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#Tax & Legal #Business & International Tax #Taxation #Shares #Fringe Benefit

Share options as a profitable and a flexible fringe benefit

Monday 24/02/2020

Awarding share options to staff is an appealing form of salary optimisation, as you are offering your employees a potential financial benefit while also positively encouraging their loyalty and commitment to your company – both over the short and the long term.


What is a share option?

A share option is the right that a person has to acquire a certain number of shares during a specified period, known as the exercise period. It could also be the right to subscribe for a certain number of shares at the exercise price in the event of a capital increase by the company, with the exercise price being pre-determined or to be determined at a later time.

Both listed and unlisted companies can employ a share option system.

What are the advantages of share options?

There are many advantages to awarding share options to your staff.

  • It means that you will be able to attract employees, consultants and management staff with the necessary experience;
  • By allowing staff to share in the growth of your company you are creating a closer connection with the company shareholders;
  • Your staff are able to optimise their net income;
  • Share options can be awarded to white- and blue-collar staff as well as to management, executive members and consultants;
  • The number of share options per member of staff can be completely individualised;
  • Your staff can decide whether or when they will exercise the awarded share options and the gain in value is not taxable;
  • With two specific exceptions, staff are not required to pay social security contributions on share options;
  • The tax regime for share options is a favourable one.

The favourable tax regime for share options in a nutshell

Share options as well as convertible bonds and bonds with warrants can enjoy a favourable tax regime if they are awarded within the scope of performing a professional activity. Beneficiaries can be staff, management, service providers as well as management companies.

If the beneficiary accepts the offer in good time, then they will receive a taxable benefit in kind at the time that the share options were granted, being on the 60th day after they were offered.

The taxable sum of the benefit is equal to 18 percent of the value of the shares for which the options were provided. This goes up by one percent for each further year that option is awarded after five years. When strict conditions are met, the taxable benefit can be halved (i.e. nine percent, plus 0.5 percent for every year or part-year that exceeds the five-year period).

Good to know

  • The taxable benefit is awarded and the income tax deducted at source is deducted at a time when no cash benefit can yet be obtained from the share options. In other words, the deducted income tax will lower the net income, and in some cases bring it down to zero.
  • The taxation at the time that the option is awarded is final. If the options are never exercised you cannot claim back the tax already paid. This would apply to somebody who leaves the company and the options lapse.
  • Only employees are exempted from social security contributions, not self-employed persons.
  • In order to fall under the tax regime for share options, a great many administrative formalities must be fulfilled, including reporting, contracts, social security documents, tax obligations and more.
  • When share options are awarded by family-owned companies, this could lead to the family shareholdership being diluted. There are alternatives in this case, such as options for share option plans by financial institutions. However, these rarely fall under the favourable tax regime.

Are share options worth considering?

If you're considering introducing share options as a fringe benefit, then let's talk about it! We'd be happy to provide you with further detailed explanations, and we'll tell you all about the favourable tax regime and how the values are actually calculated. We'll also help you to tackle all the required formalities. Please don't hesitate to get in touch with us.

An Lettens
An Lettens
Partner Tax & Legal Services
Sofie De Wachter
Sofie De Wachter
Senior Associate Tax & Legal Services