Employee Share Plans in Europe and the USA - Sorainen

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