Employee Share Plans in Europe and the USA - Sorainen

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Employee Share Plans in Europe and the USARepublic of LatviaRepublic of Latvia1. Securities law1.1 Offer of securities 1 : Although the offer of securities to the public generallyrequires the publication of a prospectus, there is an exemption from thatrequirement where securities are offered to employees or persons dischargingmanagerial responsibilities within the employer 2 which are (i) issued by theemployer or by a company in the same group as the employer; (ii) offered by aperson in the same group as the employer; and (iii) admitted to trading on aMember State’s (European Union or European Economic Zone state) regulatedmarket, provided that a document containing information about the number andthe type of securities and the reasons for, and details of the offer is publiclyavailable.There is also an exemption for an offer to fewer than 100 individuals or legalentities that are not qualified investors in Latvia (provided that the offer is alsomade to fewer than 100 persons in every other EU member state in which theoffer is being made).1.2 Regulatory issues: There are no other regulatory issues which affect theoffering of securities to employees, assuming that no third party intermediary isinvolved in the offering.1.3 Disclosure: Extensive disclosure obligations exist under the EU Market AbuseDirective, as implemented in Latvia, particularly in relation to dealings in sharesby directors and other persons discharging managerial and internalauditing/controller responsibilities within the issuer.2. Exchange controlsThere are no exchange control restrictions in Latvia.3. Financial assistance3.1 Latvian company: A Latvian joint stock company is generally prohibited fromproviding financial assistance (including the provision of security or a guarantee)to acquire its own shares. There are no exceptions to this prohibition foremployee share plans.1The Prospectus Directive was implemented into Latvian law in June 2006.UK/1729295/03 125 September 2010
Employee Share Plans in Europe and the USARepublic of Latvia3.2 Latvian subsidiary of non-Latvian company: A Latvian subsidiary that isincorporated as a joint stock company is generally prohibited from providingfinancial assistance (including the provision of security or a guarantee) to acquireits own shares but there is no express prohibition on financial assistance for theacquisition of shares in a non-Latvian parent company.4. Taxation of share acquisitions4.1 Employee tax and social security contributions4.1.1 Tax: An employee who acquires shares in his employing company or itsparent company free of charge or at a discount to market value willnormally be liable to pay income tax. The tax charge is on the differencebetween the market value of the shares at the time of acquisition and theamount, if any, paid for the shares. For the 2010 tax year, the personalincome tax rate for Latvian residents is 26%.4.1.2 Social security contributions: An employee will only be subject tosocial security contributions if the cost of the share plan is borne by theemployer (e.g. if a recharge payment is made to the parent company). Ifsocial security contributions are payable, these are charged on theamount subject to income tax at a rate of (generally) 9% (which is part ofa total rate of 33.09% which is allocated between the employer (24.09%)and the employee (9%)) for the 2010 tax year. There is no cap on theamount of an employee's earnings that are subject to employee socialsecurity contributions.4.2 Employer tax and social security contributions4.2.1 Corporation tax deduction: It is unlikely that any corporation taxdeduction will be available for a Latvian company which bears the costof an employee share plan. 34.2.2 Social security contributions: Employer social security contributionswill only be payable if the cost of a share plan is borne by the employer(e.g. if a recharge payment is made to a parent company). If socialsecurity contributions are payable, these are charged on the amount23The persons discharging managerial responsibilities within a company include a member of thesupervisory council (padome), the executive board (valde), or the general proxy (prokūrists) or aperson who otherwise actually manages the activities of the company.The corporation tax deduction in relation to share plan costs is not explicitly addressed in the Latviantax legislation. However, the current prevailing view is that a corporation tax deduction is unlikely to beavailable in most circumstances.UK/1729295/03 126 September 2010
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Employee Share Plans in Europe and the USA - Sorainen

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