For one year (effective from January 1, 2024), employers were required to track seven different moments when income from participation in employee share or other incentive plans becomes taxable. Employers do not currently include income from stock or option plans in the taxable salary of the employee in the month when the stock or shares are acquired or when the option is exercised by the employee. Instead, they defer the taxation to a later moment, such as when the employee sells the stock or ceases to work for the employer.
From January 1, 2025, the deferral of taxation (for the employee stock option scheme) should be applied on a voluntary basis. If the employer providing the stock plan does not officially choose so, the income from the stock option program should be taxable immediately such as was the case until the end of 2023.
As we have informed you in our previous articles (here and here), in 2024 taxable income with respect to employee stock option plans arose in the calendar month in which the first of the following moments occurred:
- The moment when the employee ceases to be an employee of this employer, its parent or subsidiary company, or a capital-affiliated entity, or their legal successor.
- The moment when this employer enters liquidation.
- The moment when the employer or employee ceases to be a resident of the Czech Republic.
- The moment of transfer or transition of this share or option.
- The moment the option is exercised.
- The moment of exchange of the share, where the total nominal value of the employee’s shares changes.
- The moment when 10 years have passed since the acquisition of the share or option.
From 2025 the employer should still be able to choose to voluntarily follow the legal provisions effective from January 1, 2024, meaning the employer will not include the non-monetary income in the calendar month when the employee acquired the stock or share but will defer the taxation of this income to a later moment as described above and specified by law valid for the year 2024. The moment of taxation of these non-monetary income from dependent activities will only be deferred if the employer notifies the tax office of their intention to apply the deferral.
The employer would need to submit the notification to the tax authority by the 20th day of the calendar month following the month in which the employee acquired the stock or share. For example, if the employee acquired the stock or share in May 2025, the notification would have to be submitted by June 20, 2025.
If the employer did not submit the notification within the prescribed time frame, the deferral of taxation should not be available, and the non-monetary income from dependent activities in the form of employee stock or shares would be taxed in the calendar month in which the employee acquired the shares. The same regime will apply for mandatory social and health insurance contributions.
Employee stock or shares acquired during 2024, i.e. before the amendment comes into effect
If the employer wishes to maintain the deferral of the taxation moment for stocks or shares provided to employees in 2024, they must confirm this intention by submitting a notification to the tax office by the end of the second month following the effectiveness of the amendment (i.e., by the end of February 2025 if the amendment is effective from January 1, 2025).
If the intention was not notified, the deferral of the taxation moment would not be available, and the income would be considered taxable in the calendar month in which the employee received it. Thus, the employer’s inaction (failure to submit the notification) can voluntarily retroactively change the tax regime for employee stock or shares. In this case, the employer would need to submit an amended annual payroll tax reconciliation, withhold the additional payroll tax from the employee, and remit the withheld tax to the tax authority. No late payment interest should be imposed on the employer for this additional withholding. There should be no need to retroactively correct the mandatory insurance contributions, as employee stocks or shares should be considered as income accounted for in the second calendar month after the amendment’s effectiveness.
The amendment is currently in the legislative process. We will continue to monitor the situation and keep you informed in case of any changes. For more information contact our team.