The Government has decided, in the mid-term budget negotiations, to reform the taxation of employee stock options in a way that the Finnish startup community has long advocated. Going forward, employee stock options in startups will be taxed only at the point when the shares are sold – that is, when the employee has received actual financial gain.
The reform applies to shares in unlisted companies. At the same time, the Government decided to develop the regulation of employee share issues so that, in the future, employees working within group structures can also be offered shares in the parent company. This is an important improvement, particularly for internationally operating growth companies.
The reform removes a key flaw in the current model, where employees may have been required to pay taxes already at the point of exercising their options, even if they had not yet sold the shares or received any cash. This has created uncertainty and led many to refrain from using their options altogether.
“This is a long-awaited and very important decision for Finnish growth companies. Employee stock options are a key way to attract talent to help build new success stories. The taxation model now finally reflects the reality in which startup employees operate,” says Riikka Pakarinen, CEO of the Finnish Startup Community.
Finland competes with other countries for the same international talent, and a competitive option taxation model is one of the key factors influencing where growth companies are founded and where they choose to grow.
“This decision significantly strengthens Finland’s position in that competition. In the long term, the reform may also increase tax revenues if more startups succeed and scale,” Pakarinen adds.
Finnish startups already employ nearly 50,000 people globally, and their combined revenue exceeds €12 billion. Employee stock options are particularly important for fast-growing companies that are not yet able to compete with the salary levels of large corporations.
The Finnish Startup Community has considered the reform of option taxation one of its most important policy priorities and welcomes the fact that the Government has listened to the message from companies and the broader ecosystem. The Finnish Startup Community would like to especially thank Minister of Employment Marttinen for advancing the reform and for ensuring that the perspective of startups was taken into account in its preparation.