Stock options and warrants

Under this incentive scheme, the company grants certain staff members or certain (independent) directors call options which enable the beneficiaries to acquire a certain number of existing shares in the company or in another company in the group at a later date and at a price fixed in advance.

Two scenarios:

1. The grant of options is accepted within 60 days:

The beneficiary obtains a taxable benefit when the options are granted. If the beneficiary accepts the offer in writing no later than the 60th day following the offer, the option is deemed, from a tax point of view, to have been granted on the 60th day, even if the exercise of the option is subject to suspensive or resolutive conditions.

Taxation at the time of grant is definitive. In principle, therefore, it is not possible to recover the tax if the options are not exercised (e.g., because the option plan provides for them to lapse if the employee leaves the employer or if the value of the shares drops).

Furthermore, benefits received subsequently (when the options are sold, exercised or when the shares are resold) are in principle not considered as professional income or as taxable miscellaneous income. Consequently, the capital gain realised when the options are exercised or the shares are resold is exempt from tax.

In principle, the taxable benefit is set at a flat rate of 18% of the value of the underlying shares at the time of the offer (for shares offered from 1 January 2012). If the options are granted for a period of more than five years, this percentage is increased by 1% for each year or part of a year after the 5th year.

However, these percentages are reduced to 9% of the value of the underlying securities (for shares offered from 1 January 2012) and to 0.5% per year or part of a year after the 5th year, when the following conditions are met:

• the exercise price of the option is fixed at the time of the offer;
• the option may not be exercised before the end of the 3rd calendar year following the year in which the offer takes place, or after the end of the 10th year following the year of the offer;
• the option may not be transferred inter vivos;
• the risk of a reduction in the value of the shares to which the option relates, after the option has been granted, may not be covered directly or indirectly by the person granting the option or by a person who is interdependent with that person;
• the option must relate to shares in the company for the benefit of which the professional activity is exercised or to shares in another company which has a direct or indirect holding in the former within the meaning of the Royal Decree of 8 October 1976 on the annual accounts of companies.

In addition, when the exercise price of the option is lower than the value of the underlying shares at the time of the offer, the reduction granted at the time of the grant is added to the taxable benefit determined on a flat-rate basis in accordance with the rules set out above.

The same applies when the option is subject, at the time of the offer or until the end of the option exercise period, to clauses that have the effect of guaranteeing a certain benefit to the beneficiary of the option: this certain benefit constitutes remuneration subject to social security contributions.

2. Options accepted outside the 60-day period:

If the employee accepts the options under other conditions (e.g., if the employee does not accept the offer within the 60-day period), the options would be considered as a purchase of shares at a reduced price, taxable when the options are exercised. In this case, the flat-rate assessment (at 9 or 18%) of the taxable benefit does not apply. These options are then taxable to the extent that the difference between the exercise price of the options and the value of the underlying shares at the time the options are exercised.