CMS Expert Guide to Stock option grants in Czech Republic

Yes. 

We note that the stock option/RSU plan may be subject to regulatory requirements.

No.

Employee equity incentive plans are usually offered at the level of foreign parent company (often US) and governed by foreign laws. That said, we have been seeing an increasing trend especially in start-up companies, which often use “phantom stock” plans (“shadow stock”) instead of the “classic” stock option/RSU plans. 

Yes. 

Yes.
It is common due to transfer pricing rules for the foreign company issuing the stock options/restricted units to recharge the related costs to the local company.

On the other hand, the scenario when the costs remain at the foreign entity is just as common. 

Yes. 

These are mostly covered by EU law (Prospectus Regulation, MAR, etc.), however the rules mostly apply to stock options/restricted units irrespective of whether they are granted by a local or foreign company. 

Yes. 

In general, there are requirements to prepare, obtain approval from a financial regulator, and publish a prospectus, offering memorandum or other document. There are also certain reporting obligations towards the financial regulator. However, there are also exceptions where equity incentive schemes are offered to employees. Much depends on the structure of the plan.

Currently not. 

No. 

Yes.

However a number of exceptions apply (usually under the Prospectus Regulation), in which case no such registration is required. 

Yes.

The income connected to the stock option/restricted unit plans (i.e. the discount at exercise or provision of free shares) is taxed as income from employment.

Under current legislation, an employer can choose to defer the taxation until the first of the statutory triggering events, such as the end of employment, the sale or transfer of shares, or expiry of 10 years since the acquisition of the shares.

The taxation is deferred only if the employer notifies the relevant tax authority of the intention to use the deferral mechanism by the 20th day of the calendar month following the month in which the employee acquired the share or option. 

No. 

Yes. 

The taxable income is equal to the difference between the fair market value of the shares at the time of exercise and the exercise price paid by the employee.

Under the deferred taxation regime (if chosen), this spread can be reduced by the positive difference between the fair market value of the shares at the time of exercise and their fair market value at the relevant taxable moment (see question No. 9).

This positive difference must, however, be reduced by the net value of any profit share, settlement share, or similar income paid in connection with the holding of the relevant share. 

Yes, but can be exempt.

Income from a sale of shares can be exempt from taxation if the shares have been held for a certain period of time specified by law (generally 3 years in case of securities) or the total annual amount of proceeds made by the sale of securities is under a certain threshold. The threshold in 2025 is CZK 100,000 (approx. EUR 4,000). Any exemption is, however, capped at the revenue of CZK 40,000,000 (approx. EUR 1,600,000) per year. 

No. 

Yes, but it can be deferred. 

The taxable income is equal to the fair market value of the RSUs at the time of vesting. However, the taxable moment can be deferred (the employer must notify relevant tax authority), and in that case, the taxable income can be further decreased (see questions Nos. 9 and 11 for more information). If the employer does not opt to defer the taxable moment and does not notify the relevant tax authority accordingly, the vesting of restricted units is considered a taxable event. 

No.

There are two separate taxable events and the calculation of the tax base in each case is made according to the following rules, which ensure that the income is not double taxed:

1. The value of the free shares received or discounted shares bought by the employee equal to their fair market value at vesting or adjusted if the value decreases before the taxable moment (if deferred).
2. The capital gain made on the sale of the shares (if taxable) calculated as the sale price minus the taxable income from point 1 and any related expenses (e.g., broker fees). 

No. 

Income from employee shares received under stock options/restricted units is taxed as income from employment. 

Possibly.

If the employer of the participant bears the costs related to the stock option/RSU plan and the participant is affiliated to the Czech mandatory social security and health insurance system, the benefit received from stock options/RSU plan is subject to mandatory contributions to the Czech social security and health insurance system.

If none of the companies bearing any costs of the plan is considered employer of the plan participant, no contributions to the Czech social security and health insurance system are required. 

Possibly. 

If a Czech tax resident performs work in more than one country during their participation in the relevant plan, taxation will depend on the legislation of the other jurisdiction as well as on the wording of the double tax treaty (DTT) between Czech Republic and the other jurisdiction. The double taxation may occur in the event of a timing mismatch in the taxable events across different jurisdictions. 

Possibly.
Under the currently applicable legislation, the taxable moment for the plan income may be deferred into the future and also the amount of taxable income might be reduced in case the fair market value of the shares will decrease between the moment of exercise and the moment of taxation. However, these rules only apply if the employer notifies the relevant tax authority (see questions Nos. 9 and 11). 

If the local employer bears any costs related to stock options or RSUs plan, the income from this plan must be included in payroll run by the employer and subject to mandatory income tax, social security, and health insurance deductions.

If a foreign employer bears any costs, it depends on whether it must run Czech payroll for social security and health insurance only, or also for tax purposes. In the first case, the employee reports and taxes the income in their annual tax return, while the employer handles social security and health insurance. In the latter case, the income is included in the payroll run by the employer and taxed accordingly.

If the employer (local or foreign) does not bear any costs of the plan, the employee reports and taxes the income in their annual tax return, with no contributions to Czech social security and health insurance. 

Some companies offer a “cashless exercise” or “same day sale” as the stock options/RSU plan to allow the plan to be administered in a simpler way. This way, the options can be exercised without the need for the employee to fund the exercise price in cash (the part of the acquired shares is sold immediately to pay the exercise price).  It also allows the employee to receive the cash value of the free shares upon vesting of RSUs without taking any extra steps.

Such income in cash, whether paid out to the employee or used for the coverage of the exercise price of the shares, is immediately considered the employee’s income and its taxation cannot be anyhow deferred. 

Generally no.

Although the local language is not strictly required, it is highly recommended because the employees should fully understand the plan documents. 

No. 

No. 

There are no explicit restrictions, however the provision of stock options/restricted units to contractors increases the risk of misclassification of contractors as employees (and thus the risk of illegal hidden employment). In addition, the employee plan exemption from the prospectus requirement (which is one possible exemption) applies in general only to employees. 

Strictly theoretically yes, but only towards trade unions.

The company should consult the trade union before the launch of a stock option plan; however, the TU’s consent is not necessary. 

Yes, recommended.

An agreement with the employee will be required if the plan assumes deductions from the employee's salary (e.g. to settle the exercise price).