Taxes on share trading: how to do it and when to avoid taxation

Have you sold shares or other securities? Then watch out for tax liabilities! The capital markets have been quite busy in recent years. When tax filing season rolls around, it's a good time to evaluate whether to include your income from sold stocks or ETFs. Our article will help you find the answer.

Which stock transactions are taxable?

At the outset, it's important to note that the mere purchase and holding of stocks, ETFs or other securities by an individual does not constitute taxable income, even if they increase in value during the year. From a tax perspective, you are only dealing with shares that have changed hands and, if applicable, those from which you receive dividends.

Shares and securities in tax
individual's tax return

So what is the situation for individuals who do not have shares included in their business assets?

Exemption from taxation of income from the sale of securities

In one of the many amendments to the Income Tax Act, an exemption was introduced in cases where:

• Income from the transfer of securities does not exceed CZK 100,000 in 1 year. Then it does not matter how long the tax subject has held the securities in question. Only the amount of the total income realised (i.e. the value of the sale itself, not the profit after costs) is relevant. All such income earned during the taxable period - the calendar year - is aggregated.

If the above limit is exceeded, there is another possibility for claiming the exemption:

• The three-year time test. If you hold a security for more than three years, the income from its sale is not taxable. The time test applies for each individual purchase and sale of stock.

If your income from the sale of shares, ETFs or other securities exceeded £100,000 per year and you also sold them within three years of purchase, these transactions must be taxed.

Calculation of the tax base on the sale of shares

When calculating the tax base, you can apply the related expenses to the income; in the case of shares, these are mainly the acquisition cost of the shares and stock exchange fees. Gains and losses on individual titles can be set off against each other.

If you buy and sell shares frequently, it is advisable to keep detailed records of the transactions so that the related cost price can be allocated to the sales and the tax base can be easily determined.

The tax rate on the gain on the shares and where does it go on the return?

For taxpayers who have not included stocks, ETFs and other securities in their business assets, the taxable income (i.e., the difference between the income earned and the related expenses) will be included in other income on the tax return under Section 10 of the Income Tax Act. The tax rate is 15%.

How to tax dividends from Czech companies?

The holding of shares is often associated with the collection of dividends. Even dividends from Czech companies received by an individual cannot be exempted from tax in any case. Such income is subject to a withholding tax of 15% - but this is withheld and paid by the entity that pays out the profit shares. As an individual, you will receive the dividend on a net basis, so you do not have to deal with the tax liability on Czech shares.

Don't worry about the taxation of investments

If you do not know how to prepare your tax return and tax your shares, do not hesitate to contact us.