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Recruitment and retention of properly qualified and skilled employees is a major factor of company competitiveness.
In the current environment, the keeping of the long-term commitment of employees and managers in key positions is gaining importance for companies efficient means of which is an incentive system going beyond wages.
In recent years, solutions, which, using the opportunities and advantages offered by legal regulations, are suitable for making employees interested in the profitable operation and growth of the company have also increasingly gained ground in Hungary.
Possibilities for an alternative remuneration system for managers and employees are specified in the Act on Personal Income Tax and the Civil Code, which define the advantages as well as the consequences of each benefit form.
Securities (quota, shares) or rights relating to securities (purchase or subscription options) may be provided to employees under employee security benefit programs to each of which different favourable tax conditions relate.
Employee benefit programs are able to provide, on the one hand, a favourably taxed benefit for employees and executives and, at the same time, an easy-to-regulate, efficient means for the employer for ensuring the commitment of employees.
The programs improve employee loyalty, long-term commitment to the company and make the employee directly interested in profitable operation. They support the recruitment and retention of employees in key positions. All this is achieved, depending on the form of the benefit, with a favourable tax implication for both the individual and the company.
Individual programs, however, come with different opportunities in terms of tax allowances, costs and administration. In addition, they allow for the implementation of different conditions and rules, which, in certain cases, may bring changes to the shareholder rights that the original shareholders may exercise.
The regulation allows for various security benefit opportunities defining significant differences between the different types of benefits.
The three major benefit groups are as follows:
The most important differences can be defined along the following characteristics:
A customized incentive system that is the most efficient and involves the lowest level of risk can be developed for any company using the above benefit forms. The type of program to be introduced for a specific company depends on several factors (e.g. headcount, company size, and form, equity, objectives, group of participating employees etc.).
To develop the most favourable solution it is important to assess or significant factors to identify goals clearly and to carefully plan implementation.
|Tax consequences of 10 million forints of income||Net benefit (HUF)||Gross benefit (HUF)||Total employer cost (HUF)||Net payment ratio|
|Tax burden on wage income||10,000,000||15,037,594||18,571,429||53.85%|
|Tax burden on dividend income *||10,000,000||11,764,706||11,764,706||85,00%|
* Assuming that the employee reaches the cap on health contribution payment with other incomes.
Should you be interested in the acknowledged employee security benefit program or perhaps in other tax planning opportunities, do not hesitate to contact us.
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