At the beginning of the year, a client approached us for advice regarding the taxation of the sale of a company share owned by an individual. Our new client had gifted this share to his son in 2024.

However, the situation among the shareholders did not develop as expected, and this year the son decided to sell the gifted share to the other shareholders. Such a sale is subject to a holding period test (regardless of the fact that the son acquired the share by gift). The requested sale price was below the statutory threshold of CZK 40 million for potential tax exemption. However, the recipient did not hold the share for the legally required period of five years before the sale, and therefore the proceeds from the sale are subject to taxation.

 

How is the tax base calculated in such a case?

The tax base is determined as the difference between the sale price and the value of the share as determined by an expert appraisal at the date of the gift. Preparing an expert appraisal is mandatory in this case, as the law stipulates valuation by an expert as the only permissible method for determining the price of the sold share (see Act No. 151/1997 Coll., on Property Valuation).

From the formula (sale price of the company share – value of the share determined by the expert opinion as of the date of the gift = basis for income tax calculation), it follows that the higher the value of the gifted share determined by the expert, the lower the resulting tax.

 

The method of determining the share value plays a key role

Given the above, the value of the company that the certified appraiser establishes in their report is crucial. Every crown by which the value in the appraisal is increased reduces the tax base. The final value can be influenced by the valuation approach (method) chosen by the certified appraiser. Let’s briefly introduce the possible approaches.

 

Asset-based approach (company value based on assets)

• Key question (principle): What is the value of all the company’s assets (buildings, machinery, inventory, receivables, goodwill) after deducting all its liabilities?
• Impact on the result: This approach may lead to a lower valuation for companies that are profitable but do not own many tangible assets (e.g., IT firms, consulting agencies). Conversely, for manufacturing companies with expensive technologies or firms owning valuable real estate, this value can be high.

 

Income-based approach (company value based on profit)

• Key question (principle): How much money is the company capable of earning in the future? The value is then derived from a forecast of future profits or cash flows.
• Impact on the result: For a stably profitable company with a good reputation and loyal customers, this approach will typically lead to a higher valuation than a purely asset-based view. It considers the company’s potential, not just its current state.

 

Comparative approach (company value based on the market)

• Key question (principle): For how much have similar companies in the same industry been sold recently?
• Impact on the result: The resulting price is strongly influenced by the current market situation. If there is high demand for that type of company, the price will go up. Using this approach is often difficult because data on the sales of private companies are not always publicly available.

In their report, the appraiser usually considers multiple methods and, based on their professional judgment, determines the one that best suits the nature of the company being valued. Alternatively, they may combine methods. The choice and its justification are a key part of the expert appraisal.

 

The value determined by an appraisal is not a made-up number

It is important to realize that a certified appraiser cannot set a price without detailed justification. They cannot, therefore, make a “conclusion on demand.” Their appraisal must be reviewable and defensible. The ways in which they prove its correctness include:

1. Justification of the chosen method: The appraiser must describe in detail in the report why they chose a specific valuation method (or a combination thereof). They must also argue why other methods are less suitable or entirely inapplicable for the given case.
2. Transparency of source data: They must list all the documents they used in their work (financial statements, annual reports, market data, etc.).
3. Detailed calculations: The appraisal must also contain all the calculations leading to the final value. This allows for a backward check to verify that the procedure is mathematically correct.

 

If it were proven that the appraiser intentionally determined the value incorrectly (for example, for the purpose of tax evasion), the consequences for them would be serious. These could include:

• Financial liability for damages (e.g., if the tax office commissions a review and, based on it, assesses additional tax and penalties to the client).
• Professional (disciplinary) consequences.
• Criminal liability.

 

However, as I mentioned earlier, the appraiser has certain limited options to influence the final value of the company (share). This is done by choosing the valuation method, if they can justify it properly. An example could be preferring the income approach when valuing service companies with minimal assets, which would very likely result in a higher company value.

 

The role of the accounting office in the whole process

At first glance, it may seem that the accounting office does not play a significant role in the whole matter. The opposite is true. Accountants are usually the entity with the greatest influence on the completeness, accuracy, and informative value of accounting data. As stated above, these are one of the important sources for the expert’s work. It is therefore crucial that accountants have all the necessary inputs and the time and resources to provide quality work.

Your role and responsibility as the owner (or statutory body) of the company is to provide the accounting office with all necessary inputs (documents and relevant information) in a timely and complete manner. At the same time, you should use (or not use, as often happens) the outputs of their work for decision-making in economic and financial matters.

Some might argue that the selection of information and data that the owner (or statutory body) will work with in their decision-making is purely their prerogative. I dare to say that this is a false impression. Primarily because almost every entrepreneur wants to build a healthy and prosperous company, given the amount of time and personal sacrifice they invest in it. And that is simply not possible without quality management based on correct data.

Therefore, I appeal to you to consider not only the price of services when choosing an accounting office but also its references, technologies used, quality of processes and systems, and especially the knowledge, experience, and abilities of the team, which should correspond to the state of your company and the goals you want to achieve with it.

 

Tax rate on the sale of a company share

Income from the sale of a share is classified as “other income” for individuals (see Act No. 586/1992 Coll., §10). For 2025, two basic personal income tax rates apply:

• 15% of the tax base up to a certain limit (36 times the average wage; for 2025, this is set at CZK 46,557, i.e., CZK 1,676,052 per year).
• 23% on the amount exceeding the above limit.

 

For example, if the tax base is CZK 2 million, the tax (before deductions) will be as follows:

• CZK 1,676,052 * 0.15 = CZK 251,407.80
• CZK 323,948 * 0.23 = CZK 74,508.04
• CZK 251,407.80 + CZK 74,508.04 = CZK 325,915.84 (i.e., CZK 325,916)

 

For the client in this case study, both of the above rates will very likely be used.

 

In conclusion: a few words about gift tax

Finally, I would like to make a note about the gift itself. Since in the described case it was a gift between persons in a direct family line, this income is exempt from income tax, and the gift tax will be zero regardless of the value of the share.

However, if the value of the gift exceeds CZK 5,000,000, the recipient is obliged to report its acquisition to the tax office. The deadline for notification is the same as the last date for filing the personal income tax return for the period in which the gift was made. For this purpose, an expert opinion is not required; a so-called professional estimate can be used, which can be provided, for example, by an accountant, a company operating in the M&A field, or a simple comparison of market prices.