The President recently signed an amendment of the Czech income tax law affecting the income taxation of employment equity-based compensation realized by employees in the calendar year 2024 and onwards. This may significantly impact the obligations of the companies as well as their employees even retrospectively.
A year ago, a deferral of income tax and social tax obligations was introduced for equity-based employee income effective from January 2024 to below taxable moments:
While it was subject to taxation at the time of acquisition (i.e. vesting or exercise) until the end of 2023.
Recent legislative changes have once again altered the rules for taxation of employees’ income from equity plans and reintroduced the rules applicable by the end of 2023 just with modifications as follows:
If the employer decides to defer the Czech income taxation of employees’ equity income, i.e. prefers the procedure of deferral introduced in 2024 (see above), the employer (or the foreign entity administrating the equity plan) must submit an appropriate written notification at the Czech Tax Office. Such notification must be filed separately for each equity tranche/each employee for whom the tax deferral is to be applied within a deadline defined by the law. The tax deferral, if notified appropriately, can be applied even retroactively for equity tranches occurred after 1 January 2024.
If the employer does not notify the Czech tax Office that the company follows the deferral approach of income taxation, income from equity plans realized by the employees after effectiveness of the new law amendment will be taxable at their acquisition time (similarly to the period prior to the year 2024). However, if the tax deferral is not applied, the income from equity plans realized by the employees during the calendar year 2024 becomes taxable and should be considered as employees’ income of the calendar year 2025.
For the equity-based income realized in 2024 General Financial Directorate (hereinafter “GFŘ”) has unofficially confirmed that if employers have already included the equity income realized in 2024 in their employees’ 2024 payroll tax calculations, the tax authorities will not challenge this approach. The same benevolence should apply in cases where there is no requirement to keep the income on payroll, and employees decide to include their equity income realized in 2024 in their 2024 personal income tax returns (i.e. rather than into 2025 tax returns as mentioned above).
Taking into account the specifics of your company and employees we can provide you with:
For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:
Petra Bobková
Director
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