Overview of ESOP regimes in Central Europe

Are you looking for new ways to increase employee motivation? Are you considering implementing an employee stock plan, but wondering whether it is the right fit for you?

In recent years, it has become increasingly common for employers to link employee remuneration to business goals through Employee Stock Ownership Plans (ESOPs). So, what are the benefits of ESOPs and why are a growing number of companies finding them attractive?

Download our overview covering ESOP regimes across 16 Central European jurisdictions, including Albania, Austria, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Hungary, Kosovo, Latvia, Lithuania, Poland, Romania, Serbia, Slovakia, Slovenia, and Ukraine.

We hope you will find this overview interesting and helpful to your work.

What is an ESOP?

There are two main categories of incentive plans deployed by employers:

• Incentive plans that give employees actual shares in the company or another company in the same group (e.g. ESOPs or Restricted Stock Units).

• Cash bonuses linked to virtual shares if certain conditions are met (Phantom Plans or Stock Appreciation Rights).

The term ESOP covers various types of employee stock ownership plans, which already enjoy some popularity in Central European markets. They have proven to be an effective incentive mechanism both for start-ups (which are often unable to offer employees competitive salaries) and for established companies (to reward employees for their loyalty and contribution to the company).

However, each category of ESOP has a distinct legal structure, with varying repercussions on how employee income is taxed and differing levels of suitability for employers.

Why choose an ESOP?

• Retain key employees, whose shares will be profitably capitalised in the event of success (e.g. in the event of capital shortages in the product development phase).

• Motivate employees to personally contribute to the growth of the company.

• Incentivise employee retention in a highly competitive environment.

• Boost employee interest in how the company is run.

ESOP Implementation - Key considerations

If you are thinking about implementing an ESOP, you’re probably asking yourself some of the following questions:

• How favourable is the legislation in each CE country?

• Which employees should we offer this benefit to? Do we want employees to have decision-making rights?

• What kind of ownership interest should we offer employees? Should we give it to them for free?

• How do we draw up the documentation and integrate this benefit into our internal policies?

• What will be the tax implications for employees and the company?

How can we help you?

We’ll talk you through the opportunities provided by ESOPs: our dedicated workshops will introduce you to the ESOP system, its pros and cons, and discuss your own ideas and your company’s specifics.

If you choose to go ahead with the ESOP, we’ll guide you through the entire implementation process: together, we will find the right answers and the solution that best suits your needs.

Integrated Support

Our full-service approach lets you set up an effective ESOP backed by extensive tax and legal perspectives. With our client-tailored solutions, our experts will design an entire ESOP just for you so that you can get started right away.

Central Europe market experience

Our analysis shows that, in most CE countries, the viability of employee stock ownership plans depends on the legal and tax treatment of this benefit.

While some countries such as Austria are already streets ahead in this department, most others are still working to create a favourable tax regime or, in many cases, a bespoke corporate law regime.

Our analysis also makes clear that this incentive – which gives employees a direct stake in their employer's success and which has been more widely adopted in other global regions – is considered a key legislative priority in several countries.

Here are some key findings:

• 10 countries have a favorable tax regime for ESOP shares.

• 13 countries have legal frameworks regulating ESOPs.

• In 15 countries there are legal and tax consequences when implementing ESOPs from a foreign HQ.

• 15 countries do not have any specific regime for phantom share plans.

• 8 countries have a specific corporate law regime for ESOP shares.

For more details, read our country-by-country overview!