Change to the taxation of employee share and option plans

As of the new year, an amendment to the Income Tax Act has come into force, which has affected not least the taxation of employee stock and option plans. Under the new regulation, the moment of taxation of income from share and option plans has been postponed. 

Relevant times for taxation:

• The point at which the employee terminates the related employment relationship;
• the moment the relevant employer enters into liquidation;
• the moment at which the relevant employer or employee ceases to be tax resident in the Czech Republic;
• the moment of transfer or transfer (e.g. sale or gift) of such share or option;
• the time of exercise of the option;
• the moment of exchange of the share at which the total nominal value of the employee's shares changes;
• the moment of expiry of 10 years from the date of acquisition of the share or option.

The aim of this amendment is to shift the moment of taxation to the moments when the employee sells the shares and thus realises taxable income. However, as can be seen from the list above, the taxable point may be much earlier than the realisation of the income.

Unfortunately, despite the efforts of legislators to postpone the effects of taxation, the Ministry of Finance has confirmed on its website that social security and health insurance contributions are not deferred. At the same time, it reported that it and the Ministry of Labour and Social Affairs and the Ministry of Health have initiated steps to ensure that changes to the deferral of social and health insurance contributions are included in the next amendments to the insurance laws.

In practice, therefore, a situation may arise where an employee does not tax any income at the time of acquisition of employee shares, but social and health insurance will still have to be paid on it.

If you have any questions regarding the taxation of employee shares, please do not hesitate to contact us.