On April 17, 2019, the Ministry of the Economy and Innovation of the Republic of Lithuania issued a proposal amending the Law on Individual Income Tax with regard to the tax treatment of stock options. If adopted by the parliament, the amendments will enter into force on January 1, 2020.
Currently, stock options granted to employees are taxed at the moment the options are exercised (i.e. employees must pay individual income tax immediately, despite the fact that they have not yet received any income). The taxable value is the market value of the shares being granted. This income is taxed as employment income. Since 1 January 2017, stock options that cannot be exercised until a period of 3 years has lapsed have not been subject to social security contributions.
Under the proposed amendments, employees' benefits from the stock options upon purchase of the shares free of charge or at a discounted price, provided that the shares are purchased no earlier than 3 years after the right of stock option has been granted, will be exempt from both individual income tax and social security contributions.
While it is not yet clear if this proposal will be enacted, we are continuing monitoring and will keep you informed about possible future changes.
To find out more about taxation in Lithuania, Latvia and Estonia please contact our lawyers at firstname.lastname@example.org.