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Stock Option Amendments for Latvian Companies

Latvia always had a pleasant environment for business opportunities growth, receiving wide support from such government agencies as LIAA and ALTUM, however besides funds a company is always in desperate need for talents. Therefore, to stimulate and make HR department life a little easier, Latvian government on 17 December 2020  introduced gratifying tax changes in addition to 0% corporate tax change in 2018. The changes will significantly improve its competitiveness and extend the tax exemption to stock options issued by limited liability companies.

Previously, tax exemptions were available only for the stock options provided by joint-stock company, only if the employee received stock options in accordance with the stock option plan and held them for at least 36 months. Furthermore, he was obliged to remain employed by the company or as an affiliate that granted stock options and notify Revenue Service two months in advance before the date of grant. Those mentioned rules did not seem complicated and impracticable for members of joint-stock companies, however for employees of limited liability companies it was a inapplicable – as in additional, when exercising the stock options, they were obliged to pay progressive Personal Income Tax depending on the amount of income.

Therefore after a long battle by the Startup community together with and the increasing demand for stock options from start-ups and SME's the government decided to adopt the amendment. Not to mention that large international groups are also benefiting from the upcoming changes – the holding period is reduced by three times, and individuals should not be employed any more by organizations that granted stocks. (see diagram)

Reforms are most significant for start-ups incorporated in limited liability companies form - they are getting their second wind. The industry will have a possibility to attract new talents and motivate current employees by offering meaningful stock options. Because of this instrument, workers will invest more effort to make the company successful, as stock value hinges on organizational performance, and companies will be able to attract better employees which are looking for an upside rather just a salary.

Nonetheless, we all know that standard situations as the law dictates are very rare, thus, if you wish to consult, Venture Faculty team door is always open

Written by Venture Faculty team.