The Estonian Riigikogu approved on Wednesday of the so-called “golden handcuffs” law or an amendment to the income tax law that allows companies to give stock options to employees without paying the fringe benefits tax starting the year 2011, LETA/Postimees writes.
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.