Financial Licences in Lithuania

Lithuanian legislation enables entrepreneurs from all over the world to offer various financial and investment services to their clients on the basis of licences issued by the Bank of Lithuania.

Under Lithuanian law, financial services may be provided only where the undertaking satisfies the applicable regulatory requirements. Activities such as banking, electronic money issuance, payment services, investment services, fund management and regulated crypto-asset services generally require authorisation, registration or another legally recognised regulatory permission. Incorporation of a Lithuanian company does not itself grant the right to provide regulated financial services.

The Bank of Lithuania is the principal national authority responsible for authorising and supervising regulated financial market participants. However, the licensing framework depends on the activity concerned. Banking authorisation involves the European Central Bank under the EU Single Supervisory Mechanism, while certain financial institutions authorised in other EU/EEA Member States may provide services in Lithuania through applicable passporting or notification procedures. Separate rules apply to registration-based activities and financial services outside the Bank of Lithuania’s licensing competence.

By licensing companies, the Bank of Lithuania aims to ensure that all participants entering the financial market are reliable and financially viable, and their management is competent and has an impeccable reputation.

Currently, the Bank of Lithuania oversees more than 650 participants in the financial market, including banks, credit unions, insurance organizations, payment institutions, management companies,  Consumer credit providers etc. In the supervision of the financial market, the Bank of Lithuania uses risk-oriented supervision, which means that representatives of the Bank of Lithuania allocate resources primarily to the most important financial market participants or financial services and products that pose the greatest risk to consumers.

The development of a regulatory and supervisory system favourable to FinTech, as well as the promotion of innovation in the financial sector, is one of the main strategic directions of the Bank of Lithuania today. Together with other government departments, the Bank of Lithuania aims to create a favourable environment for FinTech, which will attract new companies from all over the world to Lithuania and contribute to the development of FinTech solutions in the country.

Following this direction, the Bank of Lithuania proposes the following solutions:

Company in Lithuania UAB can assist in obtaining the following financial licences:

Stock options in Lithuania in 2023

Employee stock options are a form of incentive remuneration that allows employees to acquire shares or receive another contractually defined benefit under specified conditions. In Lithuania, the tax treatment of employee stock options is governed primarily by the Law on Personal Income Tax (Gyventojų pajamų mokesčio įstatymas – GPMĮ), rather than VAT legislation. Qualifying employee stock option benefits may be exempt from Personal Income Tax where the statutory conditions are satisfied, including the applicable three-year period between granting the option and acquiring the shares. Cash-settled benefits and arrangements that do not qualify for the exemption may be treated as employment-related taxable income.

The popularity of options was also affected by the pandemic, which brought the business world to a standstill, which forced employers to look for more and more unique ways to attract new talent – from finding Bites Lietuva employees in the Tinder app to financial proposals to attract employees. With exceptional experience or qualities. Therefore, employee stock options are gradually becoming a new part of the workplace culture that benefits both companies in developing long-term employee loyalty, as well as providing its employees with financial security for their future in the company.

Employee stock options

The option principle for employees is the same as for other stock options – a financial instrument giving the holder of the option the right (but not the obligation)  to purchase shares of the company at an agreed price, which is usually the preferred price, within a specified period of time. One of the goals of an optional contract can be the formation of long-term and loyal relations with the employee and the introduction of flexible pay policy in the organization. Such a motivational package shapes the attractive culture and image of the company in the public space, helps to ensure the motivation of employees related to obtaining material benefits and greater confidence in the future. A stock option may be granted to an employee by both the employer and other organizations in the group of companies. Stock options may be granted to employees and, where contractually permitted, to other service providers, including consultants and advisers. However, the Lithuanian Personal Income Tax exemption for qualifying employee share options applies only where the statutory conditions are satisfied, including the required employment relationship and the applicable holding period. Granting options to an independent contractor does not automatically qualify the resulting benefit for the employee stock option tax exemption. The taxation of benefits received by non-employees must be assessed according to the nature of their contractual relationship and the applicable tax legislation.

The terms and conditions for offering stock options can be selected and adapted to the company’s objectives, for example, an option transaction may be tied to the fulfilment of certain conditions: efficiency of the company as a whole, time and achievements of the employee in the company, t. as well as changes in the share price of a company and other indicators that can be determined by the company providing the stock option.

The process of providing stock options

A stock option sale is not in itself a basis for transferring the company’s shares to an employee. It only entitles the employee to acquire shares in the company in the future. After an option transaction, shares are transferred under an additional transaction, which the employee can always refuse. In the event that an employee decides to exercise the right to an optional transaction, a transfer of shares by gift, sale or other form of transfer of shares is made with the employee, after which the shares are finally transferred to the ownership of the employee. The shares themselves are usually granted to employees by issuing new shares or by transferring shares owned by the company or shareholders. In normal practice, the beneficiary of an option is allowed to make a payment option, i.e. after a certain period during the period of the option, for example.

When the intended option is exercised, shares are not transferred to the employee, but instead are paid in cash the value of the shares, which is taken into account when the option is exercised.

Risk management

As with any financial instrument, there are risks associated with an employee stock option transaction. One of the main goals of the stock option is to motivate employees, keep employees in the company or attract new employees, to create a positive image of the employer. This implies the need to establish guarantees in the transaction for cases where, when the employee does not meet the necessary criteria and/or leaves the company, and the option ceases to perform its function for the company.

In an option transaction, it is advisable to provide that if an employee leaves the company improperly (for example, an employee is dismissed for gross violation of labour law), the employee loses the right to exercise the option. Undoubtedly, the rules may establish ways in which the employee’s care is appropriate (for example, after a certain goal has been achieved). Various guarantees are also available to maintain control over shares and voting rights (for example, in the case of a general purchase of shares, where all shares of a company are repurchased by the investor, monetary compensation is paid to the employee instead of shares).

A properly prepared legal and risk management stock option for employees can be an excellent tool for improving the company’s image as an employer and attracting or retaining employees, providing a direct financial benefit. When workers are increasingly pragmatic about the benefits from the employer, or do not see the direct value added that they create (for example, an employer’s luxury office gives little to an employee working from home), stock options may indeed be advantageous. The best way to increase motivation and strengthen long-term relationships.