Tax on employee stocks: 2024 changes

Are you getting company stocks besides your salary? Then read on; the law has changed on how to tax them.

Many employees these days, especially those employed by multinational corporations (or their subsidiaries) or by start-up companies, have opted-in to receive free or discounted stocks (RSUs, ESPP, etc.) as a benefit besides their salary (i.e. employer stock ownership plan).

Until the end of last year, non-cash income from these opt-in programs was taxed at the time the shares were allocated to the employee. Taxation was either done by the employer through the employee’s payroll, or by the employee on his or her own tax return – depending on the terms of the individual opt-in plans.

From 2024, the conditions of taxation and, in particular, the time of taxation changed. The income from shares vested will no longer be taxed when the shares are allocated to the employee, but when the employee sells their stocks (or part of them).

The law also defines other times when the allocated shares will have to be taxed:

1. the moment of termination of the employment relationship to the employer, or to another group company (the parent company, a subsidiary or other capital-related entity),
2. the moment the employer enters into liquidation,
3. the moment when the employer or employee ceases to be a tax resident of the Czech Republic,
4. the moment the investor exercises their stock options (according to the interpretation of the Ministry of Finance, this should only be applied to transferable options or warrants, not to the non-transferable options which are more usually allocated to employees),
5. the moment of the share exchange when the total nominal value of the employee’s shares is changed,
6. the moment of expiry of 10 years from the date of allocation of the shares or options.

According to the current interpretation of the Ministry of Finance and the wording of the Tax Law, taxation will always have to be carried out by the employer. This procedure implies a higher tax burden for both parties compared to when the employee taxed the income him/herself, since the employee’s income in this case is also subject to social security and health insurance contributions.

The future will show whether employers will comply with this practice or find some ways to avoid it.

This article was written in cooperation with Michael Hájek, tax advisor from BELL Consulting. If you are unsure about your tax obligations, contact Michael with your questions.