In a situation where:
- the employee has received securities from the employer at a discount or for free from which the employer has paid income tax and social tax on the fringe benefit, or
- a natural person has received securities from a legal person as a qift and the legal person has paid the income tax on the gift,
the resident natural person has the right, when transferring these securities, to declare the paid tax on fringe benefit or the price of the gift (market price of the securities or the difference in price) as acquisition cost in the natural person income tax return.
In this case, the natural person has to ask a certificate (in free form) from the employer or the legal person, which indicates the name and registry code of the issuer of the securities and also the type, quantity and price of securities and the taxed sum by the employer or legal person. It is important to note on the certificate also the taxation period (month, year) form of the tax return TSD (Annex 4 or Annex 5) on which the taxed sum is declared.
How to find the acquisition cost of securities that a person (employee) acquired with an option contract from an Estonian employer?
While transferring securities the person can declare as acquisition cost the expenses incurred by acquisition of underlying assets of an option and/or the taxed sum paid by the employer for the fringe benefit based on the certificate issued by the employer.
A participation option contract may stipulate that in entering into the agreement, an option premium is paid. While transferring securities the person can declare as acquisition cost also the option premium paid by the person.
The participation option contract may also stipulate that if it has passed less than 36 months from the conclusion of the option contract and the employee decides to realize the option, then the employee is obligated to pay to the employer the sum of tax liability arising from the fringe benefit.
In this case, the person can also declare the sum paid to the employer (the tax liability arising from the fringe benefit) as acquisition cost.
If no longer than 36 months has passed since the conclusion of the option contract and the option is realized, then the employer has the obligation to pay tax on fringe benefits on the securities (underlying asset of the option contract) given to the employee. The tax on fringe benefits in that case will be paid based on the market price or the price difference of the securities, from which the following will be deducted:
option premium paid by the employee and/or
the amount paid by the employee to the employer.
For example, in a situation where the price of a fringe benefit (the market price of the securities) is 1000 euros and the employee pays to the employer the tax liability arising from the fringe benefit, which is 662.50 euros, the taxable price of a fringe benefit for the employer is 1000 – 662.50 = 337.50 euros. The acquisition cost of securities for the employee will be 1000 euros (paid by the employee 662.50 + taxed as a fringe benefit 337.50 euros).
Updated in May 2019