and retention, but also in distributing wealth more equally.”
Why are stock options important for Dutch startups?
According to Lucien Burm, Chair of the Dutch Startup Association, employers occasionally used to provide stock options to their employees as pay, instead of a regular salary. Due to this, startups could hire top talents even if they lack the resources to pay competitive salaries. And since these stock options are considered to be a form of salary, employees had to pay taxes on this.
Taxes were always paid when stock options were converted into shares, which meant, employees may not be able to sell the shares immediately. “If the employee cannot yet sell the shares, but already has to pay tax on them, the employee may run into financial problems. The government wants and now agreed to prevent this,” adds Burm.
According to Techleap.nl’s Thomas Vrolijk, as the competition for talent gets fierce, startups and scale-ups believe tools like stock options can help them retain as well as attract employees. It is also usual in this industry to share the earnings of the company’s success with employees who have really worked hard to make it happen. “The Netherlands is lacking behind when it comes to equity pools for employees. The current fiscal climate is one of the reasons for this, as well as culture.”
Vrolijk further adds, “We get really positive reactions from founders. We are very happy that the government (the Ministry of Finance as well as the Ministry of Economic Affairs and Climate Policy) sees the importance of this tech venture and the impact it can have on the ecosystem in terms of talent attraction and retention, but also in distributing wealth more equally.”
What does the bill mean for the future of the Dutch ecosystem?
Vrolijk believes this bill is a crucial first step in establishing a competitive regime for stock options and, more broadly, employee engagement, resulting in broader adoption across firms. “We have to keep improving the regime though to make it internationally competitive and attractive for employees and it’s great that the government has announced that it will investigate the possibilities to do so.”
Vrolijk mentions that successful ecosystems with more vital stock option rules, such as the US, UK, Sweden, and Israel, see larger equity pools for employees and, as a result, more startups are founded by former employees following an exit. “This creates a flywheel effect we also hope to see at a bigger scale in the Netherlands.”
Lucien Burm of dSa, says, “We all needed something to attract and reward staff, but also this is a great driver for the startup ecosystem in general, creating more and better-funded startups that will have a serious impact on Dutch prosperity and shared wealth in the near future, think of tariff, more proposals for fiscally attractive reinvestment and also the discussion on. But to get there and stay competitive as a country, we need more.”
Burm also mentions that in 2023, the Dutch Startup Association will continue to work on more effective tax schemes. “For example: think of the tarifing and also the discussion on in which box these kinds of risky financial instruments should be taxed. We continue so we can reward our talent even better, create more and better startups that will benefit the Netherlands for all future generations.”