Taxation of Investment Income 2026

Investment Certainty in 2026: A Return to Capital Gains Exemption Without a Financial Cap

The principle of the so-called holding period test remains in place without a financial cap for standard securities and business shares under the current version of the Income Tax Act. The Czech Republic thus maintains its status as one of Europe's most attractive countries for investment when it comes to the taxation of capital gains for natural persons.

This has a major practical impact on your investment strategy. The year 2026 provides certainty for carrying out planned exits and company sales without the fear of new taxation on historical profits, provided you meet the statutory deadlines. Many business owners and long-term investors can execute their sales or restructurings in this stable environment.

The Holding Period Test: The Key to Zero Tax

In 2026, income from the sale of securities and business shares will continue to be exempt from personal income tax if the so-called holding period test is met. This mechanism means that the investor must hold the asset for a legally stipulated period.

For securities (shares, ETFs, bonds), this period is three years under Section 4(1)(u) of the Income Tax Act, while for business shares in corporations, it is five years.

In practice, this means that if you bought shares in January 2023 and sell them in January 2026 or later, the income from the sale will be tax-exempt. Similarly, if you invested a share in a company in January 2021 and sell it in January 2026 or later, the income will be exempt even if the sale generates a high profit.

The lawyers at the Prague-based ARROWS law firm consult with clients daily about their specific situations and help them plan transactions correctly with regard to tax implications and the proper calculation of time limits.

When and How to Correctly Apply the Exemption: Practical Steps for Investors

Applying the law in practice has its pitfalls. Although the law allows for an exemption, in the real world, there are numerous exceptions and procedural steps you must follow. Without the correct procedure, you risk being unable to claim the exemption, and the tax office may retroactively assess the tax.

The first critical decision is the timing of the sale, where for shares or business interests that are close to but have not yet met the required holding period, it pays to wait until the condition is met.

The second critical situation arises if you hold securities of the same type in your investments that were purchased at different times—some meet the holding period test, others do not. In such a case, you must ensure that when you sell, it is clearly identifiable which specific units you are selling.

For record-keeping, the weighted average cost method or the FIFO (First In, First Out) method can be used, as permitted by the General Financial Directorate's Guideline D-59.

The third practical issue is documentation. For the tax office to verify that you have indeed held the investment for at least three or five years, you must have detailed records. If you inherited part of the shares, if there were company transformations, or if shares were exchanged, the process becomes legally complex, and the holding periods may or may not be interrupted.

The lawyers at the Prague-based ARROWS law firm have experience in resolving these very complex situations.

The Value Test as an Alternative to the Holding Period Test

If you do not meet the holding period test (you hold shares for less than three years, or business shares for less than five years), you have one more option for smaller sales—an exemption based on the total income limit. If your total gross income (not profit) from the sale of securities in a given calendar year does not exceed CZK 100,000, this income is tax-exempt.

This means that if you bought an ETF for CZK 80,000 and sell it a year later for CZK 95,000, and you have no other sales of securities, this income is exempt. Note that this limit is cumulative for all sales of securities in a given year. This limit does not apply to shares in a limited liability company (s.r.o.).

Cryptocurrencies: A Specific Regime Without a Holding Period Test

While the exemption for traditional securities is generous, the situation for cryptocurrencies (virtual assets) is different and much stricter. Under Czech legislation, there is no holding period test for tax exemption for cryptocurrencies in 2026. Whether you hold Bitcoin or another cryptocurrency for one year or five, the profit from its sale is subject to taxation as so-called "other income" under Section 10 of the Income Tax Act.

The reality is that all profits from cryptocurrencies are taxable, with the exception of completely negligible occasional income, which cannot be relied upon for systematic investing.

Cryptocurrency investors must record all transactions and pay tax on the profit (tax base) at a rate of 15% or 23%. At the same time, a loss from the sale of cryptocurrencies cannot be offset against profits from other types of income (e.g., from employment or business); it can only be offset against profits from other "other income" under Section 10.

The lawyers at the Prague-based ARROWS law firm will help you prepare a tax strategy that takes into account the specifics of cryptocurrencies in the context of your entire asset portfolio.

Tax Rates and Thresholds for 2026: Progressive Taxation

The basic personal income tax rates in the Czech Republic will remain the same in 2026 under Section 16 of the Income Tax Act. The lower rate is 15%, and the higher rate is 23%. The 23% rate applies to the part of the tax base that exceeds the set limit.

With the estimated average wage for 2026, the threshold for switching to the 23% rate would be approximately CZK 1,764,000 of the annual tax base.

The practical impact is that if your annual tax base (the sum of partial tax bases from employment, business, rent, and other income) exceeds this threshold, you will pay 23% tax on the amount above this limit. The amount up to the limit is taxed at 15%.

This progression also applies to profits from the sale of investments that are not exempt, and proper optimization of income over several years can save 8 percentage points on tax.

Tax Exemption for Real Estate: 10 Years is the Standard

For real estate, the key parameter for exemption in 2026 remains the holding period test of 10 years (for properties acquired after 1 January 2021) under Section 4(1)(b) of the Income Tax Act. If you sell a property after 10 years from its acquisition, the income is exempt. For properties acquired before 2021, the original 5-year period applies.

An exception is when the seller has lived in the property being sold for at least 2 years immediately before the sale, or if they use the funds from the sale to acquire their own housing.

From 2026 or during the year, partial amendments to the Income Tax Act concerning the support of affordable housing may also come into effect. These may introduce specific exemptions for sales of real estate to municipalities or within social housing schemes; however, the basic rules for private investors remain set at decade-long ownership.

Employee Shares and Options: Deferred Tax Liability

In the area of employee stock ownership plans (ESOPs), new rules have been in effect since 2024 (and thus also in 2026), which, while not meaning a complete exemption, offer the advantage of a deferral of taxation.

The essence of the change is that the employee does not have to tax the acquisition of the share or option at the moment of its receipt, but the moment of taxation is postponed to a later event.

Income from an ESOP is still considered income from dependent activities, which means it is subject not only to income tax but also to social security and health insurance contributions, unless it is structured in a different, specific way.

The lawyers at the Prague-based ARROWS law firm help companies set up ESOP plans that are legally robust and as tax-efficient as possible within the current legislation.

Research and Development Deductions: Supporting Innovation

For both self-employed individuals and legal entities, the option of a deduction for the support of research and development (R&D), regulated in Section 34a et seq. of the Income Tax Act, remains in force in 2026. The basic deduction amount is 100% of the expenses incurred for R&D. If the expenses in a given year exceed the expenses in the previous year, a deduction of 110% can be applied to this increase.

The tax office rigorously checks whether projects meet the definition of research and development and whether the documentation is prepared on time and without errors.

Without quality preparation and documentation, your business will not avoid the risk of a tax audit and an assessment of additional tax, including penalties.

The lawyers at the Prague-based ARROWS law firm have experience in defending research and development projects.

Tax Risks and Penalties for Incorrect Procedures

Understanding the rules is the first step, but application is more complex in practice. Below is an overview of the main risks that may arise:

 Administrative Changes: Reporting of Agreements and Digitalization

The year 2026 is marked by continued digitalization and stricter record-keeping. A significant change, which has been phased in since mid-2024 and will be fully effective in 2025 and 2026, is the mandatory reporting of all agreements to perform work (DPP). Employers must report all employees on DPPs to the Czech Social Security Administration (ČSSZ) monthly, even those not subject to contributions, which stems from an amendment to the Sickness Insurance Act.

For investors and business owners, this means an increased administrative burden for project companies or SPVs where DPPs were often used. If you are unsure how to correctly set up the processes in your company, the lawyers at the Prague-based ARROWS law firm can help you ensure compliance with the new requirements.

Transfer Pricing and Transactions Between Related Parties

If you have a business structure with related parties (e.g., a holding company, subsidiaries, loans between the owner and the company), you must pay attention to transfer pricing. The Financial Administration has long focused on checking whether prices agreed between related parties correspond to market prices under Section 23(7) of the Income Tax Act.

This also applies to interest on loans you provide to your company or that it provides to you, property rentals, or invoicing for management services. Without quality transfer pricing documentation, there is a risk of an additional tax assessment. The ARROWS law firm has experience in preparing this documentation and defending the set prices.

Tax Optimization: Strategies for 2026

Tax optimization is a legal process of using statutory options to reduce tax liability. Here are proven strategies:

1. Using the holding period test: The absolute foundation. If you are approaching the 3-year (for shares) or 5-year (for business shares) period, postponing the sale by a few months will save you 15–23% of the profit.

2. Offsetting losses: Within a single partial tax base (e.g., Section 10 other income or Section 7 business income), losses can be offset against profits. For shares (if not exempt), a loss from the sale of one share can be offset against a profit from another share in the same year.

3. Investing as a company vs. as a natural person: For natural persons, there is an exemption after the holding period test. For legal entities (s.r.o.), this exemption for the sale of securities generally does not apply, with the exception of a specific exemption for the sale of shares in subsidiary companies.

4. Gifts and family transfers: Transfers within the direct family line are exempt from income tax. This can be used for intergenerational asset transfers.

Executive Summary for Management

For business owners and investors, the key takeaways are:

1. The holding period test remains: In 2026, the exemption for the sale of securities (3 years) and business shares (5 years) without a financial cap still applies.

2. Cryptocurrencies are taxed: There is no holding period test for crypto. Profits are subject to a 15/23% tax.

3. Progression: Profits above approx. CZK 1.76 million per year are subject to a 23% rate.

4. Real estate: Exemption after 10 years (or 2 years if used as a primary residence).

5. Risk: The Financial Administration has tools to check foreign income and transfer pricing.

Conclusion

The year 2026 does not bring a revolution in the form of abolishing benefits but rather confirms the stability of the Czech tax system for investors. The ability to sell a company or a stock portfolio tax-free after meeting the holding period test is a major advantage in the European context. At the same time, however, there is growing pressure for transparency, record-keeping, and the correct taxation of assets that are not exempt.

The lawyers at the Prague-based ARROWS law firm deal with tax issues related to investment income on a daily basis.

If you are planning major investment transactions, the sale of shares, business interests, or real estate, please contact us. The ARROWS law firm will help you with legal analysis and tax strategy.