Taxation of Option Plans in Estonia
Option plans are good ways to reward employees for successful year or to bind them for the company. In Estonia option plans are taxed as fringe benefits. Fringe benefits are benefits received from the employer for example:
- Full or partial covering of housing expenses
- The use of vehicle or other property of the employer free of charge or at a preferential price for activities not related to employment or service duties or the employer’s business
- Payment of insurance premiums, unless such obligation is prescribed by law
- Compensation for official travel expenses and payment of daily allowances
- Compensation for use of a private automobile
- Loans granted with lower interest than the minimum rate established by the Minister of Finance
- Transfer free of charge or sale or exchange at a lower price than the market price, of a thing, security, proprietary right or service
- Purchase of a thing, security, proprietary right or service at a price higher than the market price
- Waiver of monetary claim
- Covering of expenses on formal education acquired within the adult education system and informal education
- Income received from transfer of share options granted by the employer or acquisition of holding that constitutes the underlying assets of the option
Taxation of Fringe benefits
As stock option plans are considering as fringe benefits they are taxed in the same way. The tax rate is 26,58% of the taxable amount plus 33% for the social tax. The liability to pay the taxes is for employer. However, the taxation can be exempted when the person holds the shares option from the same group as the employer at least three years. The employee is still liable, after the exemption, to pay tax on capital gains from the sale of shares. If the employer paid tax for the options as fringe benefits it is included to tax paid.
Tony Koivula, lawyer of the Gencs Valters Law Firm in Tallinn.
Practising in fields of Taxation in Latvia, Lithuania, Estonia.
T: +372 61 91 000
F: +372 61 91 007