Chystané změny ve zdanění zaměstnaneckých akciových a opčních plánů

Upcoming changes to the taxation of employee stock and option plans

As we informed you HERE, an amendment has been introduced in the legislative process regarding the taxation of employee stock and option plans. This proposal has already been approved by the Chamber of Deputies and is currently awaiting consideration by the Senate.

The amendment applies to the acquisition of options and stock in a "business corporation" that is the employee's employer, as well as to the acquisition of options and stock from the employer's parent company, subsidiary, or a company that is related to the employer by property (capital).

The amendment fundamentally changes the point at which such income is to be taxed as employment income. Now, income is usually taxed at the time of acquisition of the share or exercise of the non-transferable option.

It should be noted that the time of taxation of, for example, a sale of shares or a dividend received is not changed. Nor is changed the possible exemption of the sale proceeds when the statutory conditions are met.

The amendment introduces the following moments as relevant for taxation as employment income:

• the employee ceases to carry out a dependent activity for the employer;
• the employer enters into liquidation;
• the employee or employer ceases to be a Czech tax resident;
• the employee transfers (sells) the shares or options;
• the employee exercises an option (according to the interpretation, only a transferable option);
• there is an exchange of shares which changes the total nominal value of the employee's shares;
• 10 years elapse from the date on which the employee acquired the share in the corporation or the (transferable) option. Thus, this rule, if there is in practice a normal exercise period of 10 years for a non-transferable option, means that the period for which the employer has to manage the data may be up to 20 years.

The proclaimed aim was to facilitate the remuneration of employees, particularly of start-ups, who would only tax the consideration in the form of employee shares and options when they could actually cash them in (and thus have the means to pay the tax). However, the draft wording of the law does not quite achieve this objective, as deferred taxation does not always provide the possibility of monetisation. At the same time, however, it fundamentally and not happily impacts all currently operating corporate stock and option plans worldwide.

The amendment brings many interpretative and practical uncertainties, which are currently being debated within the professional community. However, it is not clear whether at least some (ideally all) of the problematic areas will be clarified before Christmas.

Given the different legislative arrangements for social security and health insurance, it is also not entirely clear whether there will be a similar deferral of remittance of premiums in situations where premiums are paid on such income.

In general, this change, if adopted in its current form, will affect virtually all employers who deal with shares or options under remuneration schemes, including their preferential purchase by employees.

For those employers who are required to process such income through their monthly payroll, it will impose a significant administrative burden on them to monitor and assess whether and when one of the above mentioned points has occurred. Employees, on the other hand, will have an information obligation to their employer at the time they sell the shares. It will also be necessary to monitor changes in the market price, as the amendment allows for a decrease in the market price to be taken into account under certain conditions. However, this option again places additional administrative requirements and responsibility on the employer to determine the correct amount of taxable income.

Employees who receive this income directly from the foreign parent company will need to keep these records on their side.

All companies will then also have to sort out the practical implications of some of the usual mechanisms - for example, payment of the purchase price through the sale of part of the shares - which are currently in place at the level of multinational corporations precisely to ensure that there are sufficient funds to pay the mandatory levies. In the case of internationally mobile employees, even in several countries at the same time, for example.

For internationally mobile employees, the amendment may also bring practical complications in the area of avoiding double taxation, as the vast majority of countries have similar rules to our current ones.

The change will therefore not affect only employers who reward employees with a cash bonus as part of long-term remuneration plans.

As the amendment does not contain any special transitional provisions (and the amendment postpones the moment of taxation to the future), it can be assumed that, if it is scheduled to take effect on 1 January 2024, the new regulation will affect all situations occurring after New Year's Eve this year.

If you have any questions, please contact the authors of this article or the EY client team you are working with.

Authors:


Michaela Felcmanová

Adam Linek