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The tax regime applicable to stock options, also known as option contracts, took effect in 2020, after expanding Article 17 of the Law on Personal Income Tax by appending the following under non-taxable income: “benefits received by an employee from the employer, or a person related thereto, in accordance with an option contract following the purchase of shares at their full or discounted price, if the purchase of said shares was made no earlier than 3 years after the bestowal of the right to conclude an option contract”.
However, since the Government is still revising its interpretation of what a stock option even is, and as long as this concept remains an obscure one in Lithuania, that same obscurity is obviously going to apply to its taxation under different scenarios. How long will the revision take? We’ve been discussing this for more than 1.5 years now – since the very first days of Unicorns Lithuania. And even though we seem to have managed to start a dialogue between startups, the current Government, and its expert advisors, the road to implementing stock options in practice is still paved with endless arguing.
There are several key facts here. First, stock options really do help to attract specialists that have repudiated joining young startups because, e.g., they’re unhappy with the salary being offered. Second, it’s an excellent means of motivating employees and boosting their loyalty. In the case of success, financial benefits accrue to all option-holders, rather than only to the principal shareholders and co-founders. Put simply, a greater number of people become wealthy, thereby ensuring the continual enrichment of Lithuanian society as a whole.
If we join together and work towards a common goal – building a successful and modern country based on a high valued added economy – life in Lithuania will improve for everyone.
Stock options would also give us an edge over foreign companies – startups would help Lithuania to attract foreign capital and most of it would end up staying inside the country.
In our discussion with Lithuanian startups that are developing world-leading products, we don’t really talk about their funding and growth plans. Instead, we talk about ways of using the value they’re generating to make Lithuania stronger. Could we base our attitude towards talent on the same principle?
A regulatory scheme that’s more attractive than our current one would benefit all legal entities, not just startups. Employees who feel they’re contributing to their company’s success not only receive a financial benefit when the company’s value increases, but also become its shareholders in the future. Stock options are a means of motivating employees and providing them with extra security, because the company’s financial results, growth, and development have a direct impact on employee share value, which improves their productivity at work. For these reasons, the attraction and retention of employees, as well as sorting out the associated tax regimes, should be prioritised.
If we join together and work towards a common goal – building a successful and modern country based on a high valued added economy – life in Lithuania will improve for everyone. I hope this won’t take another three years of discussion regarding stock options, which are par for the course in other countries, providing real, motivating benefits to the best specialists, recognised as creating tangible value already today.
