Increase company performance through employee share ownership.
Keep your employees and executives engaged.
Benefit from tax incentives available for all-employee and discretionary plans.
Employee Share Ownership Program (“MRP”) with beneficial taxation
Employee Share Ownership Program (“MRP”) with beneficial taxation
As of 2016 there is a new opportunity to provide managers and/or employees of your company with a tax beneficial incentive, called Employee Share Ownership Program (“MRP”). Since the rules are put into effect for a while, now there is a practice how to establish and operate such a scheme.
- The program is called as MRP (“Munkavállalói Résztulajdonosi Program”), which means a kind of Employee Share Ownership Program.
- The structure of this share ownership is specific since the managers and/or employees participating in such a program do not need to have a direct ownership in the company, but an indirect ownership or options for ownership satisfies the requirements.
- The above means that a newly established entity will be the direct owner of the shares of the company, or the beneficiary of the options, while the employees and managers will have interest in and receiving income from this intermediate entity (MRP organization).
Since this new entity does not have to be registered in the company’s court, the above structure is easy to set up and operate for administrative purposes, while it results a lower taxation with applying the flat personal income tax rate (in some cases social tax of 13% is also applicable, which liability is capped), instead of the unlimited social charges applicable for salaries.
This is summarized below:
The above with figures of 5,000,000 HUF income per year:
| Salary | MRP | |
| Gross income | 5,000,000 | 5,000,000 |
| Tax (15%) | 750,000 | 750,000 |
| Social charges | 1,575,000 | n/a |
| · Employer (13%) | 650,000 | n/a |
| · Employee (18,5%) | 925,000 | n/a |
| Total cost to employer | 5,650,000 | 5,000,000 |
| Net to employee | 3,325,000 | 4,250,000 |
| Net to cost ratio | 59% | 85 |
| Total saving | 1,575,000
31,5% |
However, to apply the above structure some criteria should be fulfilled:
- A new entity should be set up (this would be the so-called MRP entity)
- Some policy will rule the operation of the program, which are the compensation policy, the internal policy of the entity and rules of corporation of the entity
- It should also be defined how the income will be created in the new entity (like it will receive dividends or capital gains or options)
- There are no limits of the incentive amounts, participants
In order to apply the beneficial tax incentive program, the following steps should be considered:
- Compensation policy should be set up to identify the participants and to establish the main rules and principles of the program
- The new entity should be established (and thus the internal policy and the rules of corporation should be created)
- After the registration of the new entity, shares or options should be put into it
- The new entity is now operated and payments to the participants can be initiated
If you are interested in the above, please let us know; we are happy to assist you in all of the above steps or guide you through the whole process, if needed.
