Prior to 2017, cryptocurrencies in the Czech Republic were not subject to national legislative regulation and were subject to EU regulations. The Czech government amended the law in 2017 and imposed obligations on banks, cryptocurrency exchanges, and other financial service providers. They are now required to have their customers identify themselves for their services.
The government can now more easily prosecute tax evaders or people illegally dealing with cryptocurrencies in the Czech Republic. As a result, there is a growing interest in collecting taxes from cryptocurrency users. Let’s learn more about crypto tax in the Czech Republic before you invest!
Crypto Tax in the Czech Republic: A Brief Overview
Cryptocurrencies are not regulated as a currency in the Czech Republic. They are classified as commodities. As a result, the Czech government does not regard cryptocurrencies as monetary units. Therefore, cryptocurrencies are not an official means of payment and are not governed by payment system legislation.
The Corporate Scenario
Currently, crypto activities are not distinguished as a separate regulated area, and cryptocurrencies are not considered legal tender. Most crypto companies that engage in crypto-related economic activities must adhere to general legislation aimed at the Czech financial market. As long as all relevant EU rules are followed, such a liberal approach allows for innovation and experimentation with rapidly evolving products and services. Crypto product and service providers must pay Corporate Income Tax on income earned in the Czech Republic and abroad if they are resident taxpayers. Non-resident companies must only pay taxes on income earned in the Czech Republic. A company is considered a resident taxpayer if it is incorporated or has its headquarters in the Czech Republic.
For the purposes of corporate income tax, businesses trading crypto in the Czech Republic face a 19% tax rate. Sellers of goods and services who accept cryptocurrency payments are typically taxed in the same manner as their competitors, even if their competitors accept the traditional currency, such as Euros. While taxing cryptocurrency in the same way as traditional currencies may be difficult, the Czech government stated that taxpayers must do their best to navigate the legal framework in order to avoid tax evasion charges.
Despite the fact that they are not an official form of payment, cryptocurrencies can be used in transactions. The Czech government does not regulate ICOs. Rather, ICOs are governed by EU legislation, specifically AML regulations. Despite being largely unregulated, the Czech National Bank allows Czech banks to provide cryptocurrency-related services as long as AML/KYC regulations are met. The tax treatment of cryptocurrency companies is determined by EU legislation as well as the purpose of crypto-related economic activities, which may fall under different sets of general law.
As an EU member, the Czech Republic is bound by the EU’s anti-money laundering regulations. The EU enacted AMLD5 in July 2018, requesting that EU countries regulate cryptocurrency exchanges and wallets operating within Europe. The Czech Republic has implemented a stricter legal model than AMLD5 by requiring the Czech government to regulate any cryptocurrency-related firm.
Czech AML regulations apply to anyone who provides cryptocurrency services. These include ‘those who buy, sell, store, manage, or mediate the purchase or sale of cryptocurrencies as a business or provide other services related to such currencies.’ As a result, the Czech Republic regulates more cryptocurrency-related businesses than the EU, which only regulates exchanges and wallets. Any company that fails to register its operations with the Czech government faces a fine of up to 500,000 koruna, or about $20,000 USD. As a result, the Czech Republic’s AML regulations are stricter than what AMLD5 requires.
Personal Income Tax
The Czech Republic imposes a tax on cryptocurrencies depending on their use. The approach is based on existing legislation. This has led to the conclusion that crypto data stored on the blockchain does not constitute claims denominated in the national legal currency issued by a central bank, credit institutions, or other payment service providers.
When a cryptocurrency is mined, no taxable income is generated. Rather, income is generated only when the cryptocurrency is sold (i.e. when it is exchanged for fiat currency), when cryptocurrency is exchanged for goods or services, or when one cryptocurrency is exchanged for another. So, if you are trading crypto in the Czech Republic, you will have to pay personal income tax. Individuals trading crypto in the Czech Republic face a 15% tax rate. However, if total income (including earnings from employment and business activities) exceeds the statutory limit (CZK 1,701,168 in 2021 and CZK 1,867,728 in 2022), a 23% tax rate will apply.
The Income Tax Act does not specify rules for the treatment of cryptocurrencies, but because they are not considered legal tender, they are classified as other income. In simpler terms, cryptocurrency revenues are recorded as other revenues. It is either self-employment income under Section 7 or income from the rental of movable or real property (paid for with cryptocurrency) under Section 9 or other income under Section 10 of the Income Tax Act. The decisive criterion for the classification of income under the relevant provisions of either Section 7 or Section 10 of the Income Tax Act is whether the taxpayer systematically pursues the relevant activity for the purpose of generating profits on their own account and responsibility – in this case, we are looking at income under Section 7 of the Income Tax Act.
Crypto Tax in the Czech Republic: VAT or Sales Tax
In general, cryptocurrency transactions are not subject to VAT in the Czech Republic. However, there is one situation in which Czech cryptocurrency organizations may be required to pay VAT. When suppliers fail to pay VAT, the Czech tax authorities have the authority to recover the taxes from the company that purchased the goods. As a result, if suppliers fail to pay VATs, the burden of payment may be shifted to cryptocurrency buyers.
Assume the cryptocurrency exchange does not pay VAT. If the authorities attempt to recover taxes from the transaction, the cryptocurrency buyer may be required to pay the VATs. However, in most cases, buyers in cryptocurrency transactions are exempt from paying VATs on their behalf. However, certain crypto-related services that do not qualify as alternative means of payment are subject to VAT, so their providers must register as VAT payers. For newly registered VAT payers, the tax period is one calendar month.
Conclusion
So this was our guide to crypto tax in the Czech Republic. In May this year, the administrative authorities (the tax administrator and the Appellate Financial Directorate) of the Czech Republic determined that Bitcoin must be considered a different asset. This is because an asset is anything that is distinct from a person and serves the needs of people, according to the Civil Code. Bitcoin has a virtual essence. Therefore, authorities classified it as an intangible movable asset but not as money. The court ruled that the exchange of Bitcoin for money is taxable income under the Income Tax Act. This decision was welcomed by the crypto community as it cleared the broader picture of crypto tax in the Czech Republic.
Thinking of trading crypto in the Czech Republic? Keep our guide handy!