The Hungarian Act on the Employee Stock Ownership Plan (the “ESOP Act”) was amended by the Hungarian Parliament in November 2019. It is good news that the amendment does not affect the taxation of incomes from the ESOP organization, so it is still possible to get a private income through an ESOP under very favorable tax conditions. Accordingly, payments made to the employees within the ESOP are solely subject to a 15% personal income tax, which means 18.5% savings for the employees, while on the other hand employers can reduce their public burdens with 21%.
The amended ESOP Act however significantly influences the conditions for the establishment and the operation of the ESOP organization, and in some cases, they are explicitly restricted. For example, the ESOP shall be solely based on securities representing shareholder’s rights: the ESOP organization can handle shares, other securities embodying the same investor risk to shares, or relating rights to these securities from 2019. Other big change is that the securities/rights must be kept in the ESOP organization for at least 12 months (from 2020 to 24 months) before the ESOP organization perform payments to the employees.
The amendment will enter into force at the beginning of 2019. According to the amendment, the existing ESOP organizations have 6 months from the entry into force to comply with the new rules, however, the ESOP organizations established until 1 January 2018 have more benefits, i.e. some restrictions do not apply to them.