The Finnish Government has in its framework negotiations outlined a significant reform of the taxation of employee stock options. In the future, employee stock options in unlisted companies would, as a general rule, be taxed only when the shares acquired using such options are sold. The aim of the reform is to improve the ability of Finnish startups and growth companies to attract talent.
Under the current tax rules, a taxable earned income may arise for the employee already at the time when shares are subscribed for using employee stock options. The taxable benefit is deemed to be the difference between the fair market value of the share and the subscription price paid by the employee, when shares are acquired at a price below their fair market value. Such benefit is taxed at the time the employee exercises the stock option, i.e. when the shares are subscribed for, irrespective of whether such shares can actually be sold at that time or not.
Under the reform proposed by the Finnish Government, the exercise of employee stock options would, as a general rule, no longer give rise to any immediate tax consequences. Instead, taxation would be deferred until the shares are sold. The reform is particularly relevant for startups and growth companies, where option‑based incentive schemes often form an important part of employee remuneration. The change thus enhances the ability to reward and retain key individuals by creating incentives linked to the development of the value of the company, without the negative effects of early taxation.
We regularly assist companies with the planning and implementation of incentive programmes and we will therefore closely follow the progress of this reform.
