Cryptocurrencies: legal regulation, taxes, and market prospects
17.09.2023
17.09.2023
Most organizations providing services related to virtual assets are legally obligated entities and must be registered.
The AML obligations (AML – Anti-Money-Laundering) are outlined in Law No. 253/2008 Coll. on сertain measures to сombat money laundering and terrorist financing (often known as the anti-money laundering law or AML law). Czech cryptocurrency policy predates EU legislation and differs from those of other countries.
Legal settlement
Businesses that deal with cryptocurrencies typically consider whether they are required by AML law and therefore have corresponding legal obligations (consisting primarily of identifying and monitoring customers).
The obligated person, according to § 2 odst. 1 písm. l of the law, is “the person providing services related to virtual currency.”
A virtual currency is defined as “an electronic unit, stored electronically, whether or not it has an issuer, that is not a monetary instrument under payment law, but is accepted as payment for goods or services by a person other than its issuer.” These legislative provisions go into effect on January 1, 2017.
In order to register, you must first obtain a license (ohlášení živnosti volné) No. 81 – “providing services related to virtual assets.”
A virtual currency service provider is defined as “a person who, as part of his business, buys, sells, holds, manages, or arranges for another to buy or sell virtual currency or provides other services related to virtual currency.” This definition is given in Article 4(8) of the AML Law.
According to the long-standing interpretation of AML law, these duties do not apply to persons who:
- simply accept virtual currency as payment for goods or services
- manage a mining center or mining pool
- issue in-game currency, for example, an operator of a computer game issues in-game currency, but it is not virtual currency.
If a cryptocurrency entrepreneur complies with the registration obligation, then, in accordance with the AML law, he must develop a written system of internal policies and an appropriate risk assessment. A sample of this document is available at https://fau.gov.cz/system-vnitrnich-zasad. The deadline for fulfilling this obligation is no later than 60 days after receiving notification of an obligated person’s status. Following that, other AML-related responsibilities must be carried out.
In accordance with § 2(1)(l) and § 4(8) of the AML Act, the status of the obligated person, i.e., a person providing services related to virtual assets, arises, in particular, as a result of the following actions:
- buying, selling, or owning a virtual asset
- management or transfer of a virtual asset to another person
- organizing the purchase or sale of a virtual asset
- provision of a financial service related to the offer or sale of a virtual asset,
- provision of any other similar service related to virtual currency.
Another such service related to virtual currency provided by the obligor is the resale of virtual assets or the issuance and delivery of a virtual asset.
Mining a virtual asset, on the other hand, does not qualify as a virtual asset service under Article 4(8) of the AML Law.
Control over the cryptocurrency business
The Financial Analysis institution (FAA) is the primary supervisory institution in charge of regulating virtual assets in the Czech Republic. The registration of a cryptocurrency company in the Czech Republic grants the organization the freedom to conduct business within the European Union. The advantage is the low labor cost and the clarity of the tax system.
The Czech Republic is developing guidelines for conducting business with virtual currencies and intends to monitor enterprises that use Bitcoin and other similar currencies. The Ministry of Finance suggests that they be granted a special license. It should apply to operators of cryptocurrency exchanges or virtual wallets, for example. The ministry believes that the authorities will obtain a list of businesses that accept digital currencies, allowing them to better control them. Control over the cryptocurrency business
“This will make the market easier to understand. It will be evident to both the state and customers which business is operating legally and which is not. They will know who they are doing business with and that the business is being performed legally. Simultaneously, we expect that this will provide guidance to banks. Czech banks do not want to open accounts for those doing business in the field of virtual currencies,” explains Karel Kiovsky, CEO of General Bytes, a company that manufactures ATMs for exchanging virtual currencies.
Fines up to half a million
This modification is part of an amendment to the Anti-Money Laundering (AML) legislation. Companies not registered with the trade licensing authority will be fined up to half a million crowns.
There is no list of businesses that deal with cryptocurrency. According to Libor Kazda, the head of the Office of Financial Analysis, this makes it difficult for the state to maintain effective supervision over such businesses.
“The current situation precludes us from establishing effective communication between all virtual currency service providers and the Financial Analysis Department. It is also impossible to properly punish entities that refuse to comply with their legal commitments, creating a ground for potential criminal activity,” Kazda cautions.
Since 2017, businesses have been required to report suspicious transactions to the Financial Intelligence Unit and, for transactions exceeding €1,000, to verify the identities of their clients and, in some situations, to conduct investigations.
Some businesses, however, dislike needing to verify a client’s identification. As a result, clients may choose to use the services of competitors based in countries where identification verification is less strict. Identification is unnecessarily tough, according to Martin Stransky, CEO of WBTCB, which also facilitates bitcoin trading.
The proposed amendment provides that authentication will be possible remotely in accordance with the Electronic Identification Law. Furthermore, cryptocurrency dealers would appreciate a clearer explanation of which organizations are subject to the restrictions. These now comprise all companies that provide services in the field of virtual currencies.
Billion-dollar business
Czechs purchased about five billion crowns in cryptocurrencies last year, a record year for the price of Bitcoin. According to data from the largest domestic merchant Bit.plus. Bitcoin is still the most popular virtual currency, accounting for more than half of all transactions. Furthermore, according to a survey conducted by Chainalysis, a blockchain analytics business, the Czech Republic is among the countries where people earn much more from cryptocurrencies than in economically comparable countries.
The Czech Republic is in the leading position. “Whether we measure it by the number of inhabitants or the size of the economy, in both respects we compete with or even outperform much larger states,” Saxo Bank analyst Tomas Danhel previously stated. He feels this is due to the Czechs’ positive attitude toward alternative investments. “This is probably a long-term trend,” he continues.
Features of cryptocurrency taxation
Cryptocurrencies are intended to be a decentralized currency that cannot be counterfeited. There are hundreds of cryptocurrencies available right now. Some of them are used as investment instruments, like gold. Furthermore, investment cryptocurrencies such as Bitcoin, Litecoin, or Ethereum are used as the underlying asset of digital currency for forex brokers’ CFD contracts, allowing you to speculate on the price of underlying instruments in financial markets where currency pairs are traded (forex, shares, stock indices, and commodities).
According to Czech private law, cryptocurrency is an intangible movable property that is generally fungible. It is an intangible asset because of its intangible nature, which the owner stores on electronic media or on a distant server and disposes of at his discretion. Transactions are authenticated using blockchain accounting, which is a data storage technique that enables the establishment of dependable decentralized databases. Individuals can obtain cryptocurrency through exchanges, exchangers, or specialized ATMs.
All transactions in blockchain accounting are publicly recorded, and all transactions are determined retroactively by assigning a transaction and identifier. Exchange offices must additionally verify the payer’s identification.
The tax administration may request data on individual taxpayers’ cryptocurrency transactions from relevant cryptocurrency exchanges, cryptocurrency service providers, and online wallets; alternatively, it may request this information from the relevant tax administration as part of an international information exchange.
Virtual currency service providers are now required by the Anti-Money Laundering (AML) Act to identify and monitor their customers. Banks and other financial institutions are compelled by law to disclose any suspicious transactions, which may include revenue earned by taxpayers through the selling of cryptocurrencies from exotic countries.
The most prevalent mistake taxpayers make is failing to declare revenue because they believe that cryptocurrencies are anonymous or untraceable owing to trading on a foreign exchange or using a bitcoin wallet.
The ITA does not exempt income from bitcoin transactions from taxation. The ITA determines the tax base calculation process and income tax liability, and taxpayers must follow its regulations.
Income from the sale or exchange of cryptocurrencies is subject to income tax at the time of sale or exchange of goods, rather than when money is transferred to a Czech Republic account, and the taxpayer is required to keep proper records of transactions in order to prove tax expenses in the event of an audit.
https://www.pravopropodnikatele.cz/…lu/
https://blockchainlegal.medium.com/…tn3
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