Options

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Austria

A crucial starting point is to identify the relevant form of the currently implemented incentive program, which in an Austrian limited liability company or FlexCo will most likely be represented by one of the following basic compositions:

The beneficiaries received genuine shares (Geschäftsanteile) or company value shares (Unternehmenswertanteile).
The beneficiaries obtained genuine option rights to acquire shares in the company, which shall be sold to the buyer in the course of the triggering transaction.
The beneficiaries hold virtual options / shares, which do not represent an actual participation in the company but merely the contractual claim to (be treated as if and) receive a certain compensation from the proceeds received by the sellers.

The exact classification and treatment of said incentive programs ultimately always depends on the individual case. Nevertheless, in each individual case below aspects will have to be clarified in one way or another before going forward:

Does the proposed sale trigger the right of the beneficiaries to sell their participation and/or claim a portion of the realized proceeds?
Are the shares, company value shares or the compensation rights granted to the beneficiaries fully vested?
Will the process include the sale and transfer of genuine shares and/or company value shares and is this process handled by an agent acting on behalf of all beneficiaries?
Who are the obligated parties under the incentive program (funding shareholders, buyer and/or company)?
How are the entitlements of the beneficiaries treated in a waterfall of proceeds agreed upon with certain investors?

When it comes to potential Austrian tax implication of equity incentive programs for employees, a fundamental differentiation has to be made between genuine shares and stock options (please note that income from virtual shares is not comprised herein).

While a beneficiary receiving shares may benefit from specific tax reliefs under Austrian tax law, the recipient of non-tradeable options will be subject to full income taxation (subject to certain limited relief rules) generally upon exercise of the option as part of his/her employment income. The granting as well as the vesting of such options does generally not constitute a taxable event for Austrian tax purposes.
Therefore, the income taxation of options should typically materialize when exercising the option. If the exercise of the option occurs concurrently with (or close to) an exit, there should hardly be any (taxable) capital gain due to the benefit from the option grant already becoming taxable as part of the individual’s employment income.
A transfer of genuine shares (rather than options) is often not intended under an existing incentive program.
In the following we would like to briefly highlight some of the wage withholding tax implications arising from an option program at the level of an Austria resident target limited liability company (GmbH) in its capacity as employer of Austrian tax resident beneficiaries:

Assuming that a strike price per share falls short of the prevailing fair market value of a share upon exercise of the option, the target GmbH as employer of the beneficiary will have to comply with certain requirements under Austrian tax law.
The delta between the fair market value of a share and the strike price typically qualifies as taxable benefit from the options’ grant and is thus considered as taxable employment income of the beneficiary which is subject to Austrian wage withholding tax.
Therefore, the Austrian resident target GmbH will have to deduct/withhold the amount of wage tax on the delta (and social security contributions, if any) from any cash salary payable to the relevant beneficiary and remit the wage withholding tax amount to the competent tax authority. The Austrian resident employer entity (ie the target GmbH) is liable for the correct withholding and remittance of wage tax in time.
Should the cash salary of the beneficiary not be sufficient to cover for the wage tax amount, the target GmbH will have to claim the required wage tax amount in cash from the beneficiary.

Please note that the aforementioned treatment does not apply to a holder of shares or stock options who has received these shares/options as consideration under an M&A transaction in his/her position as seller (rather than as employee) instead of a full purchase price payment in cash. In this scenario, the holder will be taxed on the capital gain realized under the M&A transaction and any income or capital gains generated from the shares/options going forward should not be subject to wage tax (due to the non-qualification of the income as employment income) but qualify rather as investment income with a different tax regime being applicable.

Czech Republic

A crucial starting point is to identify the form of the incentive program currently in use, which in a Czech limited liability company (společnost s ručením omezeným) or a Czech stock corporation (akciová společnost) will most likely be structured through one of the following Employee Equity programs:

Employee Stock/Share Option Plan (ESOP) for employees or other cooperating persons: the essence of an ESOP is the gradual acquisition of share options instead of a direct acquisition of shares in a company, as is the case with the direct sale of shares. One option is to authorize an ESOP participant to purchase shares in the company under conditions agreed on in the ESOP plan and thus to become a shareholder in the future.
Direct sale of shares: The participant does not "just" acquire stock options but directly acquires genuine shares in the company and thus becomes a shareholder immediately upon entering the program.
Virtual (phantom) shares program: Unlike ESOP and direct sale, there is no transfer of shares (no matter at what stage). The beneficiaries hold virtual options / shares, which do not represent actual participation in the company but merely the contractual claim to (be treated as if and) receive certain compensation from the proceeds received by the sellers

In the case of limited liability companies, ESOP or virtual (phantom) shares programs are usually used. The direct sale of shares is rare and often impractical in structures of limited liability companies. For stock corporations, issuing shares or stock options may be more common, but remains demanding to administrate.

Does the proposed sale trigger the right of the beneficiaries to sell their participation and/or claim a portion of the realized proceeds?
Are the shares, company value shares or the compensation rights granted to the beneficiaries fully vested?
Will the process include the sale and transfer of genuine shares and/or company value shares and is this process handled by an agent acting on behalf of all beneficiaries?
Who are the obligated parties under the incentive program (funding shareholders, buyer and/or company)?
How are the entitlements of the beneficiaries treated in a waterfall of proceeds agreed upon with certain investors? When it comes to potential Czech tax implications of equity incentive programs for employees, a fundamental differentiation has to be made between genuine shares and stock options (please note that income from virtual shares is not comprised herein).

Poland

A crucial starting point is to identify the relevant form of the currently implemented incentive program, which in a limited liability company will most likely be represented by one of the following basic compositions:

The beneficiaries have received genuine shares or company value shares.
The beneficiaries obtained genuine option rights to acquire shares in the company, which shall be sold to the buyer in the course of the triggering transaction.
The beneficiaries hold virtual options / shares, which do not represent an actual participation in the company but merely the contractual claim to (be treated as if and) receive a certain compensation from the proceeds received by the sellers.

The exact classification and treatment of said incentive programs ultimately always depends on the individual case. Nevertheless, in each individual case the following aspects will have to be clarified in one way or another before going forward:

Does the proposed sale trigger the right of the beneficiaries to sell their participation and/or claim a portion of the realized proceeds?
Are the shares, company value shares or the compensation rights granted to the beneficiaries fully vested?
Will the process include the sale and transfer of genuine shares and/or company value shares and is this process handled by an agent acting on behalf of all beneficiaries?
Who are the obligated parties under the incentive program (funding shareholders, buyer and/or company)?
How are the entitlements of the beneficiaries treated in a waterfall of proceeds agreed upon with certain investors?

When it comes to potential Polish tax implications of equity incentive programs for employees, the parameters of a given plan are decisive as to the tax consequences for the employee, notably whether the income will be treated as capital gain or employment income, as well as for the timing of tax payments.

Polish tax law contains personal income tax preferences for stock plans meeting a number of criteria (including acquisition by participating employees of actual stock). These plans allow for deferral of taxation until the stock is sold and treatment of the revenue as capital gains, subject to a flat 19% tax rate. Tax is declared and paid by the employees individually.
For plans not meeting these requirements, their tax treatment may differ depending on the terms of a specific plan.
In particular, benefits under a given plan may be treated as part of the overall remuneration of the employee and subject to standard taxation (in case of employees it is generally the progressive tax scale of 12% and 32%) and social security contributions. Taxable revenue arises in the moment when the benefit in the form of share, option or other instrument is granted (i.e. no deferral of taxation). The employer acts as remitter of tax and social security contributions.
On the other hand, there are interpretations issued by the tax authorities allowing effectively for taxation of benefits under some stock / stock option plans according to preferential rules (i.e. deferral of taxation and taxation as capital gains). A detailed analysis is always recommended when contemplating the introduction of a stock plan.
Please note that the above-mentioned treatment does not apply to a holder of shares or stock options who has received these shares/options as consideration under an M&A transaction in his/her position as seller (rather than as employee) instead of a full purchase price payment in cash. In this scenario, the holder will be taxed on the capital gain realized under the M&A transaction and any income or capital gains generated from the shares/options going forward should not be subject to taxation as employment income but rather qualify as capital gain.

Hungary

As a general matter, equity incentive programs are relatively uncommon in Hungary. Where implemented, such programs are typically structured through the issuance of equity interests in a foreign parent company listed on an international stock exchange and governed by the laws of the relevant foreign jurisdiction.

To the extent that equity incentive programs are implemented at the level of a Hungarian company, it is essential to first determine the specific structure of the applicable incentive scheme. In practice, such programs may be implemented in the context of (i) a Hungarian limited liability company (Kft.); or (ii) a private company limited by shares (Zrt.), and usually take one of the following basic forms:

Direct equity ownership: beneficiaries are granted direct ownership in the form of business quotas (in Hungarian: “üzletrészek”, in the case of a Kft.) or shares (in Hungarian: “részvények”, in the case of a Zrt.). Such ownership must be registered with the competent company court and may be subject to internal restrictions on transfer, including rights of first refusal or pre-emption rights under the articles of association or shareholders' agreement.
Option rights: beneficiaries are granted genuine option rights to acquire business quotas or shares in a company, which may be exercised upon the occurrence of a specified triggering event (such as a change of control or exit). While option rights are generally enforceable under Hungarian law, their exercise, particularly in the case of a Kft., typically requires compliance with various corporate formalities, including shareholders’ resolutions.
Virtual options / share: in the least common, though not unprecedented, structure, beneficiaries hold virtual options or phantom shares, which do not confer actual ownership or corporate participation rights. Instead, they entitle the holder to a contractual (civil law) claim to receive a specified payout, typically calculated by reference to the proceeds received by the selling shareholders, as if the beneficiary had participated in the transaction.

The exact classification and treatment of said incentive programs ultimately depends on the individual case. Nevertheless, in each individual case the following aspects will have to be clarified in one way or another before going forward:

Does the proposed sale trigger the right of the beneficiaries to sell their participation and/or claim a portion of the realized proceeds?
Are the shares, company value shares or the compensation rights granted to the beneficiaries fully vested?
Will the process include the sale and transfer of genuine shares and/or company value shares and is this process handled by an agent acting on behalf of all beneficiaries?
Who are the obligated parties under the incentive program (funding shareholders, buyer and/or company)?
How are the entitlements of the beneficiaries treated in a waterfall of proceeds agreed upon with certain investors?

Considering the potential Hungarian tax implications of equity incentive programs for employees, a key distinction must be made between genuine shares and options (it should be noted that income from virtual shares or phantom equity is not addressed in this context, given the rarity of such structures under Hungarian market practice. While not without precedent, these arrangements remain exceptional and are typically assessed on a bespoke basis):

While the receipt of genuine shares may, under certain conditions, benefit from preferential tax treatment in Hungary, the acquisition of non-transferable options is generally subject to full income taxation, typically at the time of exercise, as part of the beneficiary’s employment income, subject to certain limited reliefs. The initial grant and vesting of such options generally do not constitute taxable events under Hungarian tax law. As a result, the income tax liability typically arises upon exercise. Where the option is exercised concurrently with, or shortly before, an exit event, any subsequent capital gain is likely to be minimal, as the embedded value of the option would already have been taxed as employment income.
Many incentive plans do not involve the immediate transfer of genuine shares but instead contemplate a conditional or deferred acquisition of shares, typically subject to performance milestones or vesting conditions. Below, we briefly highlight certain wage withholding tax implications arising from an option program implemented at the level of a Hungarian resident target limited liability company (Kft.) acting in its capacity as the employer of Hungarian tax resident beneficiaries:

Assuming that a strike price per share falls short of the prevailing fair market value of a share upon exercise of the option, the target Hungarian company as employer of the beneficiary will have to comply with certain requirements under Hungarian tax law.
Where the strike price per share is lower than the fair market value of the underlying share at the time of exercise, the difference is generally treated as a taxable benefit derived from the option. This amount qualifies as employment income and is subject to Hungarian wage withholding tax, to be accounted for by the employer at the time of exercise.
As a consequence, the Hungarian-resident target company is required to withhold the applicable wage tax (and any social security contributions, if applicable) on the difference between the strike price and the fair market value (the “delta”) from the beneficiary’s cash salary, and to remit the withheld amounts to the Hungarian tax authority. The employer entity (i.e., the target company) bears full responsibility for the accurate calculation, withholding, and timely remittance of these tax obligations.
Should the cash salary of the beneficiary not be sufficient to cover for the wage tax amount, the Hungarian-resident target company will have to claim the required wage tax amount in cash from the beneficiary.

Please note that the aforementioned treatment does not apply to a holder of shares or stock options who has received these shares/options as consideration under an M&A transaction in his/her position as seller (rather than as employee) instead of a full purchase price payment in cash. In this scenario, the holder will be taxed on the capital gain realized under the M&A transaction and any income or capital gains generated from the shares/options going forward should not be subject to wage tax (due to the non-qualification of the income as employment income) but rather qualify as investment income with a different tax regime being applicable.

Slovakia

In Slovakia, companies have three main options for granting shares to employees (or other persons, such as contractors):

Direct transfer of shares or ownership interests in the company, where the employee acquires them through a transfer for a symbolic contribution.
Granting of a right (option) to acquire shares of the company in the future at a pre-agreed price, which in most cases is lower than the market price.
Issuance of phantom shares or ownership interests in the company.

In Slovak deals it is common to see phantom/virtual plans that cash-settle on exit.

Phantom/virtual shares are contractual rights that mirror many features of real share option plans (vesting, performance conditions, continued service) though they remain purely contractual.

In Slovakia, they have long been the preferred form of employee participation, mainly for tax reasons: under the tax regime until 2024, when employees acquired real equity below market value, the difference was immediately taxed as income and also subject to social security and health insurance contributions. By contrast, phantom shares did not trigger taxation at grant; tax and contributions arose only when a cash payout was made. This deferral of taxation made phantom shares more attractive than “real” ESOPs despite their lack of shareholder rights.

Since 2024, employees and contractors (self-employed individuals) are exempt from income tax when they receive “employee shares” (zamestnanecké akcie) or an ownership interest in a limited liability company (spoločnosť s ručením obmedzeným) as part of an ESOP.

This exemption applies only if:

the company granting the ESOP has not paid dividends from the time of its tax registration up to the tax period before the ESOP grant, and
these employee shares have not been, and are not, admitted to trading on a regulated market or on a comparable foreign regulated market, up to the end of the tax period in which the benefit was acquired by the employee.

In the Slovak context, it is also relevant to consider the relatively new corporate form of simple joint-stock company (jednoduchá spoločnosť na akcie). It was introduced in 2017 to provide a more flexible corporate structure, particularly suited for start-ups. Unlike the “traditional” joint-stock company, simple joint-stock company allows for the possibility to issue different classes of shares with very low nominal values (as low as EUR 0.01). This includes shares with special rights tailored to employee participation, such as non-voting or restricted-transfer shares, which can be aligned with ESOP structures.

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