Employee Share Plans in Europe and the USA - Sorainen

Employee Share Plans in Europe and the USAHungary3.2 Hungarian subsidiary of a non-Hungarian company: The sameconsiderations apply as set out in paragraph 3.1 above.4. Taxation of share acquisitions4.1 Employee tax and social security contributions4.1.1 Tax: An employee who acquires shares in his employer or its parentcompany free of charge or at a discount to market value is deemed tohave received employment income. The employment income is equal tothe difference between the fair market value of the shares at the datetriggering the tax liability and the amount paid by the employee for theshares, if any. The tax liability is triggered on the date the employeeacquiring the shares acquires any rights (dividends, voting rights etc.)attaching to those shares.Employment income arising from the acquisition of shares is subject toconsolidation with other income and the consolidated income notexceeding HUF 3,937,000 (approximately €13,000) per annum is subjectto tax at 17.1%. Income in excess of that amount is subject to tax at32%.Shares (worth up to HUF 1,000,000 per annum) received under a shareplan which is reported to, and registered with, the Hungarian fiscalauthorities are exempt from income tax provided a number of criteria aremet and certain administrative requirements are complied with (an"approved employee share plan"). 1 One such requirement is that theshares must be subject to a minimum holding period of at least 2 years.Under such approved employee share plans, the capital gain arising onthe sale of the shares is taxed at the time of sale and the income (i.e. thedifference between the value of the shares when they are first acquiredby the employee and the amount paid for them, if any) is classified as acapital gain, taxed at a rate of 25% (or 20% if the sale takes place on aregulated capital market of an OECD or EEA member state).4.1.2 Social security contributions: Social security charges are payable bythe employee at a rate of 17% on employment income up to HUF7,453,300 and at a rate of 7.5% on employment income in excess of that1The criteria and administrative requirements are complex and impose a signification administrativeburden on local employers. In practice, local employers may find that the tax benefits derived fromregistering the share plan are outweighed by the costs of registering and running such an approvedplan.UK/1729295/03 96 September 2010