Changes in tax legislation: news for ESOPs, abolition of limit for exempting selected income, increase in R&D allowance

Below we summarise selected tax-related amending proposals that will be voted on by the chamber of deputies in the final third reading. They partly concern changes arising from the planned abolition of withholding tax on employment from 2027, but many of them may also bring important changes in other areas, with effect from 1 January 2026.

One of these amending proposals changes the start of JMHZ to 1 April 2026 instead of the originally planned beginning of 2026. We reported on the JMHZ bill in more detail here.

Abolition of withholding tax

Several of the amending proposals respond to the planned abolition of withholding tax on 1 January 2027.
One of the proposals requires that small earnings or small-scale income from agreements to perform work (outside employment) or small-scale employment should be subject to monthly personal income tax prepayments. The filing of a tax return would remain voluntary. Taxpayers would retain the right to file a tax return if they wished to take advantage of annual deductions from the tax base, tax credits, or tax relief.

Abolition of the CZK 40 million limit for the exemption of income from the sale of securities, business shares/interests and crypto currencies

It is proposed to abolish the current aggregate limit of CZK 40 million in a taxable year for the tax exemption of income from the sale of securities, business shares/interests and crypto-currencies that meet the time-test for exemption, with effect from 1 January 2026. The limit was introduced for securities and business shares/interests and took effect from 1 January 2025, for crypto assets from 15 February 2025. The reason for the proposal to abolish this limit are practical problems in its application.

Employee stock and option plans (ESOPs)

Amending proposals relating to ESOPs propose to extend the maximum period for the taxation of income from ESOPs from 10 to 15 years from the acquisition of shares or options. It is also proposed to delete one of the taxable moments (the points at which such income is taxed), namely the moment when the employer or employee ceases to be tax resident in the Czech Republic, which has proven problematic in practice.

Another amending proposal introduces qualified employee stock options, a new category of option plans.  The taxation of income from the realisation (exercise or financial settlement) of a qualified employee option is proposed so that the income equal to the difference in the market price at the time of exercising the qualified employee option and at the time of granting the option shall be taxed as other income under Section 10 of the Income Tax Act.

The amending proposal stipulates several conditions that must be met for the proposed method of taxation to apply, such as a minimum period of holding the option, a maximum annual turnover and maximum aggregate assets of the qualified employer, and the obligation to inform the tax administrator of having granted a qualified employee option. This method of taxation would mean that the income would not be subject to compulsory social security and health insurance contributions.

According to the drafters, these changes aim to support start-ups and young innovative companies.

Transferring a part of wages to employee benefits

Another amending proposal sets clearer rules for the provision of non-monetary employee benefits and explicitly states that these benefits must not include a wage, salary, or other consideration related to the performance of work. The aim is to prevent the practice of transferring a part of wages to non-monetary benefits to gain a tax advantage.

Increase in research and development allowance

Another proposed change should make research and development allowances more attractive, especially by introducing a 150% deduction for the first CZK 50 million of costs. However, this increased deduction shall be claimed for an allowance group to avoid the splitting of costs between several companies within a group. Costs above this threshold could be claimed at 100% without a limit. The proposal also includes an extension of the period for claiming the allowance from the current three to five taxable periods (years), and the option to choose when to claim it during those five years (e.g. if the entity wishes to claim a tax credit for disabled employees first).

Increase in the limit for receivables that can covered by 100% adjustments

It has also been proposed to increase the limit for receivables for which 100% tax-deductible adjustments can be created on a one-off basis, from TCZK 30 to TCZK 50. This increase should also apply to tax-deductible adjustments/provisions applied by banks.