Employment stock option and purchase plans in 2024 and now

Although unrelated to stock plans, the amendment to the Child Care Services in Children’s Groups Act, which was passed in March 2025, included an amendment to employment stock option plans and employment stock purchase plans (ESOP/ESPP). In early April, the General Financial Directorate issued additional information to clarify ambiguity in the legislation. As employment stock option plans and employment stock purchase plans are becoming an increasingly popular tool to motivate key personnel, this article will take you through the development of the existing and new legislation.

Existing legislation

Starting with the effective date of the amendment, i.e. 1 April 2025, income from the preferential acquisition of an employee ownership interest, e.g. shares, is generally taxable on receipt of the shares. The tax base is the non-cash income – i.e. the difference between the market price and the preferential (or zero) price at which the employee acquired the shares.

However, the legislation provides for a tax deferral until one of the specified events, subject to the employer notifying the tax office of the intention to defer tax. The employer must give the notification by the 20th day of the calendar month following the month in which the income was acquired, and failing to do removes the tax deferral option. If the tax office has been notified of the deferral in a timely fashion, the income will be subject to employment income tax and, most probably, social and health insurance contributions, only after one of the following events has occurred:

• the employment with the employer terminates;
• the employer goes into liquidation;
• the shares are sold;
• 10 years have passed since the acquisition of the shares.

The tax deferral may have a significant impact on start-ups and other businesses whose future is difficult to predict. The purpose of the deferral is to avoid situations in which the employee’s income would be taxed on receipt of the shares that would later become worthless for the employee as a result of the employer going out of business.

Chaos in legislation – here today, gone tomorrow?

The deferral of the income tax on employee shares is not completely new in the Income Tax Act. As we informed you earlier, the deferral was the only legal solution available from January 2024 to March 2025 under what was then the effective wording of the Act. For the purposes of social security and health insurance contributions, the effective date of the amendment was postponed until July 2024; prior to that month social security and health insurance contributions had been due on receipt of the shares.

However, the lawmakers promised as early as 2024 to reintroduce, with retroactive effect, the option to tax the income on receipt of the shares. This led many employers to tax this income immediately on the award of their shares. However, other employers chose, in accordance with the legislation that was then in effect, to defer the tax on employee income when awarding employee shares in 2024 or in the first quarter of 2025.

Either way, attention is required since the amendment is changing the legislation with a retroactive effect.

How to treat shares awarded from January 2024 to March 2025

Under the transitional provisions of the amendment, income from the preferential acquisition of employee shares received from the beginning of 2024 until the end of March 2025 is considered to be income settled in the second calendar month after the effective date of the amendment, i.e. as income settled in May 2025, and as such should be subject to employment income tax and social and health insurance contributions in wages for May 2025. However, official information from the General Financial Directorate says that in terms of both income tax and health insurance contributions the taxation of the income immediately on the acquisition of the shares is an acceptable option. As regards social security contributions, the Czech Social Security Authority, however, requires strict compliance with the law, i.e. any preferential acquisition of employee shares from July 2024 to March 2025 must be considered as income settled in May 2025.

If the employer proceeded in 2024 and during the first three months of 2025 in accordance with the legislation that was then in effect (i.e. wanted to defer the tax) and wishes to retain the tax deferral for that income, the employer must notify this intention to the tax office within two months of the effective date of the amendment (i.e. by 2 June 2025). Please note that failure to do so will cause the income to be considered as income settled in May 2025, regardless of the fact that the legislation did not lay down any such condition in 2024 and provided the tax deferral as the only legal option.

Other aspects of employment stock option and purchase plans

Special attention must be paid to stock plans where the employee receives the benefit from the employer’s parent company or a similar entity rather than directly from the employer. Depending on the situation at hand, that income may or may not be subject to social and health insurance contributions, and may impose an obligation on the employee to file a tax return.

Unfortunately, the tax obligations associated with employee shares do not end with the taxation of employee income from the preferential acquisition of shares, as more obligations and various tax implications arise when, for example, selling such shares.

Last but not least, please bear in mind that the current legislation, too, may be short-lived as the Ministry of Finance is considering narrowing the scope of employers eligible for the tax deferral. So stay tuned for our latest updates on this legislation.