Index Ventures now ranks Latvia as the most “startup-friendly” country in Europe, following a legislative change to the country’s stock option policy. Neighbours Estonia and Lithuania claim the next top spots. According to the VC firm, the new reforms in Latvia, and earlier last year in Lithuania, have turned the Baltics into a region with the world’s most favourable stock option policies, making it easier for startups to attract and retain the talent they need to succeed. The changes include the following:
- All private limited companies can choose the strike price of their stock options, without creating any tax liability upon grant and without any formal valuation process.
- A 20 percent capital gains tax is applied only once the shares are sold, taxing the difference between the sale and strike price.
- Employees that receive such options don’t necessarily gain voting rights when exercising their options, limiting the bureaucracy of corporate decision-making.
- In Latvia specifically, the minimum vesting period went down from three years to one — which is much more attractive to potential employees.
In response to the recent policy changes, Index Ventures revised its country ranking based on the favourability of stock option policies, placing all three Baltic nations ahead of 22 other countries including the US, the UK, Israel, France and Germany. The global VC firm, along with national startup initiatives, founded the Not Optional campaign to urge European policymakers to make such changes. The organisation released an open letter, signed by more than 500 European startup founders and CEOs, arguing that stock options are critical to their ability to attract talent. Now the hope is that other countries will catch on. “While these policy changes will be welcome news to Latvian and Lithuanian startups and startups expanding into those countries, we now need the rest of Europe and the EU to follow suit,” said Index Ventures partner Martin Mignot.
Top photo: Event stage at Tech Chill in Riga, Latvia. February 2020