What’s new in the area of ​​exemption from income from the sale of shares and securities?

From January 1, 2025, an amendment to the Income Tax Act will enter into force, which changes the conditions for exemption of income from the sale of shares in a limited liability company and securities by individuals.

The current regulation applies until December 31, 2024, according to which income from the sale of a share in a limited liability company is exempt if the individual owned it for at least 5 years before the sale; in the case of the sale of securities, the exemption period is 3 years. The amount of the exempt amount is not limited.

From January 1, 2025, the regulation will change and only CZK 40 million of income from the sale of shares in a limited liability company and the sale of securities will be exempted annually, provided that the condition of 5 or 3 years of holding is met.

However, this change is not as dramatic as it might seem and does not mean that if owners, individuals, plan to sell their companies or securities with a market value above the aforementioned CZK 40 million, they must accelerate their sales activities in order to take advantage of the tax benefits of this exemption before the end of this year.

The amendment to the Income Tax Act contains a provision according to which the market value of a share or security as of December 31, 2024, may be used as a related cost upon sale. The amendment therefore does not apply retroactively and its intention is to tax only profits from the increase in the value of shares and securities from January 1, 2025 onwards.

What is the practical difference in taxation between sales in 2024 and after January 1, 2025?

In the model case, we will examine the sale of a 100% stake in a limited liability company, which was founded by the current owner in 1993 with a deposit of 100 thousand CZK, with the company having a value of 400 million CZK at the end of 2024. 

If he were to sell the company by December 31, 2024 inclusive, he would achieve tax-exempt income, which he would only report to the tax administrator and would not include in his tax return.

If he were to sell the company starting from 1 January 2025, for example in mid-2025, he would reach an exempt income of CZK 40 million, but the remaining CZK 360 million is non-exempt income that he must declare in his tax return. Here he can choose which related expense to use.

Either the actual acquisition price of the share from 1993, i.e. 90% of the amount of 100 thousand CZK, i.e. 90 thousand CZK (because 10 thousand CZK is proportionally related to the exempt income of 40 million CZK) and pay personal income tax of almost 83 million CZK at a tax rate of 23%, or the market value determined as of the end of the year 31. 12. 2024, which will be the same as the achieved sales price of the share, then no personal income tax will be paid. In the event of an increase in the sales price above the market price determined as of 31. 12. 2024, only the difference between this market price determined as of 31. 12. 2024 and the sales price will be taxed.

What steps need to be taken to maximize tax benefits?

It is important to determine the market value of a security or share, determined according to the law governing the valuation of assets as of December 31, 2024, so that the maximum possible tax benefit is utilized in future sales.

The market value of a security or share should be determined by a sufficiently qualified person, ideally an expert’s office. The valuation report does not have to be in the format of an expert opinion, but it must be prepared with a high level of expertise.

Even if you do not plan to sell your companies or securities in the near future, we recommend having the expert report prepared soon after December 31, 2024. This date is established for the valuation and subsequent application of market value, and it is therefore appropriate to prepare the expert assessment following it in the foreseeable future.

Our group of consulting companies offers you complete support in this area, including determining the market value of the share and the security by the renowned expert office VGD Appraisal. We will be happy to offer our services in this regard. Ideally, we recommend that you arrange a meeting now to clarify the procedure and agree on further cooperation. Do not hesitate to contact the people from our group with whom you cooperate, or the partners directly at VGD Appraisal.

Jakub Kovář – partner at VGD Appraisal

Dagmar Dušková – partner at VGD Appraisal