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Czech Republic

CMS Expert Guide to Stock option grants in Czech Republic

Table of contents
  1. Can a company issue stock options/restricted units in your jurisdiction?
  2.  If yes, is it a common practice to issue stock options/restricted units in your jurisdiction?
  3.  Is it allowed for the residents of your jurisdiction to receive stock options/restricted units from foreign companies?
  4.  Does your jurisdiction have special regulations applicable to stock options/restricted units granted to its residents from foreign companies?
  5.  When stock options/restricted units are granted by foreign company, is it commonly required to have prospectus or other offering to be published in your jurisdiction?
  6.  Whether the grant and/or vesting of stock options/restricted units are considered a notifiable event in your jurisdiction?
  7.  Are there any regulatory or other restrictions that could significantly limit an ability of the residents of your jurisdiction to participate in foreign stock option plans?
  8.  Is it necessary to undergo any kind of registration of foreign stock option plan in order for the residents of your jurisdiction to participate?
  9.  Does your jurisdiction have special taxation rules applicable to stock options/restricted units?
  10. Whether grant/vesting of stock option is considered a taxable event for participant in your jurisdiction?
  11.  Whether spread between exercise price of option and market price of shares is considered taxable income for participant in your jurisdiction?
  12. Whether investment gain on sale of shares received upon exercise of option are subject to tax in your jurisdiction?
  13. Whether grant of restricted units is considered a taxable event in your jurisdiction?
  14. Whether vesting of restricted units is considered a taxable event in your jurisdiction?
  15. Whether there is a risk of double taxation upon sale of shares received under restricted units by participant in your jurisdiction?
  16. Whether there is separate securities tax applied to shares received under stock option/restricted unit in your jurisdiction?
  17. Whether social security taxes may apply to benefits received by participant under stock option plan?
  18. Is there a risk of double taxation for the residents of your jurisdiction in case of receiving foreign stock options/restricted units?
  19. Is there a possibility for stock option plan to benefit from any special taxation regime in your jurisdiction, in case if certain conditions are met?
  20. Is it necessary in your jurisdiction to have stock option plan documents translated into local language?
  21. Is it required for a participant of the plan to have a separate bank account in order to pay for vested shares?
  22. Whether there are any restrictions in your jurisdiction on granting stock options/restricted units to independent contractors?
  23. Does the company have consultation obligation towards employee representative bodies (e.g. works council) prior to launching a stock option plan in your jurisdiction?
  24. Besides having a plan, is it required/recommended in your jurisdiction to conclude a separate option/unit award agreement with the employee?
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1.Can a company issue stock options/restricted units in your jurisdiction?

Yes. 

We note that the stock option/RSU plan may be subject to regulatory requirements.

2. If yes, is it a common practice to issue stock options/restricted units in your jurisdiction?

No.

Employee equity incentive plans are usually offered at the level of foreign parent company (often US) and governed by foreign laws. That said, we have been seeing an increasing trend especially in start-up companies.

3. Is it allowed for the residents of your jurisdiction to receive stock options/restricted units from foreign companies?

Yes.

4. Does your jurisdiction have special regulations applicable to stock options/restricted units granted to its residents from foreign companies?

Yes. 

These are mostly covered by EU law (Prospectus Regulation, MAR, etc.), however the rules mostly apply to stock options/restricted units irrespective of whether they are granted by a local or foreign company.

5. When stock options/restricted units are granted by foreign company, is it commonly required to have prospectus or other offering to be published in your jurisdiction?

Yes. 

In general, there are requirements to prepare, obtain approval from a financial regulator, and publish a prospectus, offering memorandum or other document. There are also certain reporting obligations towards the financial regulator. However, there are also exceptions where equity incentive schemes are offered to employees. Much depends on the structure of the plan.

6. Whether the grant and/or vesting of stock options/restricted units are considered a notifiable event in your jurisdiction?

No.

7. Are there any regulatory or other restrictions that could significantly limit an ability of the residents of your jurisdiction to participate in foreign stock option plans?

No.

8. Is it necessary to undergo any kind of registration of foreign stock option plan in order for the residents of your jurisdiction to participate?

Yes.

However a number of exceptions apply (usually under the Prospectus Regulation), in which case no such registration is required.

9. Does your jurisdiction have special taxation rules applicable to stock options/restricted units?

No. 

There are no special taxation rules, however the income is taxed as income from employment.

10. Whether grant/vesting of stock option is considered a taxable event for participant in your jurisdiction?

No.

11. Whether spread between exercise price of option and market price of shares is considered taxable income for participant in your jurisdiction?

Yes. 

12. Whether investment gain on sale of shares received upon exercise of option are subject to tax in your jurisdiction?

Yes, but can be exempt.

Income from a sale of shares can be exempt from taxation if the shares have been held for a certain period of time specified by law.

13. Whether grant of restricted units is considered a taxable event in your jurisdiction?

No.

14. Whether vesting of restricted units is considered a taxable event in your jurisdiction?

Yes. 

For taxation purposes, the RSUs are assigned a fair market value when they vest.

15. Whether there is a risk of double taxation upon sale of shares received under restricted units by participant in your jurisdiction?

No.

Both the vesting of the restricted units and the sale of restricted units are taxed. However, on their sale the taxed amount corresponds only to the increase in the market price.

16. Whether there is separate securities tax applied to shares received under stock option/restricted unit in your jurisdiction?

No. 

Income from employee shares received under stock options/restricted units is taxed as income from employment.

17. Whether social security taxes may apply to benefits received by participant under stock option plan?

Yes.

Income from employee shares received under stock options/restricted units is taxed as income from employment, including mandatory contributions to social security and health insurance

18. Is there a risk of double taxation for the residents of your jurisdiction in case of receiving foreign stock options/restricted units?

Yes. 

This depends on the double tax treaty (DTT) between Czech Republic and the other jurisdiction.

19. Is there a possibility for stock option plan to benefit from any special taxation regime in your jurisdiction, in case if certain conditions are met?

No. 

20. Is it necessary in your jurisdiction to have stock option plan documents translated into local language?

Generally no.

Although the local language is not strictly required, it is highly recommended because the employees should fully understand the plan documents.

21. Is it required for a participant of the plan to have a separate bank account in order to pay for vested shares?

No.

22. Whether there are any restrictions in your jurisdiction on granting stock options/restricted units to independent contractors?

No. 

There are no explicit restrictions, however the provision of stock options/restricted units to contractors increases the risk of misclassification of contractors as employees (and thus the risk of illegal hidden employment). In addition, the employee plan exemption from the prospectus requirement (which is one possible exemption) applies in general only to employees.

23. Does the company have consultation obligation towards employee representative bodies (e.g. works council) prior to launching a stock option plan in your jurisdiction?

No.

Yes, recommended.

An agreement with the employee would be required if the plan assumes deductions from the employee's salary (e.g. to settle the exercise price).