Contractual cash rewards and stock appreciation rights
Dutch companies sometimes reward employees with a promise to pay cash equal to the value of a notional number of shares at a future date, usually an exit. This approach is known as a phantom share plan. A stock appreciation right (SAR) is similar but pays out only the increase in value above a baseline price set at grant, mirroring the economics of an option without ever issuing shares or requiring the employee to pay a strike price.
- No shares or depositary receipts are issued, so no notarial deed is needed
- No dilution appears on the cap table
- The company needs cash on hand to pay out at the trigger event
- Value is usually linked to the same valuation used for a real funding round or exit
Avoiding notarial deeds and complex governance
Some Dutch companies prefer phantom plans specifically to avoid the complexity of notarial deeds, STAK administration, or lucrative interest exposure that can come with real equity or depositary receipts. Phantom plans are simpler to administer for companies that want to reward key hires without changing the ownership structure, an alternative worth weighing against stock options.
The tradeoff is that employees never become real owners and do not benefit from the more favourable box 3 treatment that can apply to gains on actual shares held after exercise, a point worth checking against the rules on equity tax.
Box 1 tax on phantom payouts
Because phantom shares and SARs pay cash rather than transferring an asset, the Dutch tax authority treats the entire payout as employment income, taxed at the employee's marginal box 1 wage tax rate at the moment of payment. There is no equivalent to the option deferral election, since there is no separate exercise event to defer.
| Event | Tax treatment |
|---|---|
| Grant | No tax |
| Vesting | No tax, unless plan pays out at vesting |
| Payout | Full amount taxed as box 1 wages |
Phantom share and SAR queries
- Do phantom shares show up on the cap table?
- No. They are a contractual promise to pay cash, not an equity interest, so they cause no dilution and require no notarial deed.
- Are SAR payouts taxed differently from phantom share payouts?
- No, both are taxed as ordinary employment income in box 1 at the point of payout in the Netherlands.
- Can employees defer tax on a phantom plan like they can with options?
- No, the 2023 deferral election applies to option exercise, not to cash-settled phantom or SAR payouts.
General information for founders, not legal or tax advice. Thresholds and rates change, so confirm the current position with an adviser in the relevant country before granting.