Changes to the Taxation of Income from the Transfer of an Interest in a Limited Liability Company and the Sale of Securities from 2025

New rules from 1 January 2025

From 2025, income of natural persons from the sale of shares or securities will be exempt only up to the amount of CZK 40 million per tax period. The portion of income exceeding this limit will be taxed at the standard personal income tax rates.

Practical example:

If a taxpayer sells a share in an s.r.o. for CZK 100 million in 2025 and meets the holding period test, CZK 40 million will be tax-exempt, and the remaining CZK 60 million will be subject to taxation.

New option to claim market value as an expense

To reduce the tax base for income exceeding the exemption limit, from 1 January 2025 it will be possible to claim the market value of the share or securities as of 31 December 2024 instead of the acquisition cost. This value must be supported by an expert valuation report.

If the income from the transfer of a share or securities exceeds the exemption limit of CZK 40 million, the expense is reduced proportionally to the taxable portion of the income. The exempt portion of the income therefore does not "use up" the corresponding part of the expenses.

Practical example:

A taxpayer acquired a share in an s.r.o. in 2010 for CZK 10 million. According to an expert valuation report, this share has a market value of CZK 50 million as of 31 December 2024. In 2025, the taxpayer sells the share for CZK 100 million.

• Exempt portion of income: Of the total amount of CZK 100 million, CZK 40 million is tax-exempt.

• Taxable portion of income: The remaining CZK 60 million is subject to taxation.

• Ratio of taxable income: 60/100 = 0.6 (i.e., 60% of the income is taxable).

• Expense based on market value: The market value of the share as of 31 December 2024 is CZK 50 million. This expense must be reduced to 60% according to the ratio of the taxable portion of the income:

• 50 x 0.6 = CZK 30 million

• Tax base: The taxable portion of income (CZK 60 million) is reduced by the proportional part of the expense (CZK 30 million). The tax base will be CZK 30 million.

• Resulting tax: If the tax rate is 15%, the tax liability is CZK 4.5 million.

It is crucial to note that if the total income is below CZK 40 million, it is fully exempt, and no expense reduction is applied. If the expenses are higher than the taxable portion of the income, the excess expenses cannot be used or carried forward to subsequent periods. The option to use market value as an expense applies only to shares and securities acquired by 31 December 2024.

Recommendations for taxpayers

• Sale by the end of 2024: If you are planning a sale and meet the holding period test, consider completing the transaction by the end of 2024 to take advantage of the full tax exemption.

• Staggered sale: Splitting the sale into multiple parts across different tax periods can help you stay below the annual limit of CZK 40 million.

• Expert valuation report: Have an expert valuation report prepared for the market value of your share as of 31 December 2024 to optimise your tax liability.

We recommend carefully planning your sales strategies and consulting them with experts.

Impact on legal entities

For legal entities, the Income Tax Act does not introduce significant changes to the rules for taxing income from the transfer of shares from 1 January 2025. The following rules continue to apply:

• Income from the transfer of shares is fully included in the tax base and is subject to a 21% rate.

• Only the actual acquisition costs of the share can be claimed as an expense.

• The exemption of income from the transfer of shares does not apply to legal entities

Exception: Transfers between parent and subsidiary companies

Income from the transfer of shares between a parent and a subsidiary company may be exempt from tax. This exception is based on European legislation (the Parent-Subsidiary Directive) and is implemented in Section 19 of the Czech Income Tax Act.

Main conditions for applying the exemption:

• Shareholding: The parent company must hold at least a 10% share in the subsidiary's registered capital continuously for at least 12 months.

• Legal form and tax residency: Both companies must be business corporations (e.g., s.r.o. or a.s.) and tax residents of an EU or EEA member state. The exemption does not apply if a company benefits from tax exemptions.

• Beneficial ownership of income: The parent company must be the beneficial owner of the income from the transfer of the share, not merely an intermediary.

Conclusion

The changes in the taxation of income from the transfer of shares from 2025 can have a significant impact on your financial plans. If you need advice on how to prepare for them, claim the market value of a share, or optimise your tax burden, do not hesitate to contact us. We will be happy to help you find the most effective solution tailored to your situation.

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