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On March 10, 2025, the President of the Czech Republic signed an amendment to the Child Care Services Act, which was accompanied by a proposed amendment to the Income Tax Act to address long-discussed changes to the taxation of stock and stock option plans. The amendment will take effect on April 1, 2025.
As we have previously reported, from 1 January 2024 the point at which income from share and option plans is taxed has been deferred, which has caused a number of problems. When shares are granted for free or on preferential terms, taxation will not occur immediately upon receipt, but only upon sale, termination of employment or 10 years after receipt. In addition, companies had to deal with insurance premiums, which in the first half of 2024 were paid immediately after the share transfer, and therefore the time of payment was different from the time of taxation. More information on these changes can be found in the original article below.
Under the new rules, an employer will be able to decide whether to tax the employee’s share income immediately or defer taxation. If it chooses to defer the time of taxation, it must notify the tax authorities of its intention by filing a notice by the 20th day of the month following receipt of the shares.
For shares received by the employee before the amendment takes effect, if the employer elects to defer taxation, the employer must file a notice within two months after the amendment takes effect. If no notice is given, the income becomes chargeable (and therefore taxable) in the second calendar month after the effective date of the amendment.
As the amendment has not been adopted by the time of the annual tax reconsiliation for 2024, a number of problematic situations arise in practice. The Czech tax administration is aware of these problems and is therefore preparing new methodological information. We will continue to monitor this area and keep you informed in future articles. If you have any questions, please do not hesitate to contact our team of experts. Our tax advisors will be happy to assist you with your agenda of ESOPs in the Czech Republic.
As part of the amendment to the legislation in connection with the development of the financial market, the Czech Income Tax Act was also amended, which changes the moment of taxation of employee income from ESOPs in the Czech Republic. When shares are granted on preferential terms, such advantage is considered an income from dependent activity, which is subject to income tax and social security and health insurance premiums. Prior to the amendment, such income was taxed at the time of acquisition of the share or exercise of the option. From 1 January 2024, this income is taxable when:
This change affects not only legal but also economic employers.
Unfortunately, the legislation in the field of social security and health insurance premiums have not been amended. Therefore, the moment of taxation changes only for income tax, and the moment of income tax payments and the moment of insurance premiums payments diverge (if the income is taxed through the payroll). According to insurance premiums legislations, it is necessary to make insurance premium payments at the time of transfer of the share to the employee or when the option is exercised, i.e. insurance premium payments occur before income tax payments. According to information from the Ministry of Finance, the postponement of obligations in the field of insurance premiums legislations will be regulated in the nearest amendments.
On the employer’s side, this amendment brings a significant administrative burden, i.e. they will have to monitor when one of the moments of taxation above occurred. Employees will have the obligation to notify the employer when they sell shares/options, change of residence, etc.
It is necessary to mention that this change does not affect the moment of taxation of the sale of shares or dividends received, as well as the eventual exemption of income from the sale of shares under the conditions set by the Czech Income Tax Act.
The amendment brought a number of practical ambiguities, which is why its next amendment is expected, or issuance of a methodological instruction. We will continue to monitor this area for you and provide you with an update in our future articles.
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