Key amendments to Lithuania’s social insurance legislation now mean a major taxation issue, which has had serious repercussions in Sweden, has been resolved. Parliament of Lithuania approved changes to the Law on State Social Insurance which will create fair and competitive taxation levels on employee stock options. Employee stock options are shares acquired by employees as part of their remuneration package. The reform means that any shares employees acquire after three years of working for a company will be exempt from social insurance contributions.
Employee stock options are used by a number of companies as tools for motivating staff. This is because the value of the shares the employee holds is directly linked to the financial results of the company and increases as the company grows and develops. Because they usually boost efficiency and performance, these incentives are popular with many international companies including Google, Apple and Facebook.
Mantas Katinas, Director General of the foreign investment development agency Invest Lithuania, believes these latest reforms will be of particular benefit to startups. “Being able to use employee stock options to attract and motivate employees is an especially important tool for young startups. Because it is harder for them to offer competitive salaries straight away, employee stock options are becoming a key instrument in helping young businesses to attract and retain highly-skilled employees. And this instrument can hugely benefit employees too. If the company is successful and grows, the value of the shares acquired on the basis of these options increases, sometimes multiplying by as much as 1000 times. There is no doubt that these amendments will make a significant contribution to building a robust and vibrant business ecosystem that will benefit both local and foreign talents,” argued Mr Katinas.
The European Commission and the Europe Council have long recognised the importance of employee stock options, with both bodies recommending that EU Member States create more favourable taxation systems with respect to these instruments.
