Estonia, Financial Services, Legislation, Markets and Companies, Taxation

Currently, a company has to pay the fringe benefits tax at once when issuing a stock option to an employee. According to the new regulation, the tax will not have to be paid if there is a gap of at least three years between granting the option and real acquisition of shares.

Riigikogu finance committee chairman Taavi Rõivas said that so far, issuing options was a very big cost for a company but the new logic is that options are taxed more like securities income: if you buy a share and sell it at a profit you pay income tax on the profit.

He said that the 3-year sale restriction was added to prevent a tendency that companies start paying tax-free wages to employees in stock options.

Rõivas said that currently just 2% of Estonian population earns shareholder’s income but with the law amendment, more people should move from the status of a wage-earning employee to co-owner.