With the date for filing personal income tax returns approaching, the General Financial Directorate published a working version of information regarding the amendment to the Income Tax Act adopted by the Parliament of the Czech Republic regulating the tax regime for employee stock and option plans. Once the amendment in question is published in the Collection of Laws and International Treaties, the working version of the information will be supplemented with relevant data (e.g. law number, effective date, etc.) and will subsequently be published in its final version.
Here is what the working version of the information includes:
Deferral of Employee Income Taxation for Stock and Option Plans
Effective January 1, 2024, the Income Tax Act introduced a tax deferral for income related to acquiring shares in an employer’s company, its parent, subsidiary, or affiliated entity, or for acquiring options to purchase such shares. The taxation of such income is postponed to specific future dates as defined by law.
Retroactive Adjustment for the 2024 Tax Year
In response to employer requests, the Ministry of Finance confirmed in 2024 that a retroactive amendment to the Income Tax Act would allow an option for choosing the tax regime regarding the timing of income taxation from these stock and option plans. This amendment was enacted through Act No. […], whose Article VIII, Sections 1 and 2, took effect on […].
The amendment stipulates that the new tax deferral rules, effective from January 1, 2024, will only apply if the employer expressly opts for them. The employer must notify the tax authority of this choice by the 20th day of the calendar month following the month in which the employee acquired the shares or options. This election must be made separately for each instance of income.
For shares or options acquired before the effective date of Article VIII, Sections 1 and 2, the tax deferral will apply under the transitional provisions, provided the employer notifies the tax authority within two months of the amendment’s effective date. If this notification is not made, the employee’s income will be considered taxable in the second calendar month following the amendment’s effective date or in the 2025 tax year.
Employer Expectations for Tax Regime Choice in 2024
The information addresses situations where, based on the Ministry of Finance’s assurances regarding the amendment, some employers applied the pre-2024 tax rules when determining the timing of employee income taxation in 2024.
If an employer fails to notify the tax authority within the two-month deadline regarding the tax deferral option, the Financial Administration of the Czech Republic will accept taxation based on:
The transitional provision, treating the income as taxable in 2025.
The previous tax framework, where the employee includes the income in their 2024 tax return.
This applies even when employers do not withhold payroll tax on such income, and employees instead declare it in their personal income tax returns. The employer, as the payer of non-cash income in the form of shares or options, is responsible for making this election. In cases of foreign employee stock and option plans, this decision will often be made by a foreign group entity rather than the legal employer processing payroll.
Rationale for This Approach
The General Financial Directorate adopted this approach to address employer and employee expectations based on the Ministry of Finance’s previous statements. The last-minute amendment to the transitional provisions in Parliament changed the original proposal, necessitating flexibility in tax administration to avoid undue complications.
Moreover, since the legislative changes were adopted in 2025, strict enforcement of the transitional provisions would not resolve certain international taxation issues. The demand from some employers for retroactive application of the previous tax rules for 2024 is thus acknowledged.
Expected Positions of Social Security and Health Insurance Authorities
Act No. […] also includes amendments to social security and health insurance contribution laws, with transitional provisions in Articles XI and XIII. These provisions mirror the tax law’s election mechanism and timing of income recognition.
The Financial Administration of the Czech Republic will supplement the guidance with positions from the Czech Social Security Administration and the Ministry of Health, or provide links to their published statements once available.