We would like to inform you that the Chamber of Deputies of the Parliament of the Czech Republic is about to discuss an amendment to the Income Tax Act and social security and health insurance legislation in the 3rd reading (Chamber of Deputies’ print 716), which again changes the rules for taxation of income derived in the form of employee shares, stocks or options.

For almost a year now (effective 1 January 2024), employers have been required to track seven different moments, at which income from participation in employee stock or other incentive plans becomes taxable. Thus, employers currently do not include income from stock or option plans in the employee’s taxable wages in the month the employee acquires the stock or shares or exercises the option, but defer taxation to the time the employee sells the stock or stops working for the employer, for example.

Employee shares acquired after the amendment takes effect

The amendment to the Income Tax Act, which is expected to be debated in the 3rd reading in the Chamber of Deputies in the week starting on 16 December 2024, aims to return the rules for taxation of income from the acquisition of shares in a business corporation back to before the calendar year 2024. However, the employer may decide to voluntarily follow the legislation effective from 1 January 2024, i.e. the employer will not account for the employee’s non-cash income in the calendar month, in which the employee acquired the share or interest, but will voluntarily defer the taxation of this income to one of the statutorily enumerated times in the future. The moment of taxation of such non-cash employment income will be deferred only if the employer notifies the tax office of its intention to use the deferred moment. The employer must submit the notification to the tax administrator by the 20th day of the calendar month following the month, in which the employee acquired the share or interest, i.e. by 20 June 2025, if the employee acquired the share or interest during May 2025. If the tax administration does not publish a special notification form for these purposes, the employer shall make a normal submission to the tax office notifying its intention to postpone the moment of taxation. If the employer fails to notify the tax office within the prescribed period, the deferral of the moment of taxation will not be available and the non-cash income from employment in the form of employee shares or shares in a business corporation will be subject to taxation for the calendar month, in which the employee acquired the stock or shares. The same regime will apply to compulsory insurance premiums.

Employee stock or shares acquired before the amendment came into force

If the employer wishes to maintain the deferral of the moment of taxation into the future also for shares granted to the employee in the course of the year 2024, it must confirm its intention by submitting a notification to the tax office no later than the end of the second month following the entry into force of the amendment (i.e. by the end of February 2025 if the amendment enters into force on 1 January 2025). If the intention is not notified, the deferral of the time of taxation cannot be used and the income will be considered taxable in the calendar month, in which the employee received it. Thus, by not acting (not filing a notice), the employer may voluntarily change the tax treatment of the employee’s stock and shares retroactively. In such a case, the employer is obliged to submit a corrective statement of advance payments of employment tax, withhold additional advance payments of tax from the employee and pay the withheld advance payments to the tax office. The employer will not be charged late payment interest on this additional deduction. In this situation, there will be no need to retroactively adjust the required premiums, as the employee stock or shares will be treated as income recognized in the second calendar month after the effective date of the Act for premium purposes.

The amendment is not expected to pass through the legislative process before the end of this calendar year, so the new legislation is not expected to take effect until 1 May 2025. We will continue to monitor the situation and keep you informed.