Crypto license Czech Republic

The Czech National Bank (CNB) is responsible for the general supervision of the financial market in the Czech Republic. According to authorities, cryptocurrencies are not considered legal tender. Cryptographic data stored on a blockchain is not a claim expressed in traditional national currency issued by a central bank, credit institution, or other payment service provider. Under article 4 (1) of the Payment System Act, cryptocurrencies are not regarded as electronic money. According to Article 2(1)(c) of the Law on the Payment System, they are also not considered funds. Instead, cryptocurrencies are classified as commodities.

Before you start your cryptographic operations in the Czech Republic, you can take advantage of the help provided by local initiatives. Various start-ups and incubators offer support related to crypto product development, marketing and sales. One of them is CzechInvest, a government agency that offers a seven-month CzechStarter incubator program where startups can get funding, as well as access to seminars and expert consultations.

Blockchain Connect Association / Czech Alliance was founded in 2018 to accelerate the development and promote the use of blockchain technology across the country. The Association also seeks to combat fraud and eradicate corruption, which should build confidence in innovative financial solutions.

The Cryptoanarchy Institute, established by a non-profit organization called Paralelni Polis, aims to promote a decentralized economy that includes unrestricted dissemination of information and the widespread introduction of such blockchain-based products and services as cryptocurrencies.

All new and existing crypto companies can use the FinTech CNB contact point, an optimized communication channel created to improve the functioning of financial market participants with an emphasis on innovation. Cryptographic companies can seek regulatory advice by filling out a contact form where it is important to explain why a particular product or service is considered a financial innovation. However, this should not replace professional lawyers. If you would like to receive comprehensive legal advice, please contact us – we will be more than happy to provide guidance.

CRYPTO LEGISLATION IN THE CZECH REPUBLIC

Although there is no reliable national cryptographic regulatory framework that could fully protect investors, Czech crypto companies remain subject to EU law, as stated in the summary “Security of Internet Payments and Cryptocurrency”published in 2018 by CNB.

Czech Republic harmonized its legislation with the EU Fourth Anti-Money Laundering Directive (4AMLD) and the Fifth Anti-Money Laundering Directive (5AMLD)that require cryptocurrency exchanges and crypto purse providers to implement internal AML/CFT procedures such as KYC. In addition, the amended Czech legislation covers a wider range of crypto-related economic activities, as it applies to those enterprises that trade, store, manage, or broker the purchase or sale of virtual currencies or offer other services related to cryptography.

For AML/CFT purposes, digital currency is defined as a digital unit that does not fall into the category of fiat money, but is still accepted as a means of payment for products and services by persons who are not issuers of that unit.

Every Czech company engaged in cryptography-related economic activities is subject to the following laws concerning AML/CFT:

• Law on Combating Money Laundering (Law No 253/2008 Coll.), which sets out measures to combat money laundering/terrorist financing
• Criminal Code (Law No. 40/2009 Coll.), which defines criminal acts
• Law on International Sanctions (Law No. 69/2006 Coll. ), which defines the rules for the imposition of international sanctions

The Financial Analysis Authority (FAU) is the main AML/CTF oversight body, while the CBN is responsible for enforcing other financial market legislation. At present, the authorities have not introduced any complex registration process for companies involved in cryptography-related economic activities, making it relatively easy to enter the market.

Companies engaged in activities related to cryptography should consider the following general laws governing financial services:

• Trade Licensing Act (Act No. 455/1991 Coll.)
• Law on Banks (No. 21/1992 Coll.)
• Act on Obligations on the Capital Market (No. 256/2004 Coll.)
• Law on Management Companies and Investment Funds (Law No. 240/2013 Coll.)
• Law on Insurance (No. 277/2009 Coll.)
• General legislation can help cryptographic companies to understand where their activities should be located within the current regulatory framework of the financial market.

The general legislation requires the authorization of the NSC for the following types of economic activities related to cryptography:

• Trading with crypto derivatives – they have features of investment instruments, so trading with them requires a license from an investment firm
• Managing the assets of investor funds that contain cryptocurrencies, regardless of whether funds are offered to the public or only to a limited group of investors
• Transfer of funds in connection with the organization of transactions with cryptocurrencies (e.g. as part of the crypto-exchange operation, when a person transfers non-cash money or electronic money, and such transfers have features of the provision of payment services, in particular, the transfer of funds from the accounts of clients of such exchange to the payment accounts specified by them)

HOW TO START A CRYPTOGRAPHIC COMPANY IN THE CZECH REPUBLIC

To obtain one of the four licenses, a cryptographic company must be registered in the Czech Republic. Limited Liability Company (SRO) is one of the most popular legal business structures in the Czech Republic due to such advantages as low minimum equity requirements, a small number of founders and the possibility to be exempt from financial audit. It may be registered within three weeks, provided that all necessary documentation is submitted in due course.

The main requirements for a cryptographic company:

The main steps for opening SRO for cryptographic operations are:

• Verification of the name of the new company
• Receipt of a criminal record statement issued by the competent authority which proves that there are no impediments to engaging in crypto-related economic activities
• Obtaining a legal address for at least one year
• Opening a corporate bank account
• Transfer of the minimum share capital, which is only 1 CZK (approx. 0,04 EUR)
• Obtaining a compulsory trade license from the Trade license Registry
• Preparation and notarization of the founding contract
• Payment of state fees related to registration – 6000 CZK (ca. 243 EUR)
• Registration of the company in the Register of Enterprises and Tax Authorities
• Registration of a company with the FAA for AML/CFT reporting purposes

All necessary documentation must be submitted in the Czech language. If you need a certified translator, our team here in Regulated United Europe (RUE) will be more than happy to help.

You can also opt for a remote company formation, in which case you need to sign a power of attorney that allows your representative to act on your behalf throughout the process of creating your crypto company.

CRYPTO TAX IN THE CZECH REPUBLIC

No matter what trading license you choose to apply for, your crypto company will become a common taxpayer in the Czech Republic. Taxation is carried out by the tax authorities. The tax year coincides with the calendar year, but companies can choose the accounting year as the tax year.

The tax regime of crypto companies varies depending on the purpose of the cryptography activity, but does not differ from other businesses unless the EU enacts specific legislation. For example, the Court of Justice of the European Union (CJEU) has ruled out that, for VAT purposes, cryptocurrencies like Bitcoin are treated as traditional currency and therefore cryptographic exchange services (cryptocurrency for fiat money and vice versa, as well as cryptocurrency for other cryptocurrency) are exempt from VAT.

Companies supplying various types of cryptographic 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
• Tax on branch (BT) – 19%
• Capital Gains Tax (WCL) – 0%-19%
• Value Added Tax (VAT) – 21
• Social Insurance (SVP) – 24.8
• Medical insurance (SA) – 9

Resident companies are taxed on the basis of their income, while non-resident companies are taxed only on income earned in the Czech Republic. If the company is headquartered in the Czech Republic, it is considered a resident taxpayer. The taxable income is calculated according to the accounting profit based on the Czech accounting rules.

Cryptocurrency licensees and their partners must ensure that they are able to operate within the existing tax system, despite the novelty of their activities. For example, the following rules should be considered:

• If employees pay in cryptocurrency, they and their employer are obliged to pay general taxes
• While cryptocurrency companies may be exempt from VAT when there is no vendor-customer relationship, typically their income from operating fees is taxable at the standard corporate income tax rate
• If ordinary product and service providers get paid in cryptocurrencies, they are taxed the same way as those who get paid in fiat money

Although crypto-related economic activity in the Czech Republic is largely unregulated, the use of cryptocurrencies for tax evasion or unconscious disregard of tax rules will certainly lead to prosecution, because the Czech government has made it a priority to eliminate tax evasion through the anonymity of cryptocurrency owners. If you want to have a clear idea of your crypto company’s tax liability, our tax experts will be happy to give you advice.

The good news is that cryptographic licensees can also access existing tax benefits and incentives. For example, eligible Czech cryptographic companies may be able to benefit from the R&D tax credit, where up to 100% of the relevant R&D expenditures incurred during the tax year are deducted from the tax base as a tax credit. This means that expenses are deducted twice for tax purposes – as normal tax-free expenses and as a tax credit for R&D. In addition, if the qualifying expenses of the current tax year exceed those of the previous year, a further 10% may be applied as a supplement.