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EY Baltics webcast Q&A: Hybrid Work and Stock Options
If contractors work as independent agents, then no PE risk. In contractors cannot be regarded as independent agents, a deeper analysis of their work functions would be needed in order to evaluate the PE risk.
In case of transactions between two legal entities, no PE risk. We suggest to analyze actual circumstances of the specific situation in order to assess PE risk.
We cannot comment on all EU countries, but most likely all the Treaties still apply between UK & EU countries. It is important to know that 183 days is a general rule for residency, however, each country may have more criteria under their local regulation for becoming a resident. So for determination of residency, not only Treaty provisions should be evaluated, but local regulation of a particular country as well.
The main risk could be employer's non-compliance in accordance to the local regulation of a foreign country, e.g. if employee works from another EU country, he should obtain A1 certificate in home country. This will ensure that no employer's registration and social security reporting/ tax payment obligations arise for the company in that country.
In addition, there could also be a risk from personal income tax perspective as well. Moreover, depending on the employees job functions, a risk of a permanent establishment could also arise.
As regards the measures, it is generally under company's discretion to decide. We are aware of cases we employer monitors vpn addresses of employees. So it would be beneficial to inform employees about potential risks and if there is a need for remote work set-up, it would be better to implement it and ensure compliance rather than dealing with consequences later.
First off all, each country may have different ruling on stock options. Generally, the residence country taxation would apply. Example, Lithuanian national is employed the the Portuguese company. At grant, no taxation as per LT regulation, PT should be evaluated as well. Exercises stock options, LT taxation on employment income shall apply. Assuming the benefit is provided by the PT company, it will be employees personal responsibility to report in his LT annual income tax return and pay 20/32% of personal income tax. In case employee also worked in PT during the vesting period, stock option award would be allocated per each country, so PT part would be taxed based on PT regulation and in LT, by reporting worldwide income, exemption with progression will be applied, meaning that PT part will be exempt from taxation in LT, but PT part will be taken into account in determining the tax rate on employment income.
In case of a non-listed company, the share valu eis defined based on transparent internally agreed principles that are defined in stock option policy & agreement. If/ when employee decided to sell their „shares“, valu eis defines as per above agreed principles.
In 2021 LT and LV has established separate ruling for UA nationals, some of it is still applicable, so no longer, but in some cases, even of UA nationals work from LT, they can be exempt from taxation in LT. We cannot comment on UA taxation, but if there is a need, EY could assist with the evaluation of a specific case per each country.
Yes
Conditions of SOP eligibility should define employment status, etc. For tax purposes – full time employment is typically considered. Change of status or FTE proportion can/ shall have impact on the elligibility. The legislation does not comment on part time employees, so reconfirming with the authorities would be needed. Potentially, the tax reliefs would still apply.
Please reach out to us based on country reference contact, and we‘d be happy to provide an offer based on your specific situation
When the LT company employs foreign tax resident (UK), the employee/ employer obligations in the UK must be evaluated. So we cannot comment on the exact obligations in the UK, but generally, LT company will have the obligation to register for social security purposes in the UK (even though it is a LT employment contract) and proceed with the reporting and tax payment. In order not to pay social security contributions in LT, A1 from UK is needed. Otherwise, obligations might by in both countries.
As regards personal income tax, if individual is tax resident in the UK, LT company should withhold PIT (GPM) 20% (or 32% if higher tax rate applies) only for the workdays spent in LT. The tax residency certificate from the UK could be required.
