Impact of Changes on Taxation of Income from the Sale of Shares and Equity Interests from 2025

Effective from 1 January 2025, the government's consolidation package introduces fundamental changes to the taxation of income from the sale of long-held equity interests and securities. Previously exempt income will now be subject to tax, based on amendments to Section 4(3) and Section 10(9) of the Income Tax Act.

At the same time, however, the amendment allows the standard acquisition cost to be replaced by the market value as of 31 December 2024. This approach is intended to ensure fairer tax treatment and prevent retroactive application of the rules.

We have prepared answers to several key questions related to these changes.

Contents

• What Is Market Value?
• How Can Market Value Be Determined?
• Is an Expert Appraisal Required?
• When Should You Have the Valuation Prepared?

What Is Market Value?

According to Section 2(3) of Act No. 151/1997 Coll., on Property Valuation, market value is the estimated amount that could be obtained in an ordinary sale on the market under normal conditions. This value is determined using various valuation methods, such as:

• Comparative method -- based on prices of similar assets traded on the market,
• Income method -- estimates value based on expected future returns,
• Cost method -- determines value based on acquisition or reproduction costs.

The appropriate method is chosen based on the nature of the asset and the available data.

How Can Market Value Be Determined?

In practice, the income method based on future financial flows (discounted cash flow) or the capitalized net income method based on historical data is commonly used for businesses.

Is an Expert Appraisal Required?

However, the legislation does not specify whether the market value must be prepared by a court-appointed expert. We believe that a valuation prepared by a professional with a licensed trade authorization for Property Valuation for Business Enterprises is also sufficient. In our view, this approach complies with the law and may be adequate even during a tax audit, provided the calculation is properly substantiated and documented.

To gain legal certainty regarding the requirements for substantiating market value, we contacted the Ministry of Finance with a request for an opinion. Whether a formal expert appraisal will be strictly required, or whether a professional valuation will suffice, has not yet been clearly established. We are awaiting a response and will keep you informed of developments.

UPDATE 16 January 2025: We have received a statement from the Ministry of Finance

When Should You Have the Valuation Prepared?

The market value must be determined as of 31 December 2024. However, we recommend waiting for the final financial statements for 2024 and having the valuation prepared in 2025. The law does not restrict the time period in which the valuation must be completed, which allows for flexibility.

We would be happy to help you determine your company's value with our comprehensive business valuation.

If you have further questions, do not hesitate to schedule a non-binding meeting with Josef Krejci, our business valuation specialist.