Taxation of employees’ stock option plans

Many firms issue employees' stock option plans ("ESOP") as a way of remunerating their employees -either in the form of company options or stocks. This field has seen significant changes in recent years, and other changes are on the horizon. Let us have a look at them here.

Over the last two years, two amendments to the Income Tax Act have brought changes to this area. The first amendment became effective on 1 January 2024 and the second on 1 April 2025. Furthermore, another amendment is under preparation, and should become effective from 1 January 2026. It has already reached the Senate, and is due to be debated at the end of August.
Before 31 December 2023, the date of exercise of options and stock acquisitions for a lower price than the market price was considered to be the date of the taxation of income derived from dependent activity. When the costs were recharged in the Czech employer's accounting after the acquisition from the-usually-foreign parent company, the employer were subject to income tax deposit, social security and health insurance contributions.

During the period 1 January 2024-31 March 2025, there was a chance to postpone the taxation until the date when on which stocks/options were sold by the holder, without the obligation to report the sale to a financial authority. Nevertheless, the acquisition was considered to constitute income from dependent activities when recharged in the Czech employer's accounting and thus subject to social security and health insurance contributions.

From 1 April 2025, an amendment to the regime governing the taxation of employees' stock and option plans came into effect. Under the amendment, the date of taxation is set back to the moment of the exercising of options and acquiring stocks - unless the employer submits a notice about deferred taxation (which should be submitted within 20 days of the following month): that is to say, there is a choice of options. In fact, at the start of 2025, the Czech Republic actually returned to the system that was effective before 2023.

The planned amendment - which is due to come into effect on 1 January 2026 - adds another tax alternative to the existing schemes, the new scheme is meant mainly for middle sized and small firms (the start-ups). Under the amendment, the size of employers who can use this tax alternative to ESOP is limited those with an annual turnover of CZK 2.5 billion and an asset size of CZK 2 billion. This also applies to small firms that are a part of a consolidated group (where that group is over the limits). In this tax variant, the taxation occurs at the moment of the sale of options/stocks, and the income will be taxed as "other income"( where the social security and health insurance contributions are not withheld).

Does your firm use option plans? Maybe you should review them and use the advantages that the amendment to the act brings.