Option Taxation Will Become More Attractive
Jul 15

The Parliament of the Republic of Lithuania approved an amendment to the Law on Personal Income Tax submitted by the Ministry of the Economy and Innovation, which lays down more favourable conditions for option taxation – employees who have retained the shares of the company acquired through options for more than three years will not be subject to personal income tax.

“More attractive conditions of option taxation should particularly encourage establishment and development of those start-ups that at the beginning of their operation are unable to pay competitive wages. Therefore, granting of shares to the employees and their attractive taxation becomes an attractive alternative and possibility to attract the most talented specialists. Whereas this constitutes one of the most important aspects of the legal regulation of start-ups, Lithuania will become more attractive not only to the local but also to foreign start-ups that so far preferred to choose other countries that apply more favourable conditions of option taxation”, – says Virginijus Sinkevičius, the Minister of the Economy and Innovation.

An amendment to the Law on Personal Income Tax prepared by the Ministry of the Economy and Innovation, and accepted by the Parliament provides that the employee’s benefit from the options after the acquisition of shares not earlier than 3 years after the rights to options were granted is not subject to Personal Income Tax.

So far, an employee who realizes options and receives shares needed to pay taxes immediately on the difference between the acquisition price of the shares and their fair market value, even without earnings. Such a procedure of option taxation complicated the conditions for attracting start-ups and retaining employees, left no other choice for companies but to choose other countries.

This proposal is one of the parts of “Program 1000”, the project for start-ups that was prepared by the Ministry of Economy and Innovation. It is aimed at creating a more favourable business environment for establishment and growth of start-ups, and at increasing the number of start-ups operating in Lithuania to 1000 by 2020.