On 24 October 2024, a further amendment to the Income Tax Act (ITA) relating to the taxation of income from Employee Stock Ownership Plans (ESOPs) was submitted to the Chamber of Deputies by Amendment No. 5239 to the Government Bill on the provision of childcare services in a children’s group (Parliamentary Document no. 716/0). If adopted in this wording, the proposal would also have an impact on tax liabilities for 2024. Therefore, in the following article we already draw your attention to the main changes introduced by the proposal.
As of 1 January 2024, new regulations on the taxation of employee income from the acquisition of shares in a business corporation or options to purchase shares in a business corporation under an ESOP came into force. The amendment introduced a deferral of the time of taxation on such income until the first of the points of time defined in the ITA, ideally when the employee sells the acquired shares and realises the cash. The impact of the amendment and the subsequent amendment to the insurance regulations has been discussed in more detail in articles on our blog. The amendment made this deferred tax regime mandatory and thus impacted a wide range of companies, including companies with global ESOPs, which, for these types of companies in particular, often made the administration process very complicated.
What changes does the new proposal bring?
The intention of the current proposal from the Ministry of Finance is to remove this complication and make the deferred taxation regime optional for employers. According to the proposal, the employer would have the option in the future to decide whether to declare the income from the ESOP under the deferred regime (by notifying the tax administrator by the 20th day of the calendar month following the month in which the employee acquired the ESOP share) or whether to follow the version of the ITA valid until the end of 2023 (without deferred taxation). Similarly, the selected regime would then apply to the payment of social security and health insurance premiums.
With regard to income from the acquisition of shares during 2024, it should be possible under the transitional provision to proceed in such a way that if the employer has applied the deferred taxation regime to such income during 2024, it may continue to do so if it notifies the tax administrator within 2 months of the date of the amendment effective date that it will apply the deferred taxation regime to the relevant income. If the employer fails to make such notification within the deadline, it will be obliged to make additional payments of advance income tax and insurance premiums for calendar months starting from 1 January 2024. However, if it does so in accordance with the amendment, it will not incur penalties for late payment of these advances and premiums.
The proposed effective date of the above changes is the first day of the calendar month following the date of promulgation of the Act.
We will continue to monitor this area for you and keep you informed in future articles on our blog or on our webcasts. You can also find more information on our website where we cover the topic of ESOPs in detail.
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