On 13 April 2017, a practice note has been published by the Belgian tax authorities with respect to stock options granted to a director/permanent representative of a management company.
Unquoted stock options attributed to natural persons and accepted in writing within 60 days following the grant are taxable in Belgium in the hands of the beneficiary upon grant (i.e. on the 60th day following the grant), based on a lump-sum valuation.
What if a company grants stock options on its shares directly to directors (permanent representatives) of a management company who renders management services to the first company?
In practice, the Belgian central tax authorities allowed that stock options could be attributed directly to the permanent representative of the management company (and thus not to the management company itself). In such case, the lump-sum valuation method could be applied and potentially even reduced by half. The reduced valuation was only accepted if the management company acted as mandate holder (e.g. director) in another company (and thus not as mere service provider).
In December 2016 the Minister of Finance responded to this practice and stated that options should in principle be granted directly to the management company which carried out the professional activities/services and not the fixed representative (natural person). As a result, the options should be taxed based on the value of the underlying shares. Moreover, the Minister stated that the lump-sum valuation of the benefit in kind could not be applied.
According to the practice note of Thursday 13 April 2017, it is now clear that stock options can be granted to the top management (natural persons) who fulfil their position through a management company. The lump-sum valuation is possible. However, the lowered valuation (i.e. ‘reduction by half’) of the taxable benefit in kind is not applicable, irrespective whether the management company acts as mandate holder or a mere service provider.
This practice note is applicable for options which are granted after 13 April 2017.