Until the end of 2024, it was the case that if an individual owned a share in an LLC for at least 5 years or owned stocks for at least 3 years (the so-called time test), income from the sale of these shares or stocks was fully exempt from tax, regardless of the amount. If this condition of time test was not met, the income was subject to personal income tax at a rate of 15%, with the acquisition cost of the share being deductible as an expense.
Starting from January 1, 2025, significant changes to the income tax law will come into effect, particularly impacting individuals when selling shares in limited liability companies and securities. The most notable change is the introduction of a limit on the tax exemption for income from these transactions. It will be an exception from an exception.
From January 2025, an annual limit of CZK 40 million will apply to exempt income. Any income exceeding this limit will be taxed at the standard personal income tax rates. If, for example, the seller enters into a contract in 2024 but receives the payment in 2025, the new limit will apply to this income as well. The key factor will be when the money is received, not when the sale agreement was concluded.
This limit applies to gross income and includes all sales, i.e. income from the sale of securities and shares in business corporations and it should newly apply also to the tax-free sale of crypto assets. More information about the tax exemption of the sale of cryptocurrencies can be found also in our latest article.
To reduce the tax base for income exceeding the exemption limit, from January 1, 2025, instead of the acquisition cost, it will be possible to use the market value of the share or security as of December 31, 2024. This value must be substantiated by an expert opinion. If the income from the transfer of shares, securities and/or cryptocurrencies exceeds the exemption limit of CZK 40 million, the deductible expense will be proportionally reduced according to the taxable portion of the income. Therefore, the exempt part of the income will not “use” the corresponding portion of expenses.
Impacts on Legal Entities
For legal entities, the income tax law does not introduce significant changes to the taxation of income from the transfer of shares as of January 1, 2025. The following still applies:
- Income from the transfer of shares is fully included in the tax base and is subject to a 21% tax rate.
- Only actual costs incurred in acquiring the share can be deducted as an expense.
- Exemption of income from the transfer of shares does not apply to legal entities.