In November 2024, a draft amendment to the Income Tax Act (Zákon o daních z příjmů č. 586/1992 S) concerning the taxation of income from employee stock option plans was introduced. The legislation1 embodying the amendment has been published and is effective as of 1 April 2025 (for prior coverage, see GMS Flash Alert 2024-225, 14 November 2024).
WHY THIS MATTERS
The amendment will return the system of taxation to the pre-2024 situation, whereas the tax deferral (as established in 2024) will apply only if the employer notifies the Czech tax authority of the employer´s wish to defer the taxation.
The amendment has a significant impact for both 2025 (i.e., income received after the amendment’s effective date) and 2024 (i.e., the period before the amendment’s effective date).
The possibility to tax employee income in the same manner as before 2024 is expected to simplify plan administration, especially for companies participating in global share and stock option schemes, for which tracking the taxation moment for each employee has been challenging.
More Details
According to the new wording of the statute, as approved, postponing taxation (introduced by the previous amendment in 2024)2 will only apply to employment income from stock plans and stock option plans that an employee receives after the amendment’s effective date if the employer notifies the Czech tax authority of its intention to defer the taxation by the 20th day of the month following the month in which the employee acquires the share or option.
Otherwise, the employee's employment income will be taxed in the same way as it was until the end of 2023, i.e., in the month the share or transferable option is acquired or a non-transferable option is exercised. The payment of relevant insurance premiums, if applicable, shall be made at the same moment as the tax.
For employee income received before the amendment’s effective date, the proposed wording underwent significant changes during the legislative process. Postponed taxation will only apply to such employment income if the employer notifies the Czech tax authority of its intention to defer the taxation within two months from the amendment's effective date. If the employer does not do so, the income becomes taxable in the second month after the amendment’s effective date.
KPMG INSIGHTS
The amendment has raised many questions and uncertainties, which is why the General Financial Directorate (Generální finanční ředitelství) has provided additional information3. This guidance mainly comments on the possibility of an employer or employee deciding to tax such income from employment received in 2024 via the monthly payroll or via a Czech personal income tax return for 2024.
We are also expecting the Czech social security administration and health insurance bodies to weigh in on this matter.
FOOTNOTES:
1 Zákon č. 84/2025 Sb.Zákon, kterým se mění zákon č. 247/2014 Sb., o poskytování služby péče o dítě v dětské skupině a o změně souvisejících zákonů, ve znění pozdějších předpisů, a další související zákony, available here.
2 For prior coverage, see GMS Flash Alert 2024-070 25 March 2024.
3 Informace pro zaměstnavatele a zaměstnance v souvislosti s příjmem zaměstnance v podobě nabytí podílu v obchodní korporaci nebo opce na nabytí takového podílu v rámci zaměstnaneckých akciových a opčních plánů ve zdaňovacím období roku 2024 a 2025, available here.
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The information contained in this newsletter was submitted by the KPMG International member firm in the Czech Republic.
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