In the Czech Republic, cryptocurrencies and the provision of services connected with them are regulated mainly by the AML Act (Anti Money Laundering), the Civil Code, the Capital Market Business Act, the Trade Licensing Act, the Act of Income Taxes, partly the Criminal Code and the EU regulation called MiCA. Legislator’s motive to create stricter rules regulating cryptocurrencies and the provision of services connected with them is mainly the need to prevent money laundering and the financing of terrorism, protection of customers and/or investors, as well as the review of (im)proper filing and payment of taxes of the cryptocurrency trading profits.
The meaning of the terms cryptocurrencies, virtual assets and crypto-assets is not identical. Simply put, the term "virtual assets" is used for cryptocurrencies, among other things, in the scope of the AML Act, the term "crypto-assets" in the scope of the MiCA regulation, that mainly deals with stablecoins, electronic money tokens and cryptocurrencies other than asset-referenced tokens. It is important to note that the term virtual assets also applies to NFT.
The MiCA regulation is the first complex crypto regulation in the Czech Republic. It will fully enter into force on December 30th , 2024. A major change that this regulation brings for persons providing services connected with virtual assets (f. e. for crypto-exchanges), is the obligation to obtain a license from the Czech National Bank.
As you can see, the crypto regulation is spread across many laws, both in the area of private and public law. Furthermore, the crypto terminology is inconsistent, therefore in many situations you will not be able to avoid professional legal assistance.
Our specialists are following all the changes in crypto regulation, therefore they provide complex legal services in this area in accordance with the current legislation. Reach out to us and we will solve any and all your business-related issues.
Taxation of cryptocurrency trading profits
If you are trading cryptocurrencies, the profit from their sale must be taxed as a sale of property within the meaning of Section 10 subsection 1 paragraph (b) subparagraph (3) of the Act of Income Taxes. According to case law, this is not a currency exchange as some traders view it. Therefore, it is advisable to check whether you are taxing them correctly to avoid any problems in case of a tax audit.
"Not all cryptocurrencies are the same"
It is important to differentiate which cryptocurrencies you are trading. If the European Union starts to emit EURO as an official cryptocurrency, more precisely a digital currency, then in this case it will probably be viewed as a currency exchange in the true sense of the word, which in turn will affect the way profits from the sale of this cryptocurrency are taxed. Furthermore, if the Czech legislation changes so that it is no longer in breach of EU regulation called DLT Pilot, it will be interesting to see how the so-called IOU stablecoins will be viewed because essentially they could be securities.
In some aspects the Czech financial administration has a different view on this issue than the Czech courts, therefore we recommend reaching out to us, so that we can provide you with legal advice on how to properly and correctly tax the profits from the sale of cryptocurrencies. For this purpose, we also cooperate with tax advisors. In any case, we emphasize that the issue of taxation of profits from the sale of cryptocurrencies cannot be underestimated under any circumstances. It is truly important to put enough time and effort into this issue.
For providers of services connected with virtual assets
The procedure of establishing a company that provides services connected with virtual assets can be divided into two parts. The first one is general and is required for establishing any type of company – under this category falls drafting the articles of incorporation, opening a bank account, raising the share capital and other.
We have extensive experience with opening bank accounts. Especially recently, this process can be highly complicated as a result of amendments making the AML rules even stricter. This is particularly true for the providers of services connected with virtual assets, even though it may not seem so at the first glance. That is all the more true in cases where foreign nationals are involved in the company. In case the aspiring entrepreneur will not be able to prove their economic ties to the Czech Republic and therefore justify the legitimacy of their intent, it is not guaranteed that the bank will open an account. It is necessary to keep in mind that banks are private entities and in reality they not only do not have to open a client’s bank account, they can also close it without any notice or detailed explanation. Reach out to us and we will promptly solve all your issues.
This economic activity may be done by the so-called "živnostníci" as well (a special designation of entrepreneurs in the Czech Republic). However, providers of services connected with virtual assets must also fulfill other obligations, f. e. create a system of internal principles and from December 30th, 2024, also obtain a license from the Czech National Bank. Our specialists have extensive knowledge in this area, therefore, in case you are planning on providing such services in the Czech Republic, or you already are, do not hesitate to reach to us and we will help you sort all the essentials out, so that you can start or continue doing your business in accordance with the Czech legislation.
The system of internal principles is an internal document — a set of rules — designated to prevent money laundering and the financing of terrorism. It needs to regulate each step that the provider of services connected with virtual assets must take regarding the identification and potential control of the client and the origin of his funds, as well as f. e. how he should proceed if he finds out that the transaction might be suspicious in the sense of the AML Act. As it is a complex internal regulation, in order to create the system it is absolutely necessary to know and understand all the relevant legislation. Our firm can help you with its drafting.
It is important to mention that the bill amending the AML Act was recently submitted to the president of the Czech Republic for signature. This means it will most likely soon enter into force. Before that, the provider of services connected with virtual assets was obligated to create the system of internal principles, however, they were not obligated to notify the state authorities of its wording. Providers of services connected with virtual assets will have the obligation to notify the Financial Analysis Office (hereinafter referred to as "FAO") of its wording within 30 days from this amendment entering into force. Persons, who are only planning on providing such services, will have the obligation to send the document to FAO within 60 days after they start providing such services, if they will do so upon this bill entering into force. Failure to comply with this obligation may result in a fine up to CZK 1 000 000.
