Publish Date

Oct 06, 2022

Recent developments impacting Dutch MIP structuring

Special Tax Alert

Management Incentive Plans (MIPs) are common tools applied by private equity houses or venture capital to incentivize the management of an acquired target entity. One of the main purposes of implementing MIPs is typically to create an alignment of interest between the investor and management. On 20 September 2022 (Budget Day), the Dutch government announced legislative amendments which may impact Dutch MIPs. This together with earlier announced changes to the so-called Box 3 regime may require different structuring of MIPs than the current typical MIP structures. In this publication, we briefly elaborate on the current structuring of Dutch MIPs, the proposed changes and what to consider looking ahead.


In the Netherlands, for personal income taxes, a boxing system applies and MIPs can either be taxed in one of the three boxes:

  • Box 1: actual income against max. 49.5% (e.g. employment income and lucrative interests)
  • Box 2: actual income against flat rate of 26.9% (dividends and capital gains from substantial interests)
  • Box 3: deemed income against flat rate of 31% (e.g. savings, shares <5% which do not qualify a lucrative interest)

In Dutch MIPs we typically see that management is invited to participate in equity-based participation plans, whereby management partially invests in ordinary shares, pari passu with the investor, and partially in carried interest or similar rights. The carried interest is typically only paid out if an investor achieves a specified minimum return on their investment.

In the Netherlands, a carried interest typically qualifies as a so-called lucrative interest, which is characterized by the relatively low investment in proportion to the relatively high profit potential subject. As mentioned above, a lucrative interest is taxed in Box 1 against max. 49.5% (similar to employment income). However, if structured properly, Dutch tax law provides for a beneficial tax treatment (at the moment) in case the lucrative interest is structured as a so-called Box 2 investment. Besides the carried interest, the management strip investment may or may not qualify as a lucrative interest, depending on the terms and conditions at hand.


Currently, the personal income tax rate for MIPs structured as a Box 2 investment comprises a flat rate of 26.9%. It has now been proposed to increase the rate and implement a differential tax rate of 24.5% for income until EUR 67,000 and 31% for income exceeding EUR 67,000. The proposed amendments are expected to become effective as of 1 January 2024.

Additionally, the Box 3 system is subject to change as the current system is ruled in violation with EU law. Although details of the actual new system are not clear yet, the Dutch state secretary of finance did publish a letter with the options to implement a new Box 3 system last week (29 September).  The new Box 3 system, which is expected to become effective in 2026, will likely be based on actual increases in the value of the investments and can also tax unrealized gains on an annual basis.


Due to the expected increase in tax rates and the uncertainty in relation to the new Box 3 system, it is clear that the tax costs of MIPs will likely increase significantly in the coming years and will be accompanied with uncertainty for management on how the actual exit proceeds will eventually be taxed. The question arises whether current “best practice” MIP structures will keep their go-to status or whether alternative structures will become more beneficial.

With the increase of the tax rate in Box 2 for significant MIP proceeds, it becomes increasingly relevant to weigh the benefits and downsides of a Box 2 structure against other alternatives like a cash-based MIP in Box 1 such as a bonus, phantom stocks or SAR’s. Such alternatives could have benefits in terms of relatively low implementation costs, certainty for management on the taxation, lack of valuation discussions with the Dutch tax authorities, alignment of liquidity, alignment with foreign MIP’s and (potential) deductibility for corporate income tax purposes. We, therefore, recommend to monitor the proposed changes closely and review whether current and future MIP plans are still fit for purpose.


A&M has broad experience with MIPs, from the design to execution, including requesting (advanced) tax rulings from the Dutch tax authorities to avoid adverse tax consequences.

Besides tax assistance, our valuation experts are able to assist with the valuation of the MIP and because of our network, we are able to provide global coverage for participants outside the Netherlands.

If you have any questions or if you would like to exchange views, please feel free to get in touch with your usual A&M adviser or Frank Buitenwerf or Jorn Konijn. We are also happy to schedule a meeting to discuss alternative MIP structures.