As of early April, the amendment confirming changes to the taxation of employee shares has officially come into force. Thanks to this change, employers now have the option to choose how employee shares and stock option plans are taxed.
Taxation can now take place either at the time the shares are acquired or when they are sold.
Effective Date of the Amendment
The amendment was initially intended to come into effect on 1 January 2025, with the rules also retroactively applicable to the 2024 tax period. However, due to a delay in the legislative process, the amendment is effective as of 1 April 2025. At the same time, the method for determining the taxation moment for income received between 1 January 2024 and 31 March 2025 has changed.
What Happens If Deferred Taxation Is Not Applied?
If the employer does not notify the tax authority of their choice to apply deferred taxation, the employee’s income from share and option plans received before the amendment took effect will be considered as settled in the second month after the amendment's effective date (for payroll taxation purposes), or as part of the income for the 2025 tax year.
Two Practical Scenarios
Example 1: Employee Tomáš Nový received shares from his Czech employer, the hypothetical company BBB, in November 2024. This income will be included in the payroll for May 2025 and taxed as a regular salary (including social security and health insurance contributions). The same procedure applies in cases where the shares are granted by BBB’s parent company, but the costs are fully borne by the Czech employer, i.e., BBB. (This involves cost recharging from the parent company to the subsidiary.)
Example 2: Employee Petr Dvořák received shares in November 2024 from the parent company of his Czech employer, the hypothetical company DDD. In this case, the costs are not borne directly by DDD, but by its parent company. This is then considered income for the year 2025, and Petr Dvořák must declare this income in his 2025 tax return. In this scenario, the income is not subject to social security or health insurance contributions.
Possibility to Apply 2023 Rules
Since the situation may appear complex to many, the General Financial Directorate has issued a statement confirming that, for the transitional period in 2024 and the period from January to March 2025, it is also acceptable to follow the procedure that was valid until the end of 2023.
Employers who already included income from stock plans in payroll in 2024 do not need to make any corrections. Taxpayers who are declaring shares received in 2024 in their tax return can choose whether to report this income in their 2024 or 2025 return. Statements from the Czech Social Security Administration and health insurance companies are not yet available.
Need Help Navigating the New Rules? If you are unsure about the new rules and would like to consult someone on the next steps, feel free to contact our tax team. We would be happy to schedule a meeting with you and help clarify any uncertainties.