Executive2 remuneration in the corporate field in general, and specifically within financial markets, attracts wide interest in the Netherlands. Key developments are, among others, (1) the 2016 revision of Dutch corporate governance rules, introducing a more principle-based focus on long-term value creation for the company, effective management and the supervision thereof, and (2) the status of Dutch remuneration rules in the financial and insurance markets including a 20 per cent bonus cap, which extend the scope of European norms substantially and which are subject to debate within the Dutch parliament ever since Brexit came into play and which the Dutch parliament has again proposed to strengthen even further.

Below, we outline the principal tax3 and labour law consequences.4


i Income tax for employees

Dutch income tax is levied from individuals who are (deemed to be) resident in the Netherlands (Dutch resident taxable persons), as well as from individuals who are not (deemed to be) resident in the Netherlands but receive Dutch-sourced income (foreign taxable persons).

Dutch resident taxable persons are, in principle, taxable on their worldwide income, although (partial) exemptions may apply in specific cases. Foreign taxable persons are taxed on certain statutorily defined types of Dutch-sourced income, which, for instance, include directors' remuneration and income from employment in the Netherlands. Bilateral tax treaties to avoid double taxation may limit the taxation rights of the Netherlands.

The Dutch Income Tax Act 2001 makes a distinction between three classes ('boxes') of taxable income. Each box has its own rules for calculating the taxable base and its own applicable rates.

Box 1 income

Box 1 income includes, among others, income derived from business activities in the Netherlands, income from employment and income from miscellaneous activities.

On income that qualifies as income from employment, the employer collects and remits Dutch wage withholding tax. The wage withholding tax withheld can be credited against the income tax liability of the employee. Wage withholding tax and box 1 income tax rates are progressive and the maximum rate is 51.95 per cent for income exceeding €68,507 gross. Other than Dutch-resident taxable persons, foreign taxable persons with Dutch-sourced income are generally not subject to Dutch national insurance contributions. The wage withholding tax and box 1 income tax rates for Dutch resident taxable persons and foreign taxable persons are as follows for 2018:


Yearly box 1 income (including income from employment)

Income/wage withholding tax rates
(including national insurance contributions) for Dutch resident taxable persons and
certain foreign taxable persons

Income/wage withholding tax rates
(excluding national insurance contributions) for certain foreign
taxable persons














€68,507 or more



As state pension contributions are only levied from individuals that have not yet reached the state pension age, lower national insurance contribution rates apply if a Dutch resident taxable person is older than that.5 In addition to these lower national insurance contribution rates, an extended second wage withholding tax and income tax bracket applies if a Dutch resident taxable person was born before 1 January 1946.

On the other sources of box 1 income, such as income derived from business activities in the Netherlands and income from miscellaneous activities, no Dutch wage tax is levied. The income tax and national insurance contributions are levied against the same box 1 rates as set out above.

Executive directors, supervisory board members and non-executive directors

Generally, the remuneration of an executive director qualifies as income from employment in the Netherlands. As such, wage withholding tax will be withheld on his or her remuneration, which can be credited against the income tax liability.6

An individual can also fulfil the position of a supervisory board member in a two-tier board, as well as the position of non-executive director in a one-tier board. The concept of non-executive director is relatively novel in the Dutch market.

As of 1 January 2017, Dutch private limited liability companies and public limited liability companies are no longer obliged to withhold wage withholding tax on the remuneration paid to a supervisory board member. There was uncertainty as to whether a non-executive director for the purposes of this rule is considered similar to a supervisory board member. As of 1 January 2018, non-executive directors of listed companies are not considered to have a deemed employment relationship for Dutch wage tax purposes. Thus, a non-executive director of a listed company is treated similarly to a member of the supervisory board for Dutch wage tax purposes and no Dutch wage tax needs to be withheld on the remuneration paid to non-executive directors.

Depending on the activities of the supervisory board member, his or her remuneration may qualify as profit from business activities or income from miscellaneous activities. Alternatively, the company and the supervisory board member may opt for treatment as income from employment, resulting in the company being obliged to withhold wage withholding tax.

Box 2 income

Box 2 income includes taxable income derived from holding a 'substantial interest' in an entity. This substantial interest is generally present if an individual together with his or her partner holds an interest of 5 per cent or more of (a class of shares in) the total issued capital of the entity. This income (including capital gains) is subject to a rate of 25 per cent. In addition, an individual working for a company in which he or she holds a substantial interest is deemed to earn a wage of at least €45,000 (for 2018), which wage is taxed as income from employment in box 1. If an individual works for more companies in which he or she holds a substantial interest, per each company he or she is deemed to earn this wage (e.g., if an individual works for three companies in which he or she holds a substantial interest he or she is deemed to earn at least €135,000 gross in 2018). Upwards and downwards corrections to this amount may apply, as well as a full exemption for companies that perform activities of a passive nature (e.g., holding companies).

Box 3 income

Box 3 income concerns taxable income derived from a deemed return on savings and investments. This deemed return on savings and investments is fixed at a percentage of the individual's yield basis at the beginning of the calendar year (1 January), insofar as the individual's yield basis exceeds a statutory threshold (in 2018, €30,000). The individual's yield basis is determined as the fair market value of certain qualifying assets held by the individual less the fair market value of certain qualifying liabilities on 1 January. The deemed return percentage to be applied to the yield basis increases progressively depending on the amount of the yield basis. In 2018, the marginal deemed return percentage ranges between 2.017 per cent and 5.38 per cent. These percentages are revised annually. The deemed return on savings and investments is taxed at a rate of 30 per cent.

ii Stock options, stock appreciation rights, restricted stock and restricted stock units

Stock options

Stock options are taxable for wage tax purposes when they are exercised, sold or transferred. Thus, no tax is due upon the grant of the options. Tax will be levied on the option benefit. The option benefit is the difference between the exercise price of the option and the fair market value of the underlying shares at the time of exercise minus the option premium paid (if any). This is also true if the option is cash-settled.

The option benefit will be added to the other income from employment received by the executive in the year of exercise and is taxed in box 1 (i.e., progressively up to a maximum rate of 51.95 per cent). The employer should withhold the appropriate amount of wage withholding tax and pay this amount to the Dutch tax authorities on behalf of the employee. Assuming that the wage withholding tax will be recovered from the employee, this is typically done by having the employing company holding back a number of shares at the time of the exercise and using the proceeds of those shares to satisfy the withholding obligation. If the withholding tax would not be recovered from the executive, the taxable benefit needs to be grossed up, which would result in considerable additional cost to the employing company.

Stock appreciation rights

If the executive receives stock appreciation rights, then no actual shares will be transferred to the executive. Instead, a cash payment is made to the employee, the amount of which is linked to an increase in value of the shares in the company (i.e., the shares are tracked). A cash payment in relation to stock appreciation rights is taxed at the time the payment is made and the employer will need to make the necessary wage withholdings at the time of payment.

Stock awards, restricted stock and restricted stock units

According to Dutch tax law, the grant of shares is subject to wage withholding tax at the moment the rights on the shares have become unconditional.7 If time is the only remaining condition for the transfer of the shares, then the employer will need to withhold wage withholding tax based on the value of the shares at that time. The fair market value of the underlying shares at the moment these shares become unconditional, minus any purchase price to be paid by the executive is treated as income from employment (box 1). Restricted stock units (RSUs) are also taxed upon vesting of the underlying shares (i.e., at the moment the employee receives an unconditional right to receive shares). If the RSUs are cash-settled at the moment of vesting, the amount in cash received constitutes the income from employment.

Under certain conditions, a discount for wage withholding tax purposes can be applied on the value of listed shares granted if a lock-up period has been agreed on. For example, for 2018, a 16 per cent discount applies in respect of a lock-up period of four years, and a 13 per cent discount for a three-year period. If the employment of the recipient of the shares terminates during the lock-up period, a mandatory redelivery against a value lower than market value should constitute deductible 'negative income' for the recipient.8

If the shares increase in value after vesting, no more additional taxes are due on dividends and capital gains. Capital gains and dividends received in relation to the shareholding are generally not taxed provided that the executive together with his or her partner does not hold a substantial interest (5 per cent or more) in the company. Instead, the fair market value of the shares will be included in the box 3 yield basis as discussed above.

iii Social security contributions

The Netherlands maintains a broad system of social security measures. The social security contributions can be divided into three categories:

a National insurance contributions. These contributions cover for state pension payments, widows' and orphans' benefits, long-term healthcare and child benefits. These contributions are levied in conjunction with the wage withholding tax and box 1 income tax rates as shown in Section II.i over an income of at most €33,994 gross. As such, these contributions are levied on all sorts of compensatory payments, whether in cash or in kind. In the event a foreign taxable person earns Dutch-sourced income, supranational regulations may restrict the Netherlands in levying these contributions.

b Employee insurance contributions. These relate to social security aimed at employees, such as sickness benefits, incapacity insurance and unemployment insurance. These contributions are payable by the employer calculated as a certain percentage of the gross salary paid to the employee, with a maximum gross salary of €54,614 (for 2018). Remuneration paid to executive directors is generally subject to employee insurance contributions and remuneration payable to supervisory board members are in principle not subject to employee insurance contributions.

c Income-dependent health insurance contributions to be paid by self-employed individuals.

iv Tax deductibility for employers

Remuneration paid in cash to employees is generally deductible for Dutch corporate income tax purposes.9 No corporate income tax deduction is available for Dutch companies in respect of share awards and employee share options. If the stock options will be cash-settled in each circumstance, arguments are present that the option scheme in fact should be considered a cash bonus, which may result in a tax deduction for corporate income tax purposes at the level of the Dutch company.

The costs of certain rights, of which the value is directly or indirectly mainly determined by the change in value of those rights such as (but not limited to) stock appreciation rights are also not deductible. The latter restriction only concerns rights that are granted to employees who earn more than €565,000 gross (2018).

v Other special rules

For employees hired from abroad, or seconded to a Dutch company or branch, under circumstances a special provision applies that – upon request – provides for a tax-free payment of up to 30 per cent of the employee's employment income, which is then considered as a compensation for 'extraterritorial' costs. As a result of this 30 per cent ruling, the effective maximum income tax rate is reduced from 51.95 per cent to 36.4 per cent. The most important conditions to be satisfied are (1) an annual gross wage exceeding €53,280 (for 2018), which amount is inclusive of the 30 per cent tax-free payment, (2) that the employee has resided outside a 150-kilometre radius from the Dutch border for a minimum of 16 months during the 24 months preceding commencement of employment, and (3) that the employer qualifies as a withholding agent for wage withholding tax purposes. The employee and employer need to file the request for the 30 per cent ruling jointly. The 30 per cent ruling was effective for a period of eight years, which period was reduced by any period spent in the Netherlands during the last 25 years, irrespective of whether the employee actually enjoyed Dutch-sourced income from employment. The Dutch government recently announced that the term of the 30 per cent ruling will be decreased as per 1 January 2019 to a maximum of five years for all 30 per cent rulings. No transitional period will be granted for employees who currently have the 30 per cent ruling for an eight-year period.

In respect of supervisory board members, the employer and supervisory board member need to opt for wage withholding in order to apply for the 30 per cent ruling.


i Non-competition covenants

In principle, non-competition covenants, including a penalty clause, are permitted and enforceable in the Netherlands. In certain sectors and for certain professions, the use of non-competition covenants in employment contracts is common practice. Under the laws of the Netherlands, a covenant restricting the employee's right to work in a certain way after the end of the employment agreement is only valid if:

a the employment agreement is entered into for an indefinite period; and

b if the restrictive covenant is agreed upon in writing with an adult employee.

A non-competition covenant in an employment agreement for a definite period can only be enforced if it becomes apparent that the non-compete restrictions are necessary on compelling grounds in the interests of the business. These grounds need to be substantiated in writing at the time the covenant is agreed. Furthermore, employers may not derive any rights from non-competition clauses if the employment agreement's ending is a consequence of culpable behaviour of the employee. Non-competition covenants must be reasonably limited in terms of a time frame and territory.

While the laws of the Netherlands only regulate non-competition clauses, it is commonly understood that non-solicitation clauses fall within the scope of its legislation.

ii Enforcement of restrictive covenants

In the Netherlands, restrictive covenants can be enforced against a former employee if the latter does not comply with its contractual restrictions. Restrictive covenants may also be enforced against an employer: the court may (partially) set aside a stipulation if the clause is not deemed to be necessary on compelling business grounds or if the interests of the employees are unfairly prejudiced by it in proportion to the interests of the employer. This could include, inter alia, a limitation of the time frame or the regional scope in which the provision applies. In addition, if a non-competition clause significantly restrains an employee from working other than in the service of the employer, the court may order the employer to pay a compensation for the duration of the restrictive covenant.

iii Termination

In the Netherlands, there is a distinction between the dismissal of statutory directors (i.e., directors under the articles of association) – which offers a more flexible dismissal regime – and non-statutory executives.

For listed limited liability companies (NV), it is prohibited to enter into an employment agreement with a statutory director. Instead, an agreement to provide services, commonly referred to as a management agreement, would typically be entered into. Dismissal rules following from Dutch employment law do not apply to such management agreements. An alternative is that the executive is employed by another group company while being appointed at the level of the listed company as a statutory director. For NVs that are not listed as well as for private limited liability companies (BV), it is permitted and common practice to enter into an employment agreement with a statutory director. With respect to statutory directors, we note that a statutory dismissal by a resolution of the corporate body that appointed him or her also results in the termination of his or her employment agreement by operation of law (unless a prohibition to give notice applies, for example, in case of sickness). It is generally assumed that a management agreement will also terminate by operation of law in case the director is dismissed by the competent corporate body, but this has not been confirmed by the Dutch Supreme Court yet.

If the company has a works council, the advice of the works council should be requested prior to the unilateral dismissal of the director, that is, other than in case of termination by mutual consent. A works council must be requested to render its advice in a timely manner – in any event before the competent corporate body resolves to dismiss the director – by means of a written request for advice, in order for the works council to be able to exercise influence on the decision. The works council does not actually have the possibility to block the dismissal in case all procedural aspects of the consultation process have been complied with. If no request for advice has been submitted, a works council can ask the court to force the company to do so and to prohibit all further steps until the consultation process has been completed. In case the company is an NV and the shareholder's meeting is the corporate body that has the right to appoint and dismiss members of the board of directors, in case of an intended dismissal, the works council should be given the opportunity to determine its position prior to the shareholders' meeting's decision to dismiss the board member. The shareholders' meeting needs to be informed of the works council's position in due time prior to the meeting. In addition, in this situation, the works council has a right to provide its views during the shareholders' meeting. Failure to enable the works council to exercise these rights does not impact the shareholders' meeting's authority to pass the resolution; it could, however, impact the relationship with the works council.

With respect to executives that have not been appointed as a statutory board member, the following applies. In principle, employment contracts may be terminated at any time by mutual consent between the employer and employee. This also applies to executives that have been appointed as a statutory board member and that are engaged on the basis of an employment agreement. Parties may agree if, and to which extent, as part of the settlement agreement, notice periods and statutory compensations are taken into account. We note that it is mandatory to provide employees a two-week reflection period with effect from the moment the settlement agreement is signed by both parties. In this period, employees have the right to dissolve the settlement agreement.

Except for an urgent cause such as theft, fraud or serious misconduct, unilateral termination by the employer is not permitted without the prior approval of the Institute for Employee Insurance (UWV) (for economic reasons and long-term sickness absence) or the Subdistrict Court (for personal reasons such as underperformance or culpable behaviour). The Subdistrict Court and the UWV shall only dissolve the employment agreement if the employer has a reasonable ground for termination, as exhaustively stipulated in the Dutch Civil Code (DCC).

If an employer wishes to unilaterally terminate an employment contract of more than two years, a statutory severance fee is payable. The amount is based on the age of the employee and the number of years of employment and is capped at €79,000 for 2018 or one year's salary if the employee's annual salary exceeds the aforementioned amount. Further to that, it is common practice that executives agree on contractual severance packages, for which we refer to Section VI on corporate governance and Section VII on specialised regulatory regimes below.10


Under the Dutch Financial Supervision Act (FSA) it is prohibited to offer securities to the public in the Netherlands, unless an approved prospectus approved has been made generally available. The FSA contains various exemptions to this prohibition, three of which are worth mentioning in the context of employee stock option plans. Firstly, an offering of securities is exempt if the securities are offered to fewer than 150 persons in the Netherlands. Second, an offering of securities is exempt if the securities are offered by the employer to employees (including executives), provided that the employer has its registered office or head office in the European Economic Area (EEA) and a document containing certain specified information regarding the offering has been made public. Thirdly, an offering does not fall within the ambit of the prohibition when the instruments awarded under the plan are non-transferable.

The market abuse regime as established under the Market Abuse Regulation (MAR) applies to, and imposes restrictions on the ability of executives to effect transactions in company securities. In practice, the prohibition on insider trading is most restrictive. In addition to the market abuse regime, the MAR contains rules on insider lists and mandatory closed periods.

Under the FSA, each executive of a Dutch company listed in the EEA has to notify the Authority for Financial Markets (AFM) (1) within two weeks of his or her appointment of the number of shares and votes held by the executive upon his or her appointment as executive, and (2) immediately of every change in the number of shares or votes held by the executive.11 The AFM maintains a public register of the notifications on its website.

There are no legal requirements that executives must hold securities of their employer and there are no anti-hedging rules – other than the restrictions pursuant to the MAR – prohibiting executives from engaging in transactions that are designed to hedge to lock in the value of holdings in the securities of the company. A company cannot require employees to buy shares (e.g., by using a cash bonus to buy shares).

Finally, there are no statutory rules on short swing-trading, except for the requirements as set out under Section VI on corporate governance below.


Pursuant to the DCC,12 Dutch-listed public companies13 must disclose14 in the explanatory notes to their (consolidated) annual accounts the total amount of remuneration, including pension costs and other awards, of the (former) managing directors and (former) supervisory directors in the relevant financial year. This information must be disclosed on a group basis rather than for individual managing or supervisory directors. For the purpose of the DCC these disclosure obligations relate to the members of the statutory board only. Consequently, it does not apply to members of the executive committee or other senior employees who are not formally part of the management board. Dutch GAAP law, therefore, applies a narrower scope than IFRS, whereby this group extends to 'key management personnel'.15

In addition, the DCC prescribes that public (listed) companies include in the explanatory notes to their annual accounts information about (1) the composition of the separate elements of the remuneration package, (2) the company's share option plans and (3) loans, guarantees and advance payments granted by the company or its subsidiaries to management board and supervisory board members.16 This information must be disclosed on an individual basis to the extent that it relates to management board members or supervisory board members, whereas information about the employees' option awards can be disclosed on a group basis. Information about the stock option plans must also be provided in respect of options that have been awarded to employees who participate in the plan.

The DCC does not include a definition of 'remuneration' but a description can be found in the Dutch Accountancy Directive. As this information forms part of the annual accounts, it is assumed that remuneration components (including perquisites) are quantified in order to add up to the aggregate amount of awards payable to a director in a particular financial year. The DCC prescribes that the implementation of the remuneration in general is included as a discussion item on the agenda of the annual general meeting of shareholders prior to the adoption of the annual accounts.17

Obviously, disclosure of information will depend on what the law prescribes for dispersing (financial) information to shareholders and third parties. For example, a Dutch company's (adopted) annual accounts must be deposited with the Dutch Commercial Register18 and, for listed companies, also be disclosed via publication on the company's website and sent to the AFM.19 Other information is often also made publicly available at the occasion of the convocation of a general meeting of shareholders. This applies to a company's remuneration policy and any share award plans for which the DCC requires that they are approved by the general meeting.20 If a works council is established, it has a right to render its opinion in relation to the remuneration policy and to provide a verbal explanation of its opinion during the shareholders' meeting.

A listed company must disclose information that must be provided to the general meeting, either for discussion or approval, by making this information available at the company's website from the convocation of the general meeting of shareholders. Listed companies must keep this information available for at least one year following publication.21 For further disclosure requirements, we refer to Section VI on corporate governance and Section VII on specialised regulatory regimes below.


The principles and best practices for corporate governance of Dutch listed companies are set out in the Dutch Corporate Governance Code (the Code), the DCC, and sector-specific regulations (as referred to below).

i Corporate governance rules following from the DCC

With respect to NVs, the following corporate governance rules follow from the DCC:22

a a public company must have a remuneration policy in place, which must be approved by the general meeting of shareholders;

b in case a works council is established at the level of the public company or any of its subsidiaries (if the majority of the employees of such subsidiary work in the Netherlands) the works council should be given the opportunity to determine its position with respect to the remuneration policy and to provide the shareholder's meeting with its position, prior to the shareholder's resolution being made, in which the remuneration policy is approved. In addition, the works council has a right to provide their views during the shareholders' meeting.

c remuneration of statutory board members is set by the general meeting of shareholders, unless the articles of association state otherwise. If a supervisory board is established, the supervisory board determines the individual remuneration of a statutory board member within the boundaries of the remuneration policy;

d if according to standards of reasonableness and fairness, it would be unacceptable to pay out (part of) variable remuneration that was previously allocated to a current or former to a statutory board member, the corporate body that is entitled to set the remuneration may hold back (part of) the variable remuneration; and

e a company is authorised to reclaim, in full or partially, 100 per cent of the variable remuneration previously allocated to a current or former statutory board member (cash as well as any instruments), provided that the payment took place on the basis of incorrect information regarding the achievement of the goals underlying the variable remuneration or regarding circumstances on which the variable remuneration depended.

ii Corporate governance rules following from the Code

The rationale behind the Code is to create long-term value creation for the company, effective management and the supervision thereof, risk control, remuneration and the relation with the shareholders and stakeholders.23 Even though the Code is considered as 'soft' law – it works on a comply-or-explain basis – it is market practice that Dutch-listed companies generally adhere to the principles and best practice provisions of the Code.

Executive remuneration has a prominent place in the Code. The starting point is that the company must have a clear and understandable remuneration policy that applies to its management. The supervisory board is responsible for the implementation of the remuneration policy, which must be adopted by the general meeting of shareholders. The supervisory board nominates a remuneration committee, which is responsible for the preparation of a remuneration proposal for each individual board member. The proposal must be in accordance with the company's remuneration policy. Additionally, the proposal must at least describe (1) the components of the board member's remuneration, (2) the amount of fixed and variable remuneration, (3) which performance criteria are applied, (4) the scenario analyses that were carried out, and (5) the pay ratios within the company and its affiliated.24 The Code furthermore requires in best practice provision 3.2.2 that each individual board member must give his or her opinion concerning his or her own remuneration proposal. The underlying thought of this provision is to create awareness among board members with respect to their remuneration.

We note that the Code requires that shares being awarded to executives as remuneration should be held for at least five years after they are awarded. In addition, the Code stipulates that if options are being awarded, they cannot be exercised within three years after they are awarded.

The Code does not contain limitations with respect to the amount of the board member's fixed or variable remuneration, nor does the Code prohibit board members to receive equity-related remuneration.

In the event of dismissal, golden parachutes of a board member are capped at one annual fixed salary.

Further to that, the Code contains disclosure requirements. The Code stresses the importance of a clear and comprehensible remuneration policy for which purpose it provides further specifications for the items that need to be addressed by the (remuneration committee of the) supervisory board when drawing up the company's remuneration policy. The Code applies the principle that the implementation of this remuneration policy is accounted for; the supervisory board must render account of the implementation of the remuneration policy in its remuneration report, which should be posted on the company's website, and the key elements of a management board member's management agreement must be placed on the company website.


Specific rules regulating executive remuneration have been issued in the Netherlands mainly for the financial and insurance sector and for public and semi-public sector senior officials.

i The financial sector

The executive rules for the financial sector are mainly included in the FSA. The FSA contains specific rules on the content, disclosure and implementation of a financial institution's remuneration policy, as well as a 20 per cent bonus cap, guaranteed variable remuneration, severance pay, malus and clawback.

Variable remuneration

In general, a 20 per cent bonus cap applies to all persons working under the responsibility of a financial undertaking, as defined in the FSA, regardless of whether the financial undertaking has its official seat in the Netherlands, and a Dutch branch of a financial undertaking with its official seat outside the Netherlands, which is required to have a licence for a branch in the Netherlands pursuant to the FSA (not being a bank or an investment firm to which Articles 92 to 96 of CRD IV apply). A financial undertaking is defined in the FSA and includes, among other things, banks, investment firms but also insurance companies. We note that the 20 per cent bonus cap does not apply to branches located in the Netherlands of financial undertakings that are governed by the remuneration rules of Articles 92 to 96 of CRD IV (being, in short, banks or investment firms as defined in CRD IV). The following exceptions to the 20 per cent bonus cap apply:

a if the remuneration of persons working in the Netherlands does not follow from a collective labour agreement, it is possible to grant variable remuneration with a maximum of 100 per cent of its fixed annual remuneration to such persons individually, as long as the average of the ratio between the variable and the fixed remuneration of the whole group of persons working in the Netherlands whose remuneration does not follow from a collective labour agreement does not exceed 20 per cent. In July 2018, the Dutch Minister of Finance (the Minister) published a letter to the Dutch parliament in which he proposed that this exception shall be monitored closely and may even be abolished in the future. The evaluation of the Dutch remuneration rules shows that this exception to the bonus cap is currently used commonly throughout the financial sector, whereas, according to the Minister, the purpose of the exception is that it should only be used in exceptional cases (such as for key IT staff), and not for regular staff. Subsequently, the Minister notes that it is currently not certain whether the exception will remain in place as is. At this stage, no specific amendments to the statutory wording have been proposed;

b for staff predominantly (at least 50 per cent of their time) working outside the Netherlands, an individual bonus cap of 100 per cent applies;

c for staff predominantly (at least 50 per cent of their time) working outside the EEA, an individual bonus cap of 200 per cent may apply, subject to shareholder approval and the procedure pursuant to CRD IV;

d for staff working at an international holding company (which is the top holding within the EEA but not necessarily globally) of a financial undertaking with its official seat in the Netherlands and to which Article 1:114 FSA applies, but with its activities predominantly outside the Netherlands, a bonus cap of 100 per cent applies provided that within a period of five consecutive years at least 75 per cent of all staff belonging to the international holding company's group work outside the Netherlands for three (not necessarily consecutive) years; and

e increase of the fixed remuneration is possible as the FSA does not limit a financial undertaking in increasing fixed remuneration. In July 2018, the Minister also published a legislative proposal containing suggested amendments in this respect:

• if state aid is given to a bank or an insurance company, there should be a statutory obligation to claw back part of the fixed remuneration of management board members. The purpose of this measure is to hold management board members personally liable when the taxpayer pays for the losses of failing banks or insurance companies;

• components of fixed remuneration of which the value depends on the value of a financial undertaking, such as the share price, should be subject to a certain lock-up period. The purpose of the measure is to align the interests of management board members and employees with the long-term interests of the financial undertaking; and

• the remuneration policy of a financial undertaking should prescribe how the remuneration of both management board members and other employees is set, in proportion to the public function of the financial undertaking. This statement must be made public. The purpose of the measure is to ensure that financial undertakings take into account their public function when setting their remuneration frameworks and that they can publicly take accountability in that respect afterwards.

The legislative proposal is currently open for consultation to the public until the end of August 2018, and will likely be discussed in the Dutch parliament in Q4 2018. It is currently not clear when and if the proposed amendments will enter into force;

f it is possible to award a retention bonus of up to 200 per cent per cent of the annual fixed salary, if the following strict conditions are met: (1) the retention bonus must be necessary in relation to a sustainable change in the organisation; (2) the sole purpose of the retention bonus is to retain the respective person for the organisation; (3) in the year that the retention period ends and the retention bonus is effectively awarded, the sum of all variable remuneration that the respective person is awarded may not exceed 100 per cent of his or her fixed annual pay or, if shareholders' approval has been obtained in line with the requirements of CRD IV, 200 per cent; and (4) the regulator has given its prior written permission. Further to that, a retention bonus must comply with the general requirements that apply to variable remuneration (e.g., with respect to identified staff, under sector-specific legislation); and

g it is possible to grant a sign-on bonus that is not capped at the first year of a new hire if it relates to the commencement of activities of the person and the undertaking maintains a sound solvability rate and equity capital base.

Any legal act in breach of the remuneration requirements of the FSA, including a breach of the bonus cap, is considered null and void.

We note that the Regulation on Sound Remuneration Policies under the FSA 2017 contains specific rules applicable to identified staff of banks and investment firms, which relate to the way remuneration components and structures are set up and the way a firm controls or mitigates risks arising from its remuneration policy and the implementation thereof, including specific rules on the composition, deferral and retention of variable pay.

For identified staff of insurance companies, next to the remuneration rules following from the FSA, the Commission Delegated Regulation (EU) 2015/35 (Solvency II) provides for an additional regulatory framework on remuneration, containing rules on pay-out, deferral and the structure of variable pay. As of November 2017, it is no longer required to pay part of the variable pay of identified staff of insurance companies in instruments.

For identified staff of fund managers, next to the remuneration rules following from the FSA, the Alternative Investment Fund Managers Directive (EU) 1095/2010 (AIFMD) and Directive 2009/65/EC (UCITS) provide for an additional regulatory framework on remuneration, containing rules on pay-out, deferral and the structure of variable pay, with specific rules on carried interest.


No severance may be paid to a person working under the responsibility of a financial undertaking in case:

a the termination of the employment is at the initiative of the respective person, unless it is a consequence of severe culpable behaviour or negligence on the side of the employer;

b severe culpable behaviour or negligence on the side of the employee; or

c failure of the undertaking, in case of a daily policymaker within the meaning of the FSA. A daily policymaker is known to the regulator and the undertaking as he or she is subject to a suitability and reliability assessment within the meaning of the FSA.

Also, severance of daily policymakers of financial institutions with their seat in the Netherlands is capped at 100 per cent of their fixed annual salary pursuant to the FSA. Any legal act in breach of severance cap is considered null and void.

ii Public and semi-public sector

In the Netherlands, senior government officials' salaries cannot exceed those of government ministers. This is laid down in the Public and Semi-public Sector Senior Officials (Standard Remuneration) Act. This Act also applies to the salaries of senior officials of organisations in the semi-public sector, such as hospitals, schools and public broadcasters. The maximum salary for senior officials in 2018 is €187,000 gross, which includes holiday allowance, end-of-year allowance, pension contributions and expenses. The maximum severance for senior officials is capped at €75,000 gross.

Public and semi-public institutions must publish information in their annual financial reports on remuneration and redundancy payments paid to officials. They must also forward this information electronically to the relevant minister. An important role exists for the accountant of the institutions in terms of disclosure.


Executive remuneration remains a highly debated feature of the corporate landscape. On the eve of Brexit, the evaluation of the remuneration requirements under the FSA including its 20 per cent bonus cap, have been debated heavily in the Dutch parliament, resulting in proposals to again strengthen the rules applicable to financial undertakings in the Netherlands. It is expected that the Dutch parliament will review these proposed amendments by the end of 2018.

Executives that qualify for the 30 per cent ruling receive a tax-free allowance of 30 per cent of the employee's total remuneration (salary plus tax-free allowance) during a period of eight years. The remaining 70 per cent of the remuneration is taxable at the progressive domestic Dutch income tax rates with a maximum of 51.95 per cent, leading to a maximum rate of 36.365 per cent effectively. The 30 per cent ruling is a very attractive facility for executives in the Netherlands. Although it has been announced the eight-year period will be shortened to five years, it is not expected that the 30 per cent ruling facility will be abolished in the coming years.


1 Suzanne Sikkink is a partner, Raoul Hagens and Marc Oostenbroek are senior associates, and Naomi Reijn, Dimitri Kolias and Olivier Valk are associates at Allen & Overy.

2 For the purposes of this chapter, executive shall mean (1) a member of a management board or (2) an executive member of a one-tier board.

3 This chapter applies to executives who are for tax purposes considered to be resident in the Netherlands or who are executive director of a Dutch company.

4 This summary does not purport to be a comprehensive description of all Netherlands tax and labour law considerations that may be relevant.

5 The state pension age is 66 years (for 2018–2020) and is gradually increased.

6 Based on most tax treaties to avoid double taxation concluded between the Netherlands and other countries, the Netherlands is, in principle, allowed to levy income tax on the remuneration received by directors, supervisory board members and non-executive directors of Dutch public and limited liability companies, although exceptions may apply depending on the specific treaty.

7 Unconditional means that there are no other conditions for the transfer of the shares to the employee, other than conditions in time. Continuing employment is also a 'condition in time' for this purpose.

8 Supreme Court, 15 April 2016, Case No. 14/06257, ECLI:NL:HR:2016:635.

9 For some expenses, deductibility is explicitly denied, for instance, for administrative fines.

10 In the Netherlands special rules apply to 'excessive severance payments'. Insofar as employees with annual salary starting at €544,000 (the amount for 2018 and is index-linked annually) receive a fiscally defined severance payment that exceeds the benchmark salary, the employer must pay an employer's levy of 75 per cent on the part that exceeds the benchmark salary. This amount cannot be recovered from the employee and as such it is a cost item for the employer.

11 Section 5:48 FSA.

12 Section 2:383 DCC.

13 As well as all other companies that cannot make use of the exemption for small companies set out in Section 2:396 DCC.

14 Disclosure is held to mean 'public disclosure' by making information known to the general via publication in public registers or publicly accessible websites.

15 As included in IAS 24.26.

16 Sections 2:383c to 2:383e DCC.

17 Section 2:135 Paragraph 5a DCC.

18 Annual accounts of private (i.e., non-listed) companies do not need to be published in the Dutch Commercial Register if that company complies with the requirements set forth in Section 2:403 DCC, which includes the inclusion in consolidated accounts and the issue of form of parent guarantee by the consolidating company.

19 Sections 5:25m Paragraph 6 and 5:25o FSA.

20 With regard to the remuneration policy, it should be noted that according to the recently amended Shareholders' Rights Directive this will have to be an advisory vote on the remuneration report, at least for large companies. The Dutch government may opt to have the report as a discussion item on the agenda for small and medium-sized companies. Whether the Dutch government will do that is unclear at the moment. A second new element is that the supervisory board will have to address in the next remuneration report how the advisory vote of the general meeting has been taken into account.

21 Section 5:25 Paragraph 3 of the FSA.

22 Section 2:135 DCC.

23 The Dutch Corporate Governance Code, December 2016, Preamble, p. 7.

24 Best practice provision 3.2.1.