Employee Share Plans in Europe and the USA - Sorainen

Employee Share Plans in Europe and the USARepublic of Lithuania4.2 Employer tax and social security contributions4.2.1 Corporation tax deduction: From 1 January 2010, a Lithuaniancompany bearing the cost of an employee share plan is entitled to acorporation tax deduction, as the benefit received by employees istreated as employment-related income subject to personal income tax.4.2.2 Social security contributions: As from 1 January 2010, the employeris subject to social security contributions (at a rate of 30.98%), whereshares are granted to an employee by the employing company at adiscount to market value or free of charge.4.3 Tax withholding: As from 1 January 2010, tax withholding obligations arise forthe Lithuanian employer where shares are granted to an employee at a discountto market value or free of charge by the employing company. The followingtaxes must be withheld by the Lithuanian employer in relation to the taxableamount: (i) personal income tax (at a rate of 15%), (ii) employee social securitycontributions (at a rate of 3%), and (iii) health insurance contributions (at a rateof 6%).If the share awards are granted by a group company established outsideLithuania, then there is no obligation on the employing company to withhold thepersonal income tax arising and social security/health insurance contributions donot arise.5. Taxation of share options5.1 Employee tax and social security contributions5.1.1 Grant: There is no income tax charge on the grant of a share option.5.1.2 Exercise: Shares acquired by employees at a discount to market valueor free of charge upon the exercise of a share option granted by theemploying company or a group company are treated as taxable incomein-kindreceived by the employee. The taxable value is the differencebetween the market value of the shares at exercise and the amount paidby the employee. These new rules apply regardless of when the optionwas granted (i.e. the rules extend to options granted prior to 1 January2010).5.1.3 Social security contributions: Where the grantor of the share awardis the employing company then the acquisition of shares by an employeeat a discount to market value or free of charge upon the exercise of ashare option is subject to social security contributions (at a rate of 3%)and health insurance contributions (at a rate of 6%).5.2 Employer tax and social security contributions5.2.1 Corporation tax deduction: From 1 January 2010, a corporation taxdeduction is available for a Lithuanian company for any costs which itUK/1729295/03 133 September 2010