Changes in taxation of employees shares plans

1. Until 1 April 2025, "2024 Rules" applied pursuant to which shares or options become taxable at the earliest of the following:
   1. The termination of the employment relationship.
   2. The employer entering into liquidation.
   3. The employer or the employee ceasing to be a tax resident of the Czech Republic.
   4. The sale of a share or option.
   5. The exercise of an option.
   6. he exchange of a share, resulting in a change in the total nominal value of the employee's shares.
   7. The expiry of 10 years from the date of acquisition of a share or option.
2. As of 1 April 2025 (and retroactively from 2024), the general taxable point in time will be the vesting of the shares or the exercise of the options, as already set forth by the rules that had been applicable until the end of 2023.
3. However, the Amendment allows for the deferred taxation (i.e., 2024 Rules may apply) if the entity providing the shares (either a global entity or the Czech employer provided that the Czech employer bears the costs of the benefit) so chooses and notifies the Czech tax authorities accordingly.
4. The notification will have to be sent by the entity providing the shares within 20 days from the end of the month in which the shares are vested.
5. If the entity providing the shares notifies the Czech tax authorities, the employees will tax their shares under the 2024 Rules (i.e., the deferred taxation applies); if not, the employees will tax their shares in the year of vesting (in the tax return for the year in which the shares are vested).

With respect to the previous period (i.e., the period from 1 January 2024 until the effective date of the Amendment) the following rules apply:

6. If the entity providing the shares notifies the tax authorities within 2 months from the Amendment entering into force, i.e., by 1 June 2025, the shares vested in 2024 and in the first quarter of 2025 will not become taxable; the deferred taxation rules remain applicable.
7. If the entity providing the shares does not notify the tax authorities within 2 months from the Amendment entering into force, the shares vested in 2024 and in the first quarter of 2025 will become taxable in 2025. This means that the employees will have to include the shares that vested in 2024 and in the first quarter of 2025 in their 2025 tax return or the employer will have to tax those shares in the May 2025 salary of the employees (if the employer bears the costs of the benefit).
8. In respect of the notification as such, there are no legal requirements or official recommendations by the respective authorities yet. We recommend at least indicating the names of the employees, their tax ID numbers, identification of the entity providing the shares and the date of vesting.
9. If the entity providing the shares decides to submit the notifications (to apply the deferred taxation rules), we recommend informing the affected employees after each submission that the notification was sent. This ensures that the employees have a confirmation that they are not to tax the acquisition of their shares in the year of vesting.
10. Please note that if the entity providing the shares informs employees that it will notify the tax authorities to apply the deferred taxation, the entity providing the shares may become liable if the notification is not sent and the employees tax their shares incorrectly.

Key Points

1. The final decision concerning the taxation point depends on the entity providing the shares on whether or not it submits the notification to the Czech tax authorities.
2. Now, you need to decide whether or not to submit the notification to the tax authorities.
3. Once the decision is made, it is recommended that you communicate the new rules to the employees.

The rules are rather complex. Should you wish to check how the Amendment will affect your company, we will be happy to provide you with further advice in this respect. Please do not hesitate to contact us, we are fully available to answer any queries you may have.