Czech Republic Passes Law Simplifying Cryptocurrency Taxation

Fundamental changes are about to occur in the Czech Republic that could affect anyone using cryptocurrencies. The Chamber of Deputies has adopted a law that equates cryptocurrencies with stocks. This law will simplify the taxation of profits from cryptocurrency sales and relieve many users from excessive bureaucracy.

The new law will allow cryptocurrency users to utilize a so-called holding period test and a cost basis test, similar to those used for stocks and securities. The holding period test means that if you hold your cryptocurrencies for more than three years, you will not have to pay taxes on any potential sales.

The cost basis test will consider smaller transactions. If cryptocurrency users do not conduct transactions exceeding CZK 100,000 within a year, they will not need to report these operations on their tax returns. This change will significantly ease the lives of many ordinary users who utilize cryptocurrencies for regular purchases of goods and services.

According to František Vinopal, chairman of the Czech Cryptocurrency Association, this law levels the playing field between cryptocurrencies and traditional investment instruments like stocks, making them easier to use not only for investors but also for everyday users.

The Czech National Bank will oversee the market under this new framework. The law includes requirements for professional competence, which will involve the ability to properly explain to clients the nature of crypto assets, information related to the field or services associated with crypto assets, and provide them with recommendations.

Time and Cost Test for Cryptocurrencies

“The proposed time and cost test does not favor cryptocurrencies. It is the only way to align the situation with other assets, such as stocks or securities, which already have a time test applied,” says Vinopal.

He also points out the current paradox where profits from cryptocurrency exchange-traded funds (ETFs) are tax-exempt after three years of ownership, while cryptocurrencies themselves are not.

“Introducing the time test will eliminate absurdities like taxing Bitcoin ETFs differently from Bitcoin itself. The new law will encourage cryptocurrency users to hold these assets long-term and avoid speculation,” Vinopal adds. At the same time, he notes that the law will reduce the administrative burden associated with regular cryptocurrency use.

“Today, purchasing goods or services with cryptocurrency is a taxable event that requires unnecessary bureaucratic hassle. The introduction of the cost basis test will mean that users won’t have to report transactions under CZK 100,000 in their tax returns each year,” he explains.

Once the new law takes effect, cryptocurrencies can be sold without incurring taxes after three years of ownership, just like stocks.

Marek Kirsch, CEO of the cryptocurrency exchange Anycoin and 21M Group, states that implementing the time and cost test will ensure a level playing field.

“This step eliminates the paradox of different taxation for Bitcoin and Bitcoin ETFs. It will create clear rules for long-term investors, allowing them to keep their assets in the Czech Republic instead of moving them abroad due to unclear legislation,” Kirsch explains.

He also sees potential economic benefits for the Czech Republic.

“Long-term investors will be interested in realizing their profits in the Czech Republic, which will strengthen our economy. This adjustment will also promote long-term holding of cryptocurrencies and reduce speculation,” he adds.

Objections from Government Agencies

However, some government agencies have expressed doubts about this proposal. 

The General Financial Directorate (GFD) and the National Center for Combating Organized Crime (NCOZ) warn that cryptocurrencies are insufficiently regulated and that their taxation could be exploited for tax evasion. According to the GFD, cryptocurrencies are not adequately integrated into the Czech legal system and lack a clear regulatory framework.

František Vinopal, however, dismisses these claims.

“Cryptocurrencies are not as anonymous as many believe. Blockchain technology provides transparent tracking of transactions, and the adoption of the European MiCA directive will eliminate anonymous cryptocurrencies from exchanges,” Vinopal explains. He states that the law will thus enhance the security and transparency of the cryptocurrency market.

Some countries, such as Germany, Switzerland, and Liechtenstein, have already had positive experiences implementing clear rules for cryptocurrencies. “For example, in Switzerland’s so-called Crypto Valley, similar legislation has proven effective,” Vinopal adds. In Germany, a holding period test for cryptocurrencies has been in place since 2018 and lasts only one year.

Marek Kirsch from Anycoin believes that the Czech Republic could become a European leader in cryptocurrency: “The Czech Republic has played and continues to play a role as a global innovator and leader in the crypto industry. Clear and modern legislation will help maintain this level in the future,” concludes Vinopal.
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