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28 May 2018

Legal regulation of cryptocurrency in Czech Republic

The Government of Czech Republic does not prevent the introduction of crypto-currencies into business circulation. Despite the fact that in many countries cryptocurrencies are considered as a threat to the traditional financial system and restrictive laws are enacted, the Czech government implements only soft, justified regulatory measures that do not create obstacles to the cryptocurrency community.

Such a policy, as well as the impressive intellectual potential of the country, in the conditions of a steadily growing economy led to a big popularity of bitcoin in the Czech Republic, and not only as an investment tool. The Czech Republic and, in particular, Prague, became one of the centers of development of bitcoin in Europe long before the cryptocurrency boom in 2017. Today only in Prague the number of enterprises accepting bitcoin and other crypto-currencies for payment is calculated by number of dozens. One of the Prague cafes generally accepts payment exclusively in bitcoins.

Legal Status of cryptocurrency in Czech Republic

In 2015, the Czech National Bank officially announced that operations with cryptocurrencies are not a subject to regulation by the CNB. Until 2017, the cryptocurrencies in the Czech Republic and operations with them were outside of national legislative regulation. Only EU legislation was applied to them.

The situation changed slightly on January 1, 2017 the amendments to the law of the Czech Republic "On some measures to legalize the proceeds of crime and the financing of terrorism" came into force. The new law defined the concept of "virtual currency" and imposed obligations for Czech banks, crypto-exchangers and other financial services providers to establish the identity of their customers when exchanging virtual currencies in the Czech Republic for essential money of more than 1000 euros. At the same time, innovations have not affected the Czech enterprises that accept payments in the cryptocurrency for their goods and services.

Nevertheless, today the legal status of bitcoin in Czech Republic, as well as other virtual currencies, is not clearly defined by the legislator. Cryptocurrencies in the Czech Republic are not officially a means of payment and are not a subject to the law on payment systems. The CNB, based on the general norms of the Civil Code of the Czech Republic, considers virtual currencies as intangible assets, which implies the possibility of imposing VAT on them. However, this position is controversial, because it contradicts the practice of the European Court and the position of the ECB, whose jurisdiction extends to the Czech Republic as an EU member.

As for raising funds through the ICO, the issue and sale of digital tokens is also not regulated by Czech national legislation. However, the legislation of the EU and the Czech Republic on combating money laundering and the financing of terrorism is applied to such operations.

Taxation of cryptocurrency in Czech Republic

The income tax on the sale of goods and services for virtual money in the Czech Republic for today is governed by the same rules as when paying with conventional money. For sellers of goods and services that receive payments in virtual currencies, there is no difference in the principles of taxation in comparison with competitors.

As for revenues from mining and trade in crypto-values, the procedure for determining the basis for taxing incomes from them in the Czech Republic has not been approved yet. Nevertheless, this fact does not deprive the taxpayers of responsibility for tax evasion.

Sales of crypto-currencies are not subject to VAT in the Czech Republic. However, in 2017, the Czech government, in the fight against tax fraud, announced plans to add a paragraph to the Czech law on VAT, according to which a buyer of goods or services is liable for a tax not paid by the supplier, if he paid for them in virtual currency. This means that if the supplier does not pay VAT, the tax service can recover it from the company that purchased the goods.

The conclusion

The lack of legal regulation does not prevent the CNB and the government of Czech Republic from optimistically assessing the prospects and promoting the development of national cryptoeconomics. Carrying out settlements in cryptocurrencies becomes the norm for the Czech Republic. The Czech National Bank does not prohibit the provision of related services by regulated Czech banks and financial service providers, if the conditions of AML/KYC are met.

It is no coincidence that Worldcore, Saifu and a number of other successful start-ups in the sphere of fintech have chosen the Czech Republic to register and conduct ICO. To reduce the risks associated with legal uncertainty, these companies were licensed by providers of payment systems and regulated by the CNB.

SBSB provides a full range of services for the registration of companies, obtaining financial licenses and support ICO in the Czech Republic. We advise our clients in the field of corporate law, international tax planning, finance, international licensing and integrated business support in more than 40 countries. We promise - you will be happy to cooperate with us!


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