Employee Share Plans in Europe and the USA - Sorainen

Employee Share Plans in Europe and the USARepublic of Estonia2. Exchange controlsThere are no exchange controls for employee share plans in Estonia.3. Financial assistance3.1 Estonian Company: The Estonian Commercial Code prohibits a company frommaking loans for the purchase of its own shares. Similarly, the granting ofguarantees or otherwise providing security for such loans is prohibited. Nospecific exemptions apply in relation to employee share plans.3.2 Estonian subsidiary of non-Estonian company: An Estonian subsidiary isgenerally prohibited from providing financial assistance in the form of loans orguarantees for the acquisition of shares in its non-Estonian parent company. Nospecific exemptions apply in relation to employee share plans.4. Taxation of share acquisitions4.1 Employee tax and social security contributions4.1.1 Tax: Where an employee acquires shares free of charge or at a discountto market value, the benefit to the employee (being the differencebetween the market value of the shares at acquisition and the amount, ifany, paid for the shares) is taxable as a fringe benefit. Fringe benefitsgive rise to income tax liabilities for the employer but not for theemployee.4.1.2 Social security contributions: Fringe benefits give rise to social taxliabilities for the employer but not for the employee.4.2 Employer tax and social security contributions4.2.1 Corporation tax deduction: Under the Estonian corporation taxsystem, undistributed corporate profits are exempt from tax andcorporation tax deductions are not available. The profits of an Estoniancompany are instead taxed when they are distributed (or deemed to bedistributed).4.2.2 Tax and social security contributions: The employer will be liable toincome tax and social tax on the fringe benefit. Fringe benefits arecharged to income tax at a rate of 26.58% and charged to social tax at arate of 33% on the difference between the market value of the sharesacquired and the price paid for them by the employee.UK/1729295/03 44 September 2010