Czech Republic Crypto Tax

Crypto Taxes in Czech Republic

Czech Republic Crypto TaxCzech Republic hasn’t currently introduced any crypto-specific tax laws. The tax treatment of crypto companies is dependent on EU legislation and the purpose of the crypto-related economic activities, which may fall under different sets of general law.

Cryptocurrencies aren’t recognised as legal tender. Instead, they’re categorised as commodities. The approach is based on the provisions of the existing legislation which has led to the conclusion that crypto data stored on the blockchain doesn’t constitute claims denominated in the legal national currency issued by a central bank, credit institutions, or other payment service providers.

According to Article 4(1) of the Payment System Act, cryptocurrencies aren’t treated as electronic money and pursuant to Article 2(1)(c) of the Payment System Act, they aren’t considered funds either.

On the other hand, when providers of non-crypto products or services get paid in cryptocurrencies, they’re liable for paying the same taxes as businesses accepting payment in fiat money.

In the Czech Republic, taxes are collected and administered by the Tax Offices. Although the tax year coincides with the calendar year, companies can opt for an accounting year as their tax year.

Czech Crypto companies are subject to paying the following general taxes:

  • Corporate Income Tax (CIT) – 19%
  • Branch Tax (BT) – 19%
  • Capital Gains Tax (CGT) – 0%-19%
  • Withholding Tax (WHT) – 15%
  • Value Added Tax (VAT) – 21%
  • Social Security Insurance (SSI) – 24,8%
  • Health Insurance (HI) – 9%

Corporate Income Tax

Crypto product and service providers are subject to paying Corporate Income Tax on their income sourced in the Czech Republic and abroad, provided that they’re resident taxpayers. Non-resident companies are only required to pay taxes on the income sourced in the Czech Republic. If a company is incorporated or its headquarters are located in the Czech Republic, it’s considered a resident taxpayer.

The Income Tax Act doesn’t stipulate rules for the treatment of cryptocurrencies, but since they aren’t considered legal tender, it’s advised to classify them as other inventory. Revenues sourced from cryptocurrencies should be recorded as other revenues.

The taxable income is calculated in accordance with the accounting profits, based on the Czech accounting regulations. Taxable crypto activities include crypto exchanges (cryptocurrency into another cryptocurrency or into fiat money and vice versa), provision of custodian wallets, mining, and receiving cryptocurrencies free of charge as, for example, part of the incentive package. Such activities as the purchase and holding of cryptocurrencies or transfer of cryptocurrencies from one crypto wallet to another aren’t considered taxable income.

Generally, tax returns are made within three months of the end of the tax period. For audited companies and companies whose tax return is filed by a registered advisor, the period is extended to six months.

To reduce income tax, crypto companies can avail of tax reliefs and incentives. For instance, certain Czech crypto companies may be eligible for the R&D tax allowance, where up to 100% of qualifying R&D expenses incurred during the tax year are deducted from the tax base as a tax allowance. This means that for tax purposes, the costs are deducted twice – as a regular tax-deductible cost and as an R&D tax allowance. Moreover, if the qualifying expenses of the current tax year exceed expenses of the past year, an additional 10% might be applicable as an allowance.

Tax residents can protect their income from being taxed in two different countries by availing of around 80 international agreements on the elimination of double taxation.

Value Added Tax

When it comes to paying VAT, cryptocurrency transactions normally qualify as alternative means of payment and are therefore subject to the same law as traditional financial activities.

The Court of Justice of the European Union (CJEU) ruled out that, for VAT purposes, such cryptocurrencies as Bitcoin are treated as traditional currency and therefore crypto exchange services (cryptocurrency to fiat money and vice versa as well as cryptocurrency to another cryptocurrency) are exempt from VAT.

In the case of cryptocurrency mining, VAT doesn’t apply when there’s no explicit relationship between the service provider and a client. VAT tax liability rises in such instances as rental of the mining equipment.

However, sales of certain crypto-related services that don’t qualify as an alternative means of payment are subject to VAT, which is why their providers have to register as VAT payers. The tax period for newly registered VAT payers is a calendar month.

Withholding Tax

Czech companies are obligated to withhold tax on dividends, interest and royalties. The rate may vary depending on the residence status and exact location of the recipient. Whichever tax rate the paying company chooses to apply, it must be able to prove to the Czech tax authority that the rate has been applied correctly. Normally, a tax residence certificate of the non-resident recipient and a confirmation of the recipient’s entitlement to the payment suffice.

Although crypto-related economic activities are largely unregulated in the Czech Republic, using cryptocurrencies for tax evasion or unknowingly disregarding taxation rules will undoubtedly lead to prosecution as the Czech government has made it its priority to eliminate tax evasion through the anonymity of cryptocurrency owners.

If you’re looking to have a clear picture of your crypto company’s tax obligations, or you wish to optimise your taxes in the Czech Republic, our experienced and dynamic team of Regulated United Europe (RUE) is here to help. We offer consultations on crypto taxation and accounting, as well as guide entrepreneurs through the process of company formation and crypto licensing. We constantly monitor and very well understand European legislation, and are therefore well-prepared to design a solid tax planning strategy for your company. The experienced lawyers at Regulated United Europe (RUE) will be happy to guide your company through the entire cryptocurrency licensing process in Czech Republic and familiarise you with all cryptocurrency regulations of Czech Republic.

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