AGN EMEA Tax Committee News
As competition for talent intensifies across Europe, the Netherlands is rethinking how employee participation is taxed—particularly for innovative start-ups and scale-ups. This article provides a concise overview of the current tax framework and the anticipated legislative changes effective from 2027 (specifically for start-ups and scale-ups) and 2028 (regarding “Box 3” personal wealth taxation). Early awareness of these developments will be key to navigating both risk and opportunity.
Introduction: Netherlands Employee Participation
The Netherlands – expected 2027 and 2028 changes in the taxation of employee participations schemes – harmonised EU definition of innovative start-ups.
Under employee participation schemes, employees in the Netherlands may receive a portion of their remuneration in the form of shares, stock options, or profit rights. For the employer, these schemes result in either an immediate or deferred wage tax liability. For the employee, they impact personal income tax due to the subsequent increase in private wealth.
Granting of Shares
Granting of shares in the employer company as remuneration under an employee participation plan immediately triggers “Box 1” wage tax on the fair market value of the shares for the employer at the progressive rate, reaching up to 49.5% in 2026. Employers should note that corporate income tax deductions may be limited (since the employee becomes a shareholder whereby the remuneration received is considered a capital contribution into the company by the employee).
Following the grant, the shares are subject to personal income tax in “Box 3” for the employee, provided the employee holds a “non-substantial interest” (less than 5% of the shares). In Box 3, private wealth is taxed at a flat rate, which rate is 36% in 2026.
If an employee holds a substantial interest (5% or more of the common shares or a specific class of shares), any dividends or capital gains are taxed in “Box 2” at progressive rates of up to 31% (2026). This typically applies to senior management and is not the primary focus of this overview.
Anticipated Box 3 Changes (Effective 2028)
The current Box 3 system determines annual income for personal income tax purposes based on a notional yield (set at 6% of the value at January 1, 2026 for other assets than cash for 2026). The Dutch Supreme Court has ruled that this system violates EU law and must be replaced by a system based on actual returns. As a result, taxpayers may currently utilize a “counterevidence scheme” if their actual total return is lower than the notional yield. It is important to note that this counterevidence scheme applies to the taxpayer’s entire portfolio of assets rather than individual assets, which may work out disadvantageous for those holding high-growth assets (like real estate) alongside the company shares.
In response to this Dutch Supreme Court decision, a new Box 3 regime is proposed for 2028, under which both annual realized and unrealized capital gains on shares would be taxed. This proposal has faced criticism regarding liquidity issues in relation to the unrealized annual gains on shares -specifically, the challenge of paying tax on “paper profits.” Parliamentary discussions are ongoing regarding amendments that would defer taxation until the actual realization of gains on shares in Box 3 corresponding real estate in Box 3 (e.g., upon the sale of shares), though such changes remain subject to national budget constraints.
Granting of Stock Options:
Granting of stock options in the employer company as compensation triggers “Box 1” wage tax on the value of the underlying shares for the employer at the moment of exercise at the progressive rate, reaching up to 49.5% in 2026. Any consideration paid by the employee reduces the taxable benefit.
Stock options are generally exercised after vesting. The initial grant and the subsequent vesting are typically not taxable events for wage tax purposes, unless the options are exercised immediately upon vesting (e.g. if the underlying rights become unconditional at vesting moment).
If the shares acquired upon exercise are not immediately tradable (e.g., due to lock-up periods), taxpayers may elect to defer taxation until the shares become tradable. This allows the sale of a portion of the shares to cover the resulting wage tax liability. However, deferring taxation carries the risk that a further increase in share value will result in a higher wage tax burden for employee. In high-growth scenarios, pre-financing the tax at the moment of exercise may be more tax-efficient.
Start-ups, Scale-ups, and 2027 Legislative Proposals
The wage tax amounts in relation to stock option can be substantial. The mismatch between the moment of taxation and liquidity means that stock options can be burdensome for start-ups and scale-ups. To improve the innovation environment in the Netherlands for start-ups and scale-ups (and since Dutch tax legislation lags behind international developments), it is proposed to make the following changes intended to enter into force on 1 January 2027. Note that the proposals still need to be approved in Dutch Parliament.
Firstly, employees of innovative start-ups and scale-ups will receive a 35% exemption on income realized from stock options, leaving only 65% of income subject to wage tax at the progressive box 1 rate.
Secondly, the Box 3 taxation for employees of innovative start-ups and scale-ups is deferred until the moment the shares are sold (after exercising the option) instead of the proposed box 3 annual asset accumulation taxation for shares (as from 2028). Taxation on value accumulation (the difference between fair market value and original acquisition price) will therefore only occur when the company no longer qualifies as a start-up or scale-up. Further, there are a few other triggers that may bring this levy forward, such as an IPO or a significant share buyback.
Defining of Start-ups and Scale-ups
The application of these favorable regimes for start-ups and scale-ups depends on a new, formalized definition of such type of enterprises.
It is expected that the Netherlands Enterprise Agency (in Dutch: Rijksdienst voor Ondernemend Nederland or RVO) will assess eligibility and issue 8-year certifications based on criteria such as
way of establishment of the legal entity, the origin and size of the company, the innovative nature, the management of the company, growth plan and appropriate liquidity.
Furthermore, on March 18, 2026, the European Commission recommended a harmonised EU definition of innovative start-ups and scale-ups across the EU:
- Innovative: R&D costs must represent at least 10% of operating costs or 5% of total sales, or the company must demonstrate significant technological/market risk.
- Start-up: Less than 10 years old, fewer than 100 employees, and an annual turnover/balance sheet under €10 million.
- Scale-up: Turnover/balance sheet exceeding €10 million, 20% growth in headcount or revenue over two years, and fewer than 750 employees (non-publicly listed).
The definitions will allow the EU Commission and the national authorities to design policies and facilities specifically for start-ups and scale-ups, according to the EU commissioner for start-ups, research and innovation (Ekaterina Zaharieva).
A final definition for start-ups and scale-ups in line with the above is expected in the Netherlands during 2026.
Brought to you by the AGN EMEA Tax Committee
If you have any questions in relation to this article, please get in touch with Jeroen.
Jeroen in ’t Hout
International Tax Advisor/Tax Specialist
Daamen & van Sluis
Web: https://daasluis.nl/en/
Email: [email protected]
