An earn-out is a part of the purchase price for a company that the seller receives only later, and only if the business hits agreed targets after the sale. It bridges the gap between the seller’s and the buyer’s view of the company’s value. What matters is getting the metric, the period, the calculation and the seller’s protections right — and knowing that in both Slovakia and the Czech Republic the income is taxed in the year it is actually received.
What is an earn-out and why use it?
When a company is sold, the parties often disagree on price. The seller believes in future growth and wants to be paid for it now; the buyer does not want to pay for an uncertain future. An earn-out resolves this: part of the price is paid at signing and part later, if the company meets pre-agreed goals.
It is therefore a deferred and conditional purchase price. The seller can obtain a higher total if the business performs, and the buyer reduces the risk of overpaying. Both Slovak and Czech law allow it through freedom of contract — the price can be set by a method of later determination, provided the criteria are sufficiently certain and measurable.
How is an earn-out calculated?
An earn-out is usually tied to a financial metric that reflects performance — EBITDA, revenue, net profit — or to operational indicators such as customer numbers or retention of key contracts. The measurement period is typically one to three years after the sale.
Example: a fixed price of EUR 800,000 at signing plus a further EUR 200,000 if average EBITDA over two post-sale years exceeds an agreed threshold. A precisely defined metric is essential — it must be clear how it is calculated, which statements it draws on and who verifies it. The choice between selling a stake and selling the business, which also shapes the earn-out, is compared in our article on share deal versus asset deal.
How do you protect the seller during the earn-out period?
The biggest risk is that the buyer now runs the company and can — even legitimately — invest, shift costs or change accounting methods so that the metric falls and the earn-out is not paid. The seller therefore needs firm safeguards in the contract.
Proven protections include a precise definition of the calculation, a ban on artificially depressing results, the seller’s right to regular information and to audit the underlying data, and an agreed dispute mechanism. Keeping the seller in management during the earn-out period is also common, so they can genuinely influence the outcome. Related preparation is covered in our guide to due diligence before selling a company.
When is the deferred price taxed in Slovakia and the Czech Republic?
In both countries a private seller is taxed when the money is actually received. In Slovakia the gain on transferring a share falls under § 8 of the Income Tax Act, taxed at the progressive 19% and 25% rates plus a health-insurance levy. In the Czech Republic a non-exempt gain is other income under § 10, taxed at 15% and 23%. Earn-out instalments received a year or two later are therefore taxed in that later year, not all at signing.
In both cases the seller deducts the acquisition cost of the share. Spreading the income over time is both a benefit and a drawback of the earn-out — you pay tax gradually, but in the year of each instalment.
When is the sale of a stake exempt from tax?
The exemption rules differ sharply. In Slovakia, an individual has no holding-period exemption when selling a business share — a three-year exemption planned for 2024 was scrapped by the consolidation package before it ever took effect, so apart from a small EUR 500 threshold the gain is taxable. Companies, however, can use the § 13c exemption (a direct stake of at least 10%, held for 24 months, with genuine ownership functions).
In the Czech Republic, an individual is exempt after a five-year holding test, and from 1 January 2026 the CZK 40 million cap on that exemption is abolished — after the time test the gain is exempt regardless of size. Companies can use the parent-subsidiary exemption under § 19 (a stake of at least 10% held for at least 12 months). With an earn-out, always check whether the time test is met at the date of transfer.
What risks does an earn-out carry?
An earn-out is useful but uncertain. Payment is not guaranteed, the result depends on the buyer’s management, and disputes over how the metric is calculated are common. On top of that comes the tax timing — you pay tax in the year of each instalment, even for a single transaction.
You reduce the risks with clear, measurable goals, a conservative estimate of what is achievable, protective clauses and by calculating the tax impact of each instalment in advance. An earn-out makes sense where future performance is genuinely uncertain — not as a way to inflate the headline price at any cost.
Are you planning to sell a company with an earn-out and want the metric, the protective clauses and the tax impact set correctly from the start?
FAQ
When is an earn-out instalment taxed for an individual?
In both Slovakia and the Czech Republic a non-exempt gain from selling a share is taxed in the year the money is actually received. An earn-out instalment received, say, two years after the sale is therefore taxed in that later year, not at signing. In Slovakia the rates are 19% and 25% plus a health levy (§ 8); in the Czech Republic 15% and 23% (§ 10). The seller deducts the acquisition cost of the share.
Does the CZK 40 million exemption cap still apply in the Czech Republic in 2026?
No. From 1 January 2026 the CZK 40 million cap on the exemption of income from selling securities and business shares is abolished. After the five-year time test, a gain on a Czech s.r.o. share is exempt regardless of size. The CZK 40 million cap remains relevant only for crypto-assets. With an earn-out, the key question is whether the time test is met at the date of transfer.
Can the buyer affect whether the earn-out is paid?
Yes, which is why protecting the seller is essential. After the sale the buyer runs the company and can influence the tracked metric through investment, cost shifting or changes in accounting. The contract should therefore define the calculation precisely, ban artificial depression of results and give the seller the right to check the underlying data. Keeping the seller in management during the earn-out period also helps.