Employee Share Plans in Europe and the USA - Sorainen

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Employee Share Plans in Europe and the USARepublic of Latvia4.3 Tax withholdingsubject to income tax at a rate of (generally) 24.09% (which is part of atotal 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 employer socialsecurity contributions.If the cost of a share plan is borne by the Latvian employer, it must withhold anyincome tax and employee social security contributions due. 45. Taxation of share options5.1 Employee tax and social security contributions5.1.1 Grant: There is no liability to tax or social security contributions on thegrant of a share option.5.1.2 Exercise: There is an income tax charge on the exercise of a shareoption on the difference between the market value of the shares at thedate of exercise and the option exercise price. For the 2010 tax year,the personal income tax rate for Latvian residents is 26%.5.1.3 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) ata rate of (generally) 9% for the 2010 tax year. There is no cap on theamount of an employee's earnings that are subject to employee socialsecurity contributions.5.2 Employer tax and social security contributions5.2.1 Corporation tax deduction: It is unlikely that a corporation taxdeduction will be available for a Latvian company for any costs which itbears in relation to an employee share plan.5.2.2 Social security contributions: Employer social security contributionsarise on the exercise of an option in circumstances where an employeeis subject to social security contributions. For the 2010 tax year the rateof employer's social security contributions is (generally) 24.09%. There4Where the withholding obligations for the local entity do not apply (e.g. because no recharge is made tothe local entity), the benefits derived from the share acquisition must be reported by the employee tothe financial authorities on the employee's annual Latvian tax return.UK/1729295/03 127 September 2010
Employee Share Plans in Europe and the USARepublic of Latvia5.3 Tax withholdingis no cap on the amount of an employee's earnings which are subject toemployer social security contributions.If the cost of a share plan is borne by the Latvian employer, it must withhold anyincome tax and employee social security contributions due.6. Taxation of share disposalsA new capital gains tax regime was introduced in Latvia from the start of the2010 tax year. This new law applies to capital gains made on the disposal ofshares. An employee who sells shares will usually be liable to capital gains taxat a rate of 15% for the 2010 tax year on the difference between the sale priceand the market value of the shares on the date they were acquired.7. Employee benefit trusts7.1 Employee benefit trusts are not recognised under Latvian law. However, aLatvian company may make a contribution to such a trust for the benefit of itsemployees.7.2 An employee who is a beneficiary of a discretionary employee benefit trustshould not be taxable for that reason alone. 5 It is likely that the employee will betaxed when he actually receives benefits from the trust, as if he had receivedthose benefits directly from his employing company.8. Data protectionEmployee consent must be obtained for the collection, processing and worldwidetransfer of personal data in connection with an employee share plan. 656It should be noted that this issue is not entirely clear under Latvian law.If the employer is involved in collecting and/or processing the employees’ personal data, it must (i)obtain permission from each employee to collect his/her personal data and to transfer the personaldata abroad, (ii) register with the Data State Inspector, and (iii) obtain prior approval from the DataState Inspector to transfer the data abroad, except where each respective employee has expresslyagreed to the transfer of personal data abroad and the system manager has undertaken to ensurecompliance with applicable security procedures.If the foreign parent company processes the subscription forms, it should obtain an equivalent consentfrom each employee in order to be allowed to process his/her personal data.UK/1729295/03 128 September 2010
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Employee Share Plans in Europe and the USA - Sorainen

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