Employee securities benefit programme

Employee securities benefit programs

Recruitment and retention of properly qualified and skilled employees is a major factor of company competitiveness.

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Sándor Hegedüs partner, head of tax

Sándor Hegedüs

Partner, Head of Tax Services

Gábor Fajcsák, RSM Hungary, Tax Manager, Qualified International and Value Added Tax Expert

Gábor Fajcsák

Tax director


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. 

Why should companies implement an employee fringe benefit program?

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. 

Customized basic fringe benefit structures

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: 

  • ordinary share (remuneration ESP, acknowledged employee security benefit program and traditional ordinary share benefit), 
  • priority share (for employees and/or shareholders), 
  • employee share. 

The most important differences can be defined along the following characteristics: 

  • which employees and what headcount are covered by the benefit, 
  • what rights (e.g. voting rights) are transferred to the group of employees concerned, 
  • are the scope of rights and other rules relating to individual shareholdings fixed or flexible, 
  • what tax benefit and tax obligations does the introduction or perhaps the partial or full termination of the program and the payment of specific incomes generate on the side of the employer and on that of the employee, 
  • how complex is the system of conditions and the operation of the benefits program, 
  • what is the cost of the introduction and maintenance of the program. 

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. 

How much saving can be achieved by introducing a share benefit program?

Tax consequences of 10 million forints of incomeNet benefit (HUF)Gross benefit (HUF)Total employer cost (HUF)Net payment ratio
Tax burden on wage income10,000,00015,037,59418,571,42953.85%
Tax burden on dividend income *10,000,00011,764,70611,764,70685,00%

* Assuming that the employee reaches the cap on health contribution payment with other incomes. 

How can a customized security benefit program be prepared for the company?

  • Our qualified experts present the advantages and disadvantages, the regulatory issues and potential risks relating to the programs available. 
  • They assess the needs of the company, the goals to be achieved and provide assistance in the selection of applicable programs. 
  • If requested, a comparative analysis is prepared of the selected programs, which examines, above all, the expected costs and administrative burdens, the overall tax burden and feasibility. 
  • After the decision is made, we prepare a personalized material for the company containing the complete process description of the program to be introduced. 
  • With a view to the special needs of the provider, we prepare, among others, the necessary policies, company documents and the generation of the shares. 
  • If requested, we provide information to the employees participating in the program and/or prepare a written summary of the provisions concerning them. 

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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