Czech Republic: Changes to the taxation of employee share and option plans (ESOPs)

The taxation of ESOPs will change from January 2026. This revision should be interesting especially for international private equity fund managers (and their service providers) with participations in Start-Ups and SMEs in the Czech Republic.

Tax-smart equity: Qualified employee options come to Czechia

ESOPs are a standard way for companies worldwide to attract and retain key employees. In Czechia, however, the system has never really worked in the past — companies could grant options, but without any meaningful tax advantages. That situation will change in January 2026. A long-awaited reform will finally introduce qualified employee options with clear rules and significant tax benefits. ESOPs in Czechia will become practical, predictable, and competitive on a global scale.

Significant tax benefits

Income from a qualified ESOP program will be completely exempt from social security and health insurance contributions, for both the employee and the employer. This dramatically reduces the overall cost of the program and increases its attractiveness.

At the same time, taxation will not occur immediately upon the granting or exercising of options, but only when the employee sells the shares and receives the real financial gain (“no tax before cash” principle). If the employee does not sell the shares, taxation will occur after the maximum period established by law — up to 15 years from the acquisition of the shares or options.

Clear criteria for participation

The use of the new regime is subject to clearly defined criteria, and the promise of a qualified option must be reported to the tax authority.

The employee must have a contractually documented option, must have been employed for at least 12 months prior to its exercise, and the shares can be obtained no earlier than three years after the option is granted. A single employee may not acquire more than 5% of the company’s share capital through the program, and their salary must exceed 1.2 times the minimum wage (approximately €1,100).

Companies must have annual revenues below CZK 2.5 billion (~€100 million) and assets below CZK 2 billion (~€80 million), and they cannot be regulated entities such as banks, insurance companies, or auditing firms.

Why this matters

With qualified employee options, companies finally gain a clear and predictable framework that defers taxation, eliminates sudden payroll burdens, and aligns equity incentives with international standards. For founders, this creates a genuine tool to attract, motivate, and retain key talent over the long term.