Definition of stock options
A stock option is defined as "the right to purchase, during a fixed period, a fixed amount of shares, at a fixed price".
Options can be granted by Belgian or foreign companies and can relate to new (i.e. unissued) or existing shares. Also, they are not restricted to the shares of the company granting the options, the company for which the beneficiaries work or any related company.
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.
By definition, an option is deemed to be “granted” on the sixtieth day following the date of offer, even if the right to exercise the option is conditional, provided that the beneficiary has accepted the offer, in writing, within the sixty day period.
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 1999 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.
If the option is not quoted, the taxable benefit is calculated as follows:
Standard tax rate
18% of the value of the underlying share (multiplied by the number of option rights granted to each beneficiary).
For options which expire more than 5 years after the date of offer, an additional 1% per year, or part of a year, is added.
The above percentages can be reduced by half, if certain conditions are met:
- the option is not exercisable for the first three calendar years after the calendar year in which it was granted or after the tenth calendar from the year of grant;
- the exercise price is definitively fixed at the moment of grant;
- the option is not transferable (except upon the death of the option holder);
- the option holder is not compensated (either directly or indirectly by the granting company or by an affiliated company) for any loss or lack of gain on the exercise of the option; and
- the option relates to shares of the company employing the beneficiary or any (grand)parent company of that company.
The taxable benefit is taxed at progressive tax rates (ranging from 25% to 50%) to which local authority (communal) taxes are added (average percentage of 7%).
Options "in the money" or certain benefit
An option is said to be “in the money” if it’s exercise price is less than the market value of the underlying share at the date it is granted (the difference between the exercise price and market value being the “discount”). 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.
If the option plan or contract contains provisions guaranteeing a certain benefit to the option holder (for example through a ‘put option’) the value of that benefit will also constitute taxable income.
Subsequent sale of the shares
In principle, Belgium does not tax capital gains, realised by private persons, on the sale of shares, if the sale comes
Belgian companies are required to withhold payroll taxes and to report the taxable benefit on the beneficiary’s salary slip and annual tax form relating to the tax year in which the moment of attribution (grant) falls. 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.
Social Security aspects
Stock options granted to employees
Under the Royal Decree of October 5, 1999, taxable benefits derived from stock options granted to employees, are generally exempt from Belgian social security charges. Social security will nevertheless be due if:
- the option is “in the money” (the amount of the discount will be subject to social security contributions); and
- the terms of the plan/contract guarantee certain benefits to the beneficiary (the value of the benefits will be subject to social security contributions).
Stock options granted to non-employees
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.