Equity-based compensation in Belgium

Equity-based compensation

What are the prevalent forms of equity compensation awards in your jurisdiction? What is a typical vesting period? Must the arrangements be offered to a broad group of employees, or can the employer select the participants?

The prevalent forms of equity compensation awards in Belgium are successive stock options, warrants, free shares, performance shares and (restricted) stock units. For tax reasons, a typical vesting period is three years for stock options or warrants and two or five years for shares, depending on the nature of the plan.

In principle, the participants can be selected on a discretionary basis by the employer (with an exception in case of capital increase in favour of the personnel in accordance with article 609 of the Company Code).

The new Corporate Governance Code of 2020 recommends that non-executive directors be (partially) paid in company shares.

Must equity-based compensation be granted by the company’s board of directors (or its committee) or can the authority be delegated to officers or employees of the company? Are there limitations or requirements that apply to delegation?

Technically, at least board approval is required to issue equity-based compensation. In some cases, shareholder approval will be required. Once the principle of the issuance is decided upon by the board or shareholders’ meeting, terms and conditions of grants are often delegated to, normally, the remuneration committee.

Are there forms of equity compensation that are tax-advantageous or disadvantageous to employees or employers?

Unquoted stock options and warrants are tax-advantageous because they are evaluated at a flat-rate value. Shares may also benefit from a tax exemption or a tax-advantageous treatment, depending on the nature of the operation.

Quoted stock options or warrants are not advantageous from a tax point of view as they are evaluated at their fair value (but it remains advantageous for social security reasons).

Does equity-based compensation require registration or notice? Are exemptions, or simplified or expedited procedures available?

There is no required registration or notice.

Are there tax withholding requirements for equity-based awards?

Professional withholding tax has to be applied in accordance with the provisions of the Belgian Income Tax Code and its Royal Decree (appendix III) (even if the benefit is awarded by a foreign company). Such benefits must also be mentioned on the tax form.

Under determined conditions, some forms of equity-based compensation (eg, stock options) can be exempt from social security contributions.

On the other hand, the social security contributions can as a principle also be avoided if the benefit is awarded by a foreign company without any chargeback to the employer in Belgium, and if the employer has no legal or contractual commitment to grant the benefit. Note, however, that this issue is currently under discussion. Indeed, the Belgian social security authority (referring to recent case law in this regard) considers that social security contributions are due on such benefits (because they are linked to the work performances of the function of the employees or beneficiaries concerned).

Are inter-company chargeback agreements between a non-local parent company and local affiliate common? What issues arise?

Inter-company chargeback agreements are relatively common. As explained above, the local affiliate then has to withhold and pay the social security contributions in Belgium.

Are employee stock purchase plans prevalent or available? If so, are there any frequently encountered issues with such arrangements?

Stock purchase plans are not prevalent, except in international groups of companies. This is because in Belgium, the conditions that must be met in order to benefit from a tax exemption or tax-advantageous treatment are strict.