Changes In The Taxation Of Employee Stock Options

• Published date: 03 August 2021
• Subject Matter: Tax, Income Tax
• Law Firm: Cobalt Legal
• Author: Sandija Novicka and Elīna Ločmele

On 17 December 2020 amendments to the Personal Income Tax Law were approved by the Latvian Parliament. As a result of the amendments, the exemption from payroll taxes in respect of employee stock options will cover also the options issued by limited liability companies.

So far the employee's income from stock options was exempt from payroll taxes provided that: (i) the stock options were granted pursuant to a stock option plan; (ii) the minimum holding period of the options (the period between the grant of option and its exercise) is 36 months; (iii) during the entire period from the date of grant until the date of exercise the individual remained employed either by the company that granted the stock option or by an affiliate; and (iv) the Revenue Service is notified about the grant of stock options not later than two months from the date of grant or the date at which the employee can apply for the stock options.

The Ministry of Finance and the Revenue Service interpreted the law to mean that the exemption is available only where the stock options are issued by a joint stock company.

The amendments extend the tax exemption to options issued by limited liability companies. The minimum...