The government has published a new bill that updates the current tax treatment of investments in startups and scale-ups. Currently the internet consultation for this bill has started. The purpose of the bill is that the government wants to strengthen the Dutch startup and scale-up ecosystem whereby increasing innovation, growth and the competitiveness of the Netherlands is paramount:
- Better access to talent.
- More attractive employee benefits.
- Better tax treatment of investments.
The bill mainly consists of two main measures:
- Taxation in Box 3 for investments in startups and scale-ups
- Tax regime for stock options (employee participations).
Qualifying investments in startups and scale-ups.
When is a startup or scale-up?
The bill introduces a specific definition of startups and scale-ups. These are companies with a scalable and repeatable business model based on innovation. Additional conditions also apply, such as no stock market listing and limited involvement of listed parties. Whether a company qualifies must be determined via a decision of the Netherlands Enterprise Agency (RVO). In principle, this decision is valid for eight years and can be extended under conditions.
Capital gains approach for startup and scale-up shares
An important exception will be introduced within the future Box 3 system: for qualifying shares in these companies, tax will no longer be levied annually on the increase in value, but only at the time the return is actually realized, for example when the shares are sold. This change adheres to a capital gains approach for startup and scale-up investments. This means that investors pay tax only when the return is actually cashed in. With this, the government deviates from the regular system within Box 3, in which tax is usually levied annually on (fictitious) returns.
The application of this exception depends on qualifying as a startup or scale-up and having a valid RFO decision. If a company no longer meets these conditions (for example, due to an IPO or change in the shareholder structure), the regular Box 3 regime may become applicable again.
Stock options
Under the current system, employees sometimes already have to pay tax on profits they do not yet own which can lead to liquidity problems. To address this, the taxing moment is shifted to the moment of the sale of the shares instead of the moment the options are exercised or the moment the options become tradable. On top of that, only 65% of the benefit will be taxed as wages. This makes it easier to attract talent without paying high salaries.
Initial reactions to the bill
Initial reactions to the bill are varied. Among others, the following emerge:
- The stock option scheme is an improvement, but insufficient to be truly competitive.
- The definition start-up and scale-up is unclear, subjective and difficult to test.
- The new measures may lead to higher implementation costs and increase administrative burdens.
In other words, the measures are too complex and uncertain, insufficiently competitive internationally and too limited in scope and impact.
Conclusion
With this bill, the government introduces a more investment-friendly approach within Box 3 for startups and scale-ups. By linking taxation to the actual realization of returns, the scheme is more in line with the practice of innovative companies. For investors, this offers opportunities, but also the need to closely monitor developments.
Do you have questions about what these developments mean for you or your company? If so, please contact your relationship manager by phone at 040 - 2 504 504 or using the contact form below.