Crypto Licence Czech Republic
A liberal approach towards cryptocurrencies and the ease of cutting through the red tape has turned the Czech Republic into a desirable home for crypto companies whose main tasks are to fit into the framework of general legislation and comply with the AML/CFT requirements initially imposed by the EU. In spite of the lack of regulation, some products and services can already be paid for with cryptocurrency which is an indication of crypto adoption.
The Czech National Bank (CNB) is responsible for the general supervision of the financial market in the Czech Republic. According to the authority, cryptocurrencies aren’t considered a legal tender. Crypto data stored on blockchain doesn’t constitute claims denominated in the traditional national currency issued by a central bank, credit institutions or other payment service providers. Based on the Article 4(1) of the Payment System Act, cryptocurrencies aren’t treated as electronic money. As per the Article 2(1)(c) of the Payment System Act, they aren’t considered funds either. Instead, cryptocurrencies are classified as commodities.
Before starting your crypto operations in the Czech Republic, you may want to avail of the assistance provided by local initiatives. A variety of startup accelerators and incubators offer support related to the development of crypto products, marketing and sales. One of them is CzechInvest, a government-backed agency offering a seven-month incubator programme CzechStarter where startups can receive funding as well as gain access to workshops and advice from experts.
The Blockchain Connect Association / Czech Alliance was founded in 2018 to accelerate the development and promote use of blockchain technology across the country. The Association also strives to fight fraud and eliminate corruption which should build trust in innovative financial solutions.
The Institute of Cryptoanarchy, established by the non-profit organisation called Paralelni Polis, aims to promote the development of the decentralised economy which includes unrestricted dissemination of information and a widespread adoption of such blockchain-based products and services as cryptocurrencies.
All – new and existing – crypto companies can avail of the CNB’s FinTech contact point, a streamlined communication channel, established to improve functioning of the financial market participants focusing on innovation. Crypto companies can seek advice related to the regulatory issues by completing the contact form where it’s essential to explain why a particular product or service is considered a financial innovation. However, it’s not meant to replace professional legal advisors. If you wish to receive comprehensive legal advice, please reach out to us – we’ll be more than happy to provide guidance.
Crypto Legislation in the Czech Republic
Although there is no robust national crypto regulatory framework that could fully protect the investors, Czech crypto companies still fall under the EU law as indicated in the summary “Security of Internet Payments and Cryptocurrency”, published in 2018 by the CNB.
The Czech Republic has harmonised its legislation with the EU’s Fourth Anti-Money Laundering Directive (4AMLD) and Fifth Anti-Money Laundering Directive (5AMLD) which require cryptocurrency exchanges and crypto wallet providers to implement such internal AML/CFT procedures as KYC. Moreover, the amended Czech legislation covers a wider range of crypto-related economic activities as it applies to those businesses who trade, store, manage, or mediate the purchase or sale of virtual currencies or offer other crypto-related services.
For AML/CFT purposes, a digital currency is defined as a digitally stored unit which doesn’t fall under the category of fiat money but is still accepted as a means of payment for products and services by persons who aren’t the issuers of the unit.
Every Czech company engaging in crypto-related economic activities is subject to the following legislation, pertaining to AML/CFT:
- The AML Act (Act No. 253/2008 Coll.) where AML/CFT measures are laid out
- The AML Decree (Decree No. 281/2008 Coll.) where requirements for corporate AML/CFT policies and procedures are stipulated
- The Criminal Code (Act No. 40/2009 Coll.) where criminal acts are defined
- The International Sanctions Act (Act No. 69/2006 Coll.) where the rules for imposing international sanctions are specified
The main AML/CTF supervisory authority is the Financial Analytics Office (FAU), while the CNB is responsible for enforcing other legislation pertaining to the financial market. Currently, the authorities haven’t introduced any complex registration process for companies engaging in crypto-related economic activities which makes it relatively easy to enter the market.
Companies engaging in crypto-related activities should take the following general legislation regulating financial services into account:
- The Trade Licensing Act (Act No. 455/1991 Coll.)
- The Act on Banks (Act No. 21/1992 Coll.)
- The Act on Capital Market Undertakings (Act No. 256/2004 Coll.)
- The Act on Management Companies and Investment Funds (Act No. 240/2013 Coll.)
- The Act on Insurance (Act No. 277/2009 Coll.)
- The Act on Payments (Act No. 284/2009 Coll.)
General legislation can help crypto companies to understand where their activities should be placed within the current regulatory framework of the financial market.
According to the general legislation, the following crypto-related economic activities require authorisation from the CNB:
- Trading with crypto derivatives – they have features of investment instruments which is why trading with them requires an investment firm licence
- Managing assets of investors’ funds which contain cryptocurrencies, regardless of whether the funds are offered to the public or only to a limited group of investors
- Transferring funds in relation to the arrangement of trades with cryptocurrencies (e.g. as part of the crypto exchange operation where a person makes transfers of non-cash money or electronic money and such transfers have the features of the payment services supply, in particular transfers of funds from client accounts of such exchange to payment accounts specified by them)
Types of Crypto Licences in the Czech Republic
Currently, most crypto companies planning to start economic activities in the Czech Republic are required to obtain one of the regular trade licences from the Trade Licensing Register which enables them to operate within the EU, including opening branch offices in any member country without having to deal with an extensive bureaucracy, as long as they notify local authorities in accordance with local regulations.
Classification of trades:
- Notifiable trades can be conducted immediately at the very moment of notification
- Permitted trades can be conducted once a concession is granted on the basis of a special business licence where it’s necessary to meet certain conditions (e.g. relevant professional experience or education)
Holders of EU/EEA crypto licences don’t have to obtain a Czech licence. Instead, they can notify the Czech authorities by providing an appropriate passport.
Depending on the purpose of cryptocurrency usage, a company can apply for any of the following licences:
- Classic – exchange between cryptocurrencies for a commission
- Fiat – exchange between cryptocurrencies and fiat money for a commission
- Traditional – intermediation in the exchange of currencies of all types
- Specialised – specific crypto-related products and services (crypto wallets, encrypted client keys, etc.)
If a crypto company fails to obtain an appropriate licence, it risks being identified as fraudulent, fined up to 500,000 CZK (approx. 20,204 EUR) and be forced to shut down.
How to Open a Crypto Company in the Czech Republic
To get one of the four licences, a crypto company must be registered in the Czech Republic. A Limited Liability Company (SRO) is one of the most popular legal business structures in the Czech Republic due to such advantages as little requirements for the minimum share capital, low number of founders and an ability to be exempt from a financial audit. It can be registered within three weeks, provided that all the required documentation is supplied in an orderly manner.
Essential requirements for a crypto Company:
- A business plan reflecting complexities and the operational model ensuring frictionless functioning as well as details of financial statements
- Having a registered physical office in the Czech Republic
- Employing full-time staff, including at least two directors with educational and professional experience in the financial market and without any criminal conviction (they don’t have to be residents of the Czech Republic)
- Development of internal AML/CFT policies to ensure identification and reporting of fraudulent activities
- Employing an AML officer who has to be trained in accordance with the company’s operational model and reporting requirements
- Description of any hardware and software used for the intended economic activities
- Establishing data protection procedures in accordance with GDPR and other relevant legislation which at the same time should enable data sharing with the authorities
- Establishing policies and procedures that can ensure safety of client funds
Key steps of opening an SRO for crypto activities:
- Verifying the name of a new company
- Obtaining a criminal record statement issued by a competent authority proving that there are no obstacles to engage in crypto-related economic activities
- Obtaining a legal address for at least one year
- Opening a corporate bank account
- Transfering minimum share capital which is only 1 CZK (approx. 0,04 EUR)
- Obtaining a mandatory trade licence from the Trade Licensing Register
- Preparing and notarising a Memorandum of Association
- Paying state fees associated with incorporation – 6,000 CZK (approx. 243 EUR)
- Registering a company at the Business Register and the Tax Offices
- Registering a company with the FAU for AML/CFT reporting purposes
All of the required documentation must be supplied in Czech language. If you need a certified translator, our team here at Regulated United Europe (RUE) will be more than happy to assist.
You can also opt for a remote company formation in which case you have to sign a power of attorney which will allow your representative to act on behalf of you throughout the process of your crypto company formation.
Crypto Licensing Process in the Czech Republic
Since there’s no crypto-specific licence in the Czech Republic, companies planning to engage in crypto-related economic activities are required to follow general authorisation procedures, stipulated by the Trade Licensing Register. Crypto licensing process may take up to four months which is inclusive of the company formation.
Generally, a crypto company has to submit an application to one of the general Trade Offices in Czech language containing all the essential information about the company and its founders (shareholders). It should be accompanied by the business plan (including strategy and operations) and various background documentation.
Applications can be submitted online using a secure electronic signature and sent to the central Electronic Filing Room of the Trade Register. Submissions are processed by a competent Trade Licensing Office indicated by the applicant.
The assessment of the application may include information sharing with foreign regulatory authorities. If the application is successful, a licence is issued only for specific crypto activities. It’s worth keeping in mind that at times the licence might be conditional which means that a new licensee may be required to meet additional conditions before starting to operate in the Czech Republic.
Once a crypto company is licensed in the Czech Republic, a licensee is obligated to share relevant reports (e.g. client information) with such authorities as the CNB and the FAU. In case of errors or refusal, the licence might be suspended without a possibility to obtain a new one as such a company would be considered fraudulent.
Crypto Tax in the Czech Republic
Whichever trade licence you’ll decide to apply for, your crypto company will become a regular tax payer in the Czech Republic. Taxes are administered by the Tax Offices. The tax year coincides with the calendar year but companies can opt for an accounting year as its tax year.
The tax treatment of crypto companies varies depending on the purpose of the crypto-related activities but is no different from other businesses, unless the EU imposes specific legislation. For instance, 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.
Companies supplying different kinds of crypto products and services must register as VAT payers. The tax period for newly registered VAT payers is a calendar month.
Standard Tax Rates in the Czech Republic:
- Corporate Income Tax (CIT) – 19%
- Branch Tax (BT) – 19%
- Capital Gains Tax (CGT) – 0%-19%
- Value Added Tax (VAT) – 21%
- Social Security Insurance (SSI) – 24,8%
- Health Insurance (HI) – 9%
Resident companies are taxed on their worldwide income, while non-resident companies are taxed only on the income sourced in the Czech Republic. If a company’s headquarters are located in the Czech Republic, it’s considered a resident taxpayer. The taxable income is calculated in accordance with the accounting profits, based on the Czech accounting regulations.
Crypto licensees and their partners should ensure that they’re capable of operating within the existing taxation framework in spite of the novelty of their activities. For instance, the following rules should be taken into account:
- If employees are paid in cryptocurrency, they and their employer are required to pay general taxes
- While companies engaging in crypto mining operations might not be subject to VAT when there is no seller-client relationship, generally, their income sourced from transaction fees is taxable at the standard Corporate Income Tax rate
- If suppliers of ordinary products and services get paid in cryptocurrencies, they’re taxed in the same way as those who get paid in fiat money
Although crypto-related economic activities are largely unregulated in the Czech Republic, using cryptocurrencies for tax evasion or unknowingly disregarding taxation rules will certainly lead to prosecution as the Czech government has made it their priority to eliminate tax evasion through the anonymity of cryptocurrency owners. If you wish to have a clear picture of your crypto company’s tax obligations, our tax experts will be pleased to offer you advice.
The good news is that crypto licensees can also access existing tax reliefs and incentives. For example, eligible Czech crypto companies may be able to avail of 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.
Crypto licensees should be aware that they should constantly meet strict corporate reporting requirements which are closely matched with the International Financial Reporting Standards (IFRS).
Annual financial statements must contain a balance sheet, income statement and notes. Companies which audited financial statements are mandatory for, must supply a statement of cash flows and statement of changes in equity. Annual financial statements are published in the Business Register and must be filed along with the tax return.
Auditing is mandatory for the companies that meet at least two of the following criteria:
- Turnover exceeds 80 mill. CZK (approx. 3,234,413 EUR)
- Total assets exceed 40 mill. CZK (approx. 1,617,206 EUR)
- Average number of employees is over 50
If you’ve decided to obtain a crypto licence in the Czech Republic, our highly experienced and dynamic team of Regulated United Europe (RUE) is here to guide you through the process. We offer assistance in crypto company formation and licensing as well as accounting services. Furthermore, we’ll be delighted to advise on taxation and corporate reporting. Rest assured, we guarantee efficiency, confidentiality as well as meticulous attention to every detail that impacts your business success. Contact us now to book a personalised consultation.
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