If you have stock options that have vested, or will vest in 2010, you may be tempted to exercise these options in 2010 since the top US tax rate is 35%, rather than wait until 2011, when the top tax rate is potentially going to increase to 39.6% Conventional advisors say this might make sense, and in fact it does for many people.

However, if you are living in the Netherlands you need to consider some additional factors. Here are a few of them:

1) Do you have the “30% ruling”? Or did you have this during any of the vesting period? The interaction of stock options and the 30% rulings can be very complex, not least of all because the Dutch law keeps changing. Depending on how long you have lived in the Netherlands and/or if your company has made a deal with the Dutch tax authorities, your options may be taxed at grant, at vest, and/or at exercise under the various Dutch laws. This is too complex to go into here, but if this applies to you and the amount is significant, you should discuss with an advisor who understands this (in combination with the US laws).

2) Don’t have, and never had the “30% Ruling”? The bad news is you’ve been paying full Dutch tax just like most of the Dutch population. The good news is you probably have “excess” tax credits due to the top Dutch tax rate of 52% and the top US rate of 35% (for the last few years). If your stock options are going to be taxed on exercise for Dutch tax purposes, the fact that your US tax rate is going up may have little or no impact on your “worldwide ” taxes, it just means you will be able to use some more of those Dutch tax credits rather than watch them expire.

3) Did you work in the US for a US employer during the vesting period (e.g. prior to moving to NL, or US workdays during NL residency)? If you worked in the US at all during the vesting period, and your options will be paid by or charged to a US employer, you may be able to allocate some of the income to the US and exempt this income from Dutch tax. If so, the lower US rates might help you, at least on this part of the income (potentially shifting income from the 52% tax bracket to the 35% tax bracket).

4) Did you live or work in the US (for any employer) after the grant of the options? You might be subject to state income tax on your stock options. Some states allocate the income using workdays from grant to exercise, others from grant to vest, others based on the dates of residency (whether working in the state or not). You can potentially end up paying 52% Dutch tax plus state tax on the income. For states like CA and NY that puts the total hit at over 60%!

These are just a fews thoughts on a rather complex issue. If this applies to you and the amounts are significant I would strongly advise getting qualified advice before exercising.