Are SAR costs deductible for Dutch corporate income tax?

Definition

What is a SAR?

This article discusses the main points of attention for deducting the costs of Stock Appreciation Rights (‘SARs’) for Dutch corporate income tax. It first looks at the nature of a SAR and the different ways in which a SAR plan can be designed. It then discusses when SAR payouts are in principle deductible as wage costs, and in which cases specific deduction limitations in the Dutch Corporate Income Tax Act 1969 (‘CITA 1969’) may stand in the way of that deduction.

A SAR is, according to the usual definition, a right that entitles an employee to a cash payment equal to the increase in value of the employer’s shares. An employee who is granted SARs usually does not become a shareholder and, as a rule, does not acquire any control either. A SAR plan may also entitle the holder to interim payments, which in practice are often referred to as ‘dividend’. For the tax assessment in this article, no distinction is made between interim payments and other payments under the SAR plan.

There is a great deal of flexibility in designing a SAR plan. A SAR can, for example, provide for settlement in cash, but it can also provide for settlement in shares, or for an arrangement in which the employee is obliged to use the SAR payout received to purchase shares, options or depositary receipts for shares. A SAR plan can also be linked to certain events, such as the sale of a subsidiary (a ‘participation’). Precisely because of this flexibility, the tax consequences of the chosen design must be assessed carefully. In this article we discuss a number of common situations and the related tax points of attention.

Starting point

Deductibility of SAR payouts

A payout under a SAR plan to an employee is in principle regarded as a wage component. For an entity subject to Dutch corporate income tax, such as a private limited company (‘BV’) or a public limited company (‘NV’), such a payout is therefore in principle a cost item that can be charged against the taxable profit.

In certain circumstances, SARs may qualify as a ‘lucrative interest’ (lucratief belang) for Dutch personal income tax purposes. This is generally not relevant for the employer’s deduction for corporate income tax. For corporate income tax, the central question is, in short, whether there are deductible wage costs and whether a specific deduction limitation applies.

The CITA 1969 contains several deduction limitations that may affect the deduction of SAR payouts. Whether a deduction limitation applies depends on the specific design of the SAR plan and on what the plan actually hinges on. Three situations are particularly relevant: the general deduction limitation for shares, options on shares and equivalent rights, the deduction limitation for employees with a high salary, and the deduction limitation for acquisition and disposal costs of participations.

Deduction limitations

Three situations that can limit the deduction

SAR payout in shares or mandatory use for shares

The CITA 1969 contains a specific deduction ban for costs related to the granting of shares, options on shares or equivalent rights. SARs are in principle not regarded as shares, options on shares or equivalent rights, insofar as they result exclusively in a cash payment. In that case, the starting point remains that a SAR payout is deductible as a wage component.

This may be different when a SAR is not settled in cash but, for example, in shares. A discussion may also arise when employer and employee agree that the employee is obliged to use a SAR payout to purchase shares in the employer. The parliamentary history and literature confirm that SARs can remain outside this deduction ban, provided that, among other things, they are not linked to an obligation to purchase shares. If that condition is not met, there is a risk that the plan will in substance be regarded as a form of share-based remuneration, so that the deduction ban may still apply.

The Dutch Tax Administration is critical of structures in which salary or a bonus is used by the employee to buy shares, options or depositary receipts for shares. This is apparent, among other things, from the knowledge group position of the Dutch Tax Administration of 24 April 2026. In it, the Tax Administration took the view that granting the right to buy depositary receipts for shares with a staff loan, combined with a conditional annual cash bonus equal to the interest and repayment on that staff loan, is in substance equivalent to granting shares at a conditionally too low price. According to the Tax Administration, the costs of that cash bonus, insofar as they relate to interest and repayment of the staff loan, are then not deductible for corporate income tax.

SARs granted to employees with a high salary

In addition to the deduction limitation above, since 2009 a specific deduction limitation applies to SARs granted to employees with a high annual salary. For 2026 the threshold is €728,000. If a SAR is granted to an employee with an annual salary above this threshold, the costs of the SAR are in principle not deductible for the employer, even if the payout is made in cash. For SARs granted to employees with a lower salary, the starting point remains that the SAR payout is deductible, unless another deduction limitation applies.

For this deduction limitation, the so-called test salary (toetsloon) at the time of grant is decisive. That test salary is determined on the basis of the annual salary the employee received in the last calendar year that ended before the start of the financial year. In other words, the salary of the calendar year preceding the year of grant is relevant. The salary test is moreover a one-time test at grant. If the deduction limitation applies at grant, later increases in value of the SAR also fall under the limitation. If in the year of grant the test salary is below the threshold of €728,000 (2026), the deduction limitation does not apply to later increases in value either.

Because of this method, this specific deduction limitation often does not apply. It is usually only the SAR payout itself that pushes the salary above the test salary. In the calendar year before a SAR is granted, we less often see that the salary exceeded the test salary.

SAR plans and acquisition or disposal costs of a participation

Another relevant deduction limitation concerns costs directly related to the acquisition or disposal of a so-called ‘participation’ to which the participation exemption applies. The participation exemption is a Dutch corporate income tax regime under which benefits from a participation in a subsidiary, such as dividends and capital gains, are exempt from corporate income tax at the level of the parent company. In summary, the participation exemption applies if (among other things) a company holds at least 5% of the nominal paid-up share capital of another company and that participation is not a ‘portfolio participation’.

The main advantage of the participation exemption is that dividends and capital gains from participations are not taxed, which prevents double taxation. The downside is that losses on participations are not deductible either (with the exception of liquidation losses, although specific rules apply to those). Applying the participation exemption makes the return on participations more attractive for tax purposes and allows companies to organise their international structure more efficiently. Applying the participation exemption also means that costs directly related to the acquisition or disposal of a participation are not deductible.

Acquisition and disposal costs of a participation are costs directly related to the acquisition or disposal of a participation. Examples include advisory fees, notary fees, brokerage fees and success fees incurred to realise the purchase or sale of shares in a participation. These costs are distinguished from regular business expenses, because they specifically relate to acquiring or disposing of a participating interest.

For SAR plans, the key question is whether the payout is sufficiently directly related to the sale or acquisition of a participation. In practice, a selling party sometimes wants employees of a sold participation to share in the sale proceeds, for example by granting them a bonus or a similar payment. The proceedings that led to the so-called ‘December II judgment’ concerned farewell bonuses paid after the sale of a participation to all staff of the disposed participation, because the indirect shareholders wanted the staff to share in the sale proceeds. The Dutch Supreme Court held in this case, in short, that the farewell bonuses had not been paid with the aim of bringing about the disposal of the participation. The bonuses therefore could not be regarded as costs triggered by the disposal of the participation. The required direct causal link between the expenses and the disposal was missing, so the deduction ban did not apply in that situation.

It does not follow that bonuses or SAR payouts in comparable situations are always deductible. Under other facts and circumstances, the deduction ban may well apply. This may be the case, for example, when a bonus or SAR payout is granted under conditions closely related to the acquisition or sale of a participation. Pay attention, for example, when the SAR entitles the employee to an additional payout if the employee has made efforts to make the sale of the company possible. ‘Retention fees’ or ‘stay bonuses’ for staff of an acquired participation may also, in certain circumstances, qualify as acquisition costs of a participation. Following the December II judgment, the Dutch Tax Administration published a knowledge document on acquisition and disposal costs of participations.

For SAR plans, all of this means that it must be assessed each time whether the payout is sufficiently independent of the acquisition or disposal of a participation. It must also be assessed at which level within the group the costs are borne. It makes a difference for tax purposes whether the costs are (rightly) borne by the holding company that sells the participation or by the operating company where the employee is employed and for which the work was performed.

To conclude

Conclusion

The tax deductibility of SAR costs for Dutch corporate income tax depends to a large extent on the specific design and implementation of the SAR plan. A cash SAR payout is in principle deductible as wage costs, but that starting point may not apply when the plan in substance amounts to share-based remuneration, is granted to an employee with a high salary, or is directly related to the acquisition or disposal of a participation.

Careful contractual documentation, actual implementation and tax allocation of the costs are therefore essential. It is advisable to assess in advance which event triggers the SAR payout, in what form the payout is made, which employee receives the SAR and at which level within the group the costs are borne. It may be worth designing all of this in consultation with the Dutch Tax Administration. This prevents a SAR plan from unintentionally falling under a deduction limitation in the CITA 1969.