ESOP (Employee Share Ownership Programme) entities have been springing up like mushrooms in Hungary since last year, and the acronym itself has become something of a buzzword. And this is hardly surprising, as ESOP entities can be a tax efficient vehicle for paying out work incomes. Caution is advised, however: alongside the many advantages, the regulations also conceal a number of pitfalls.
What is an ESOP?
An ESOP is an entity created by an employer to hold securities issued by it or by its parent company, for the benefit of employees. So rather than awarding shares directly to employees, the employer or its owner sets up an ESOP entity, and transfers the shares to that entity instead. The company’s employees each receive a membership share in the ESOP entity, and in this way they gain access to the yield on the securities transferred to the ESOP.