This relief is available regardless of whether or not the issuer of the stock option is a Belgian company.
The Economic Revival Law recently enacted by the Belgian government allows a unique opportunity to extend the exercise period for qualifying stock options by up to five years. To qualify for this relief, companies must implement this extension not later than June 30, 2009. This relief is available regardless of whether or not the issuer of the stock option is a Belgian company.
In Belgium, the grant of a stock option to an employee or director is normally taxed at the time of grant. The amount of taxable income resulting from the grant is typically 7.5 percent to 15 percent of the value of the underlying stock subject to the stock option. When the option is exercised, any gain will be free of tax, including social security. However, if the option is underwater (i.e., the exercise price is greater than the value of the stock) during the available exercise period, the option holder will have paid taxes without realizing any actual gain.
As a result of the current financial crisis, many stock options that were granted during the last few years are unlikely to be “in the money” at the time of their expiration. One alternative to address this issue is to extend the exercise period for underwater stock options. Unlike now, an employer could not extend the stock options without triggering additional taxation.
The Law of March 7, 2009, now allows a one-time, tax-neutral extension of a maximum of five years for stock options that are connected with stock option plans that have been established between January 1, 2003, and August 31, 2008. The tax neutrality of the extension of the exercise is limited up to EUR 100,000 per option holder at the same company. This limit is measured based on the amount that was taken into account as taxable income at the time of the option grant.
Actions to Be Taken
Companies seeking to take advantage of this measure must take the following action:
- Obtain consent from the option holders
- Modify the qualified stock options in compliance with applicable law by June 30
- Notify the tax authorities of these actions by July 31, 2009
- We are not aware of any extensions to these deadlines.
The most challenging aspect of taking advantage of this measure for most companies is likely to be obtaining proper authorization for the change by June 30, 2009. Authorization may require board approval and, particularly for public companies, shareholder approval depending upon the facts and circumstances. Exemptions from shareholder approval are available in the United States to make these changes in limited circumstances depending upon the number of affected stock options.