Income Tax Act Amended – Effective from 1 January 2025

06.01.2025 15:04

As of 1 January 2025, an amendment to the Income Tax Act will come into force, bringing fundamental changes to the tax exemption rules for income from the sale of shares in business corporations and of securities by individuals.

The main changes include:

Until 31 December 2024, the income of individuals from the sale of securities and shares in business corporations is fully exempt from personal income tax if the specific time test is met, namely 3 years in the case of securities and 5 years in the case of shares in business corporations.

Furthermore, the amendment introduces a cap of CZK 40 million per taxpayer per year for the exemption of such income. The amount is an aggregated total for all income from the sale of securities and business shares.

What does the amendment mean in practice?

– Newly, income tax will paid from gains arising from increases in the value of shares and securities after 1 January 2025. The basis for calculating the tax will be the difference between the sale price after that date and the market value as at 31 December 2024.

– Aggregate income for the taxable year will need to be apportioned between exempt and taxable income due to limitations on the deductibility of expenses. This means that if the taxable income is 10% and the exempt income is 90%, only an expense equal to 10% of the total expense will be claimable against the income.

– Should you be possibly affected by these changes in 2025 and beyond, i.e., if you are contemplating a future sale of a share in a business corporation or a sale of securities, we recommend that you ascertain their market value as at 31 December 2024 during the course of 2025. It will of course be possible to obtain a valuation later, but it may become more difficult to draft an expert opinion on the market value several years back.

How we can help you:

We would be happy to provide you with detailed analysis of this amendment to the Income Tax Act and its impact on your particular situation. We also offer assistance in valuing your shares or securities and by arranging for the services of associated accounting and auditing firms.

Do not hesitate to contact us. We are here for you!