If Parliament adopts this amendment to the Income Tax Act, it should be effective as early as 1 January 2024. The proposed regime is intended to defer the time of taxation on the acquisition of stocks in a corporation or options to purchase stocks in a corporation under an ESOP, ideally until the employee sells the acquired stock and receives cash from which the employee can pay the related tax. We summarise the key points of this draft for you below:

• The new regulation should apply to situations where an employee acquires:
  • stock in a business corporation that is the employer for which they work;
  • stock in a business corporation that is a parent or subsidiary, or a capital-related entity of that employer; or
  • an option to acquire that stock (e.g. a transferable warrant)
• Income in the amount of the difference between the price actually paid by the employee for the stock/security in question and its regular (market) price will not be taxed at the time of acquisition of the stock or option as before, but only at a future point in time, which is, for example:
  • moment at which the employee terminated the employment relationship;
  • moment when the employer enters into liquidation;
  • moment at which the employer or employee ceases to be a tax resident of the Czech Republic;
  • moment of transfer or transmission of that stock or option;
  • moment of exercise of the option;
  • moment of the exchange of the stock at which the total nominal value of the employee’s stock changes;
  • moment of expiry of 10 years from the date of acquisition of the stock or option.
• The draft amendment also introduces the possibility of reducing the non-cash income from the acquisition of a stock/security in case the value of the stock/security decreases between the time of acquisition and the time of deferred taxation.

The amendment enters its third reading in the Chamber of Deputies. We will see whether the act will pass the legislative process. We will continue to monitor this area for you and keep you informed in further articles on our blog or on our webcasts. You can also find more information on our website where we address the issue of ESOP in more detail.

State of procedure 474 amending certain acts in relation to the development of the financial market is available on the website of the Chamber of Deputies.