Rollover and reinvestment

Austria, Poland and Hungary

PE investors will ask you to "rollover" or reinvest some of your sale proceeds in the company. Managers are often asked to reinvest a certain amount of their proceeds after tax, but this may vary depending on the nature of your sale process and the commercial negotiations. In a rollover, the seller retains a portion of their shares in the company being sold and transfers these into the new ownership structure. This means that the seller continues to hold a minority stake in the company and shares in its future profits. A rollover often serves as a sign of the seller's confidence in the company's future performance. Reinvestment, on the other hand, means that the seller takes the proceeds from selling their shares and invests that amount back into either the same company or another project. This could involve buying back shares in the same company (after having sold all their shares) or investing in another business or project.

In summary: With a rollover, the seller retains part of their shares from the outset within the new ownership structure, whereas with reinvestment, the seller first sells their shares and then reinvests the proceeds. A(n) (at least preliminary) rollover of shares in an Austrian target company into an EU/EEA tax resident company may, under specific circumstances, be feasible from an Austrian tax perspective, depending on the acquisition and holding structure on the buy-side as well as the sell-side structure. On the other hand, a tax-neutral rollover is generally not feasible when transferring shares into a non-EU/EEA resident company. As regards the reinvestment, there are no tax benefits because any capital gains can only be reinvested on an after-tax basis.

Hungary

PE investors will ask you to "rollover" or reinvest some of your sale proceeds in the company. Managers are often asked to reinvest a certain amount of their proceeds after tax, but this may vary depending on the nature of your sale process and the commercial negotiations. In a rollover, the seller retains a portion of their shares in the company being sold and transfers these into the new ownership structure. This means that the seller continues to hold a minority stake in the company and shares in its future profits. A rollover often serves as a sign of the seller's confidence in the company's future performance. Reinvestment, on the other hand, means that the seller takes the proceeds from selling their shares and invests that amount back into either the same company or another project. This could involve buying back shares in the same company (after having sold all their shares) or investing in another business or project.

In summary: With a rollover, the seller retains part of their shares from the outset within the new ownership structure, whereas with reinvestment, the seller first sells their shares and then reinvests the proceeds. A (preliminary) rollover of shares in a Hungarian target company into an EU or EEA tax-resident company may, under certain conditions, qualify for tax deferral treatment under Hungarian law, provided that the transaction qualifies as a preferential transformation or a share exchange within the meaning of the Hungarian Corporate Tax Act. The availability of such tax neutrality depends on the specific transaction structure and strict compliance with the relevant statutory requirements. By contrast, a tax-neutral rollover is generally not available where the shares are transferred into a non-EU/EEA resident company, resulting in immediate Hungarian tax liability on any capital gains arising from the transaction.

As regards reinvestment, no tax benefits are available under Hungarian law, as any capital gains may only be reinvested on an after-tax basis.

Given the complexity of the rules and the potential tax exposure, investors frequently seek an advance ruling from the competent ministry to confirm the applicability of the tax-neutral treatment in their specific case.