Employee stock option plans: senate approves taxation amendment
In the autumn of last year, a draft amendment to the Income Tax Act (and insurance laws) concerning the taxation of income from employee stock option plans was added as a legislative rider to the draft amendment to the Act on Child Care Services in Children's Groups during its reading in the chamber of deputies. The amendment has now been approved by the senate and will come into effect on the first day of the first calendar month following the date of promulgation.
We wrote about this in October 2024’s Tax and Legal Update.
Due to the length of the legislative approval process, the originally announced effective date of the amendment was not met, and the senate debated and approved the final print only on 26 February 2025. The amendment has a significant impact on both 2025 (i.e., income received after the amendment’s effective date) and 2024 (i.e., the period before the amendment’s effective date).
According to the approved wording, a taxation postponement (introduced by the previous amendment in 2024) shall only apply to income from stock and option plans that an employee receives after the amendment’s effective date if the employer notifies the tax administrator of their intention by the 20th day of the month following the month in which the employee acquires the share or option. Otherwise, the employee's income shall 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 exercised. The payment of relevant insurance premiums, if any, shall be made at the same moment as the taxation.
For employee income received before the amendment’s effective date, the proposed wording underwent significant changes during the third reading. Postponed taxation will only apply to such income if the employer notifies the tax administrator of such an intention within two months from the amendment's effective date. If they do not do so, the income becomes taxable in the second month after the amendment’s effective date. Therefore, in the relevant month of 2025, employers should consider this type of employee income within their payroll processing.
The amendment has raised many questions and uncertainties, which is why the General Financial Directorate has announced that it will issue its methodological guidance. Guidance is especially expected on the procedure where an employer or employee decides to tax income from employment received in 2024 in their payroll or in a tax return for 2024. At the same time, we are also expecting the Czech Social Security Administration and health insurance companies to express their opinions on the matter.