The increase in the use of cryptocurrencies has attracted increasing attention to the regulations governing their use. In the Czech context, despite the lack of official regulation by the authorities, the fiscal and legal landscape is becoming increasingly defined.
Income Treatment
The Czech National Bank and the tax authorities do not currently recognise cryptocurrencies as a means of payment, but at the same time have not issued any measures prohibiting their transactions. However, they are considered movable assets of an intangible nature, similar to goods for purchase and products for sale, and subject to taxation under Section 10 of the Income Tax Act. Taxable income is calculated on the difference between the proceeds from the sale or exchange of the crypto-assets, the purchase price and transaction fees. The determination of the purchase price can be done through the use of the arithmetic average of the purchase prices or through the FIFO method.
Arithmetic mean method
| Dates | Type of transaction | Entities | Total price in CZK | Fees in CZK | Purchase price per unit | Deductible costs | Profits/losses |
| 22.06.2021 | Purchase | 1 | 2.000 | 200 | 2.200 | ||
| 01.09.2021 | Purchase | 2 | 4.400 | 440 | 2.420 | ||
| 30.10.2021 | Sale | 1 | 3.000 | 300 | 2.647 | 353 |
FIFO method
| Dates | Type of transaction | Entities | Total price in CZK | Fees in CZK | Purchase price per unit | Deductible costs | Profits/losses |
| 22.06.2021 | Purchase | 1 | 2.000 | 200 | 2.200 | ||
| 01.09.2021 | Purchase | 2 | 4.400 | 440 | 2.420 | ||
| 30.10.2021 | Sale | 1 | 3.000 | 300 | 2.500 | 500 |
Capital gains on cryptocurrencies differ if realised by natural or legal persons. For natural persons, the tax exemption applies if the activity is not carried out continuously or if the total income is less than 30 thousand kroner per year. In 2021, a tax rate of 15% was introduced, with the possibility of increasing to 23% for high incomes, which can be reduced through deductions and tax rebates. A different situation is in the case of companies, whose tax rate is 19%, with the possibility of reflecting revenues in the overall income, limiting losses. Cryptocurrencies are subject to VAT, following the accounting rules for the registration of commodity exchanges.
Comparison with European legislation
Comparing taxation in the Czech Republic, one can see that it is more moderate than in some European countries such as Hungary, but higher than in countries such as Portugal, Germany, Singapore, Belarus, Switzerland, Malta and Malaysia, which do not levy taxes on cryptocurrencies.
As a member of the EU, the Czech Republic is subject to Anti-Money Laundering, which through AMLD5 required all member countries to regulate cryptocurrency exchanges and wallets operating in the territory. Based on this, the Czech Republic implemented a stricter legal model than the AMLD5, requiring every cryptocurrency-related company to be regulated by the government. The Czech Republic’s outlined AML regulations apply to anyone providing cryptocurrency-related services, including those who buy, sell, store, manage or facilitate the purchase or sale of cryptocurrencies or provide other services related to such currencies as a business activity. As a result, Czech regulation of virtual currencies includes more companies than the European Union, which only regulates cryptocurrency exchanges and wallets.
Under current legislation, there are four categories of licences in the Czech Republic based on the use of cryptocurrencies:
– classic: allows the exchange between cryptos;
– fiat: allows the exchange through the sale of bitcoins in exchange for real currency;
– traditional: deals with currencies of all types;
– specialised: extends to the control of cryptocurrency businesses.
In order to operate, companies must: provide all company information documents required by law; be current with state tax payments; and provide all this to the appropriate legal entities located in the Czech Republic.
The European Union is working on a unified regulation for cryptocurrencies, aiming to ensure legal certainty, support for innovation, consumer protection and financial stability. In conclusion, although the Czech Republic is lagging behind on this front, the implementation of specific national legislation is crucial pending unified EU regulation.
Source: https://www.crowe.com https://freemanlaw.com
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