Under certain circumstances, warrants or stock options granted to employees and directors benefit from a favorable tax and social security treatment in Belgium. Further to the review of a cafeteria plan, the Belgian Ruling Commission clarified its position regarding the income tax treatment of options granted to employees or directors.
Some decisions of the Ruling Commission already stated that quoted warrants and options granted to employees cannot be disproportionate when compared to the salary of the beneficiary, but without clearly indicating what should be considered as disproportionate.
The Ruling Commission has now explicitly defined the term “disproportionate” in a recent decision.
According to the Ruling Commission, warrants or stock options based on SICAV/BEVEK granted to employees and directors fall under the option law of 26 March 1999 provided that the amount is not exceeding 20% of the total annual gross remuneration of the beneficiary (including cash bonus but excluding benefits in kind). The real (or economical) value of the options should be considered when computing the threshold. We can conclude that, should an employer grant options to its employees without meeting this condition, the incentive would not benefit from the favorable income tax and social security treatment.
This condition would apply to stock options granted from 2018 onwards and relating to performances delivered from 1 January 2018. This would mean that the new position of the Ruling Commission is not retroactive and options granted in 2018 which relate to performances delivered in 2017 would be excluded.
At this stage, we are not able to predict whether this position will be generally followed by the tax authorities and the National Social Security Office (ONSS/RSZ). In case of dispute, it will be up to the courts to determine whether exceeding 20% of the total annual gross remuneration should be considered as disproportionate.
It is not clear whether this condition will be extended to any kind of stock incentive plans. We encourage employers to review their current plans in view of this new position. In addition, since the Belgian law authorizes the use of other kind of incentives, such as the recently introduced Profit Premium, employers can also consider alternatives to stock incentive plans.
Our team is following on this matter closely. We will keep you informed as soon as we have more information.