In my previous article, I described what stock options are and how they can be utilised by both companies and individuals to create wealth. Now, I will look at some of the tax liabilities that you may be subject to and how you may be able to mitigate them when you decide to take up your option to purchase the stock. I will be focussing on the Belgian market, but we are also able to help if you are based in other countries, so do not hesitate to contact us with a specific enquiry.
HOW DO I ENSURE I AM NOT TAXED ON MY STOCK OPTIONS?
Short answer? You cannot. If the option is quoted on a stock exchange, the amount to be taxed is calculated on the basis of its closing price on the day immediately prior to the offer date. If the option is not quoted, then the amount to be taxed is 18% of the underlying share multiplied by the number of option rights held. As with all tax due in Belgium, these need to be reported to the tax authority.
WHAT WILL I BE TAXED AFTER I DECIDE TO TAKE UP MY OPTION?
At the time of writing, the Belgian rate of tax on stocks, shares and equities is 30% on the dividend income received; this tax is known as Withholding Tax. Companies that are established in Belgium are obligated to withhold this tax from investment income received.
If the dividends received into a Belgian bank account are coming from a foreign company, then the bank is obligated to apply the withholding tax. In addition, a withholding tax set at the rate set by the country the dividends are coming from must also be applied. This can be reduced if Belgium has a double taxation treaty with said country.
Let’s look at a quick example. A popular country of origin for stocks, shares or equities is the US. The US can charge a withholding tax of 30% on top of the Belgian withholding tax. Belgium retains a double taxation treaty with the US. This subsequently reduces the US withholding tax by up to half, whilst the Belgian withholding tax remains. On top of this, on January 1, 2018 the Belgian government introduced a withholding tax exemption threshold of up to €800 on dividends to encourage people to invest.