Mergers & Acquisitions 2026

Tax Burden: Why the Choice of Sale Method is Crucial

When you decide to sell a company, the purchase price is far from everything you will ultimately receive in your bank account. Between what the buyer pays and what you are left with stands tax—and it is calculated very differently depending on how you structure the transaction.

A share deal means you sell your stake in an LLC or shares in a joint-stock company directly to the buyer, whereas in an asset deal, the company sells its assets, and you subsequently pay out the money to yourself.

This may seem like a detail, but in tax terms, the difference is vast. For such transactions, it is advisable to address the sale structure (share deal vs. asset deal) in a timely manner from a legal perspective as well, typically as part of company sales and transaction advisory services.

Take this example: you are selling a company for CZK 5 million, the original acquisition cost of the assets (or stake) was CZK 2 million, so your gross profit is CZK 3 million.

• Share deal (if you meet the holding period test, i.e., 5 years for an LLC, 3 years for a JSC): tax CZK 0. You keep the entire CZK 5 million.
• Asset deal: first, your LLC pays corporate income tax (rate of 21% on the CZK 3 million profit = CZK 630,000). Subsequently, you pay out the net profit as a share of profit (dividend), which is subject to a 15% withholding tax (on the amount after corporate tax, i.e., on CZK 2.37 million = CZK 355,500). Total tax impact: CZK 985,500, with an effective profit tax rate of 32.85%.

The difference: compared to a share deal, you lose almost a million crowns. To correctly set up the transaction structure and the contractual documentation itself, it can be useful to use support in the area of contracts and negotiations.

Current Situation for 2026: Exemption Without a Limit

For 2026, the legal framework for the sale of shares is stable. For the practical setup of transfers within family structures (including tax and property impacts), the follow-up text Transfer of a Business Share in a Family Company: How to Correctly Set Up Legal Steps and Avoid Tax and Property Risks? can also be helpful. Although the introduction of a limit for the exemption of income from the sale of shares (e.g., a threshold of CZK 40 million) was discussed in previous years as part of consolidation packages, the final valid legislation does not contain this limit for standard sales of business shares and securities when the holding period test is met.

This means that if you sell a company for 100 million, 200 million, or 500 million and meet the statutory holding period test, the exemption applies to the entire amount without an upper limit.

However, beware of the exception concerning crypto-assets, which are subject to a different regime, and the holding period test for exemption does not apply to them to this extent.

The condition remains strict adherence to the holding period test and the fact that the share was not included in business assets for the purpose of self-employment.

Conditions for Exemption: The Holding Period Test and Its Pitfalls

For the tax exemption on the sale of a business share under the Income Tax Act to truly apply to you, you must meet one fundamental condition: the period between the acquisition of the share and its transfer for consideration must exceed the prescribed period.

The length of the period varies by company type:

1. Share in an LLC: The holding period test is 5 years (Section 4(1)(q) of the Income Tax Act).
2. Shares (JSC): The holding period test is 3 years (Section 4(1)(u) of the Income Tax Act).

Although this sounds simple, practice brings pitfalls. In practice, the setup of ownership and holding structures before the sale is therefore often addressed, which is related to the field of corporate law, holdings, and structures. The first concerns the moment of assessment.

The decisive factor for meeting the test is the effective date of the transfer (legal effect), not the day the money is paid out. So, if you sell a share with a contract effective in December but receive the money in January, the income is exempt.

The second pitfall relates to the gradual acquisition of shares. If you acquired the share in parts (e.g., by buying from another shareholder), the holding period test is assessed for each part separately. This means that the original part of the share may be exempt, while the newly acquired part may not.

The third common pitfall concerns a sale from business assets, where you operate as a natural person and account for the share—in such a case, the exemption does not apply.

The fourth pitfall relates to a future sale. If you have acquired a share and the acquisition agreement already stipulates an obligation to sell it in the future (e.g., as part of put/call options), this may be assessed as a disguised relationship; however, the key for exemption is the actual expiration of the ownership period.

What to watch out for when timing the sale:

1. If you are only a few months away from meeting the test, do not rush to sign the contract. Postponing the effective date of the transfer can save millions in taxes.
2. If you are selling multiple shares or a gradually acquired share, have it precisely calculated which part is exempt and which is subject to taxation.
3. Always consult with a tax advisor to see if there have been any company transformations (mergers, demergers) during the holding period that could affect the running of the time limits.

The lawyers at our Prague-based law firm, ARROWS, will guide you through these details when planning the sale to ensure the transaction is not subsequently challenged by the tax authority.

Share deal: how the sale of a share and taxation work

When you opt for a share deal, you sell your share directly to the buyer. Your company is not a party to the Share Purchase Agreement (SPA); it is concluded only between you and the new owner. The company continues its normal operations, and its company ID (IČO) and legal personality remain unchanged.

If you do not meet the holding period test, you tax the profit, which is the difference between the sale price and the acquisition cost of the share.

Note: The acquisition cost means the actual expenditure. If you founded an LLC with a share capital of CZK 200,000 and sell it after a year for CZK 10 million, the tax base is CZK 9.8 million.

From a legal perspective, the change of ownership becomes effective towards the company upon delivery of the effective transfer agreement and is subsequently recorded in the Commercial Register.

Transaction lawyers will prepare not only the SPA but also all corporate documentation (General Meeting resolutions, waiver of pre-emptive rights, changes of executive directors).

If the LLC's articles of association grant other shareholders a pre-emptive right, this process must be formally followed, otherwise the transfer may be contestable or invalid.

Asset deal: sale of assets and why buyers request it

An asset deal is structurally more complex. Your company sells a set of assets (a business enterprise or part of it) or individual assets: real estate, machinery, inventory, client databases, intellectual property, etc.

The buyer prefers an asset deal because they select only the "healthy" assets and eliminate the risk of taking on historical legal and tax liabilities.

The buyer can depreciate the assets again from the new (higher) purchase price, which brings them future tax savings. For you, however, this means double taxation:

1. Corporate Income Tax (CIT): The company taxes the profit from the sale at a rate of 21%.
2. Withholding Tax: For you to receive the money, the company must pay it out as a dividend, which is subject to a 15% withholding tax.

Example of an asset sale for CZK 5 million (profit of CZK 3 million): CIT amounts to CZK 630,000. From the remaining net profit of CZK 2.37 million, you will pay a withholding tax of CZK 355,500. You are left with CZK 2,014,500, while the state receives CZK 985,500.

Negotiation between the seller and the buyer: finding a compromise

Here we come to the reality: your choice is not entirely free. You prefer a share deal, while the buyer often prefers an asset deal.

The result of the differing preferences between the seller and the buyer is negotiation over the price and warranties.

Option 1: The buyer agrees to a share deal but, in return, demands a discount on the purchase price or stricter warranties (indemnities) for any hidden risks.

Option 2: The transaction is carried out as an asset deal, but the buyer increases the price to compensate you for the higher tax burden.

Option 3 (Earn-out): Part of the purchase price is paid out later, depending on the company's future performance.

The lawyers at ARROWS law firm will represent you in these negotiations to ensure the structure is legally secure and makes economic sense.

Due diligence and tax risks

Before the contract is signed, due diligence—an in-depth review—takes place. From a tax perspective, it is examined whether transfer pricing is in order, whether costs and depreciation are correctly applied, and whether there are any risks in the area of VAT.

The discovery of a serious tax risk during due diligence usually leads to a reduction in the purchase price or a demand for a specific indemnity clause in the purchase agreement.

It is therefore crucial to conduct a so-called vendor due diligence (your own review) even before starting the sale and to correct any errors.

Rules for real estate: specifics

If you own real estate as a natural person, the income from its sale is exempt from tax after 10 years from its acquisition (Section 4(1)(b) of the Income Tax Act). For real estate used for your own housing, the period is shortened to 2 years.

The sale of real estate from a company's assets is always subject to corporate income tax, as no holding period exemption exists for legal entities under Czech legislation.

Therefore, in practice, a spin-off of the real estate into a separate company before the sale is often used, or only the operational part of the company is sold, while the real estate remains in the holding and is leased to the new owner.

Securing the transaction: Escrow and insurance

The seller wants the money, the buyer wants certainty. How to solve this?

Part of the purchase price is deposited into escrow with a lawyer or a bank for the duration of the warranty period, and the money is released to the seller only after this period has expired.

For larger transactions, Representations and Warranties Insurance (W&I Insurance) is used. The seller is liable for the truthfulness of the information only up to the amount of the deductible; the rest of the risk is borne by the insurance company. This allows the seller a "clean exit" without a long-term blocking of funds in an escrow account.

Final summary

Selling a company is a complex process where tax implications play a major role in how much money you actually keep. In 2026, favourable conditions for the sale of shares apply in the Czech Republic—upon meeting the 5-year (LLC) or 3-year (JSC) holding period test, the income is fully exempt from tax.

However, the risk remains of a poorly drafted contract, insufficient handling of liability for defects, or unknowingly violating tax regulations in an asset deal.

The lawyers at our Prague-based law firm, ARROWS, have extensive experience with transactions and know how to structure a sale to be tax-optimal and legally sound. Contact us for an initial consultation at konzultace@arws.cz.