How Crypto Assets Are Regulated in the Czech Republic: New Law, Taxes, and Licenses

How Crypto Assets Are Regulated in the Czech Republic: New Law, Taxes, and Licenses

The Czech Republic is a European country working to create an effective crypto asset regulation system. It is based on the EU regulations: the Digital Operational Resilience Act (DORA) and the Markets in Crypto Assets Regulation (MiCA). The Czech National Bank (ČNB) and the Financial Analytical Unit of the Ministry of Finance (FAU) are responsible for licensing crypto service providers and supervising compliance.
 In this article, we will look at whether crypto is legal in the Czech Republic, how the market is controlled, and whether profits from digital assets are taxed.

History of Crypto Regulation in the Czech Republic

The Czech Republic considers itself a pioneer in cryptocurrencies. The first café accepting only digital coins for payment was opened in Prague, and the first hardware crypto wallet Trezor and the first mining pool Slush Pool were developed in this country. Nevertheless, the cryptocurrency industry in the Czech Republic remained unregulated for a long time. Digital coins were not considered money but were classified as commodities. The ČNB did not impede the development of cryptocurrencies, but it also neither promoted their development nor guaranteed protection to customers who used them.
 In 2015, the Czech authorities adopted the Law on the Security of Internet Payments and Cryptocurrencies, as well as the fourth and later the fifth and sixth EU Directives on combating money laundering and terrorist financing.

Legislation obliges crypto service providers to:

• conduct customer due diligence;
• collect and store information about transactions;
• assess risks;
• report suspicious transactions;
• disclose information about beneficiaries.

In addition, the crypto business in the Czech Republic is regulated by the general regulatory framework, which includes the Trade Licensing Act, the Capital Market Enterprises Act, and other acts.

New Regulations for Cryptocurrencies in the Czech Republic

In April 2024, the Czech government adopted a new bill on the digitalization of the financial market, and in June, the House of Representatives supported it in the first reading. The document was drafted by the Ministry of Finance under the DORA and MiCA requirements.

So, what changes should we expect in the Czech legal framework?

1. The Czech National Bank is responsible for controlling the crypto asset market.
 2. Cryptocurrency companies are subject to professional competence requirements, including the ability to explain to the client the nature of digital assets, the principles of the crypto market, the specifics of the services they provide, etc.
 3. Issuers of digital assets must create special capital reserves to enhance the security and stability of the industry.
 4. Crypto companies should officially register their activities in the European Union.
 5. Issuers and crypto traders have to submit reports to the ČNB and regularly evaluate The Czech National Bank can impose fines of up to CZK 50 million (about EUR 2 million) for violation of the rules or ban the activities of crypto service providers.
 The new regulations are expected to create a safe environment for cryptocurrency trading and investment in the Czech Republic. By introducing measures to strengthen the National Bank’s supervision, the government demonstrates its willingness to support the crypto sector development and enhance consumer protection.
 The House of Representatives intends to consider the draft law in the second reading in September 2024. The new rules are expected to come into force no later than January 2025.

Crypto Taxes in the Czech Republic

Crypto is taxed in accordance with the Income Tax Act. To determine the amount, you need to subtract the purchase costs and transaction fees from the income from the sale or exchange of crypto assets.
 Individuals in the Czech Republic are exempt from tax if the activity is not carried out regularly or if the total income is less than CZK 30,000 (EUR 1,080) per year. In 2021, a 15% rate was introduced with the possibility of increasing to 23% for high incomes. For legal entities, the tax starts at 19%.

How to Check if a Crypto Company Has a License

A crypto license usually refers to a permit to carry out activities related to virtual assets (VASP). It can be obtained after registration with the FAU. The license allows companies to provide services for the exchange, sale, storage, transfer of cryptocurrencies, acceptance of digital payments, etc. The presence of a VASP is strong proof that the service is official and can be trusted.
 To check whether a cryptocurrency company has a permit from the Czech regulator, go to the website of the Licensed Trade Portal and enter the company’s name in the search bar.