Tax policy of the Czech Republic regarding cryptocurrencies, mining cryptocurrencies and selling merchandise and services for cryptocurrencies. All the mentioned points are described in this article.
Methodological introduction. The concept of “cryptocurrency”
Currently, there are more than 1000 virtual or digital “currencies” also called cryprocurrencies (“kryptoměny (KM)” in Czech) in the world. The most popular ones are: Bitcoin, Ethereum, Ripple, Litecoin. The most successful attempt to create a Czech cryptocurrency is called Czech Crown Coin.
The most comprehensive document on the status of the state’s policy for cryptocurrencies is “Safety of online payments and virtual currency from the Czech National Bank point of view” published by Miroslav Singer, the former Governor of the Czech National Bank, on the 21th of April, 2015.
In the publication Singer claims that:
Cryptocurrency is not:
• fully-fledged national currency: it is not issued by any central bank and there is no central bank beyond it;
• currency of any existing state; in any country in the world currency should not be an official means of payment;
• funds in the meaning of the Law on the payment system.
What are they and what are their functions:
• to represent value in the digital form;
• to be used as a means of exchange;
• to be registered or sold in the electronic form;
• The Czech Republic currently does not apply any special legal measures against cryptocurrencies that would prohibit or restrict their usage.
To sum up, in accordance with the Law on accounting cryptocurrencies represent intangible (non-material) movable assets (§ 496 of the Civil Code of the Czech Republic) and are subject to income tax imposed on physical and legal persons as well as to value added tax.
Taxes and cryptocurrencies.
Periodic buying and selling.
The tax base is calculated by deducting the sum spent on the purchase of cryptocurrencies (converted into Czech korunas) from income of selling cryptocurrencies (also converted into Czech korunas). The process is similar to a trade using any foreign currency.
Income from a business/sole proprietorship, in accordance with section § 7 of the Law on income tax, is the income of persons who receive payments for their services and goods in cryptocurrencies, whose business is entirely focused on cryptocurrencies or whose entrepreneurial activity is oriented on cryptocurrency trading on stock exchanges. In this case a sole proprietor is obliged to get a permission on the entrepreneurial activity, i.e. a private entrepreneur license (živnostenský list), and to pay taxes to the Social Fund and Health Fund (for holders of permanent residence permit or a Czech citizenship only). In addition, it becomes possible to apply one’s costs officially along with the obligation to pay the income tax.
The tax rate for physical persons is 15%.
Receiving payments in cryptocurrency
Tax base = Income in CZK from selling crytocurrencies + Value of cryptocurrencies (indicated in CZK) – Expenses in CZK.
(Again, the situation is similar to the one when you would sell something in euros and by the end of the year a part of the euros was left on your account).
Tax base = Income in CZK (earned from a stock exchange) + Value of cryptocurrency (indicated in CZK) – Expenses in CZK.
(The procedure is the same as for trading any other currency or shares).
Mining or production of cryptocurrencies.
Tax base = Income in CZK from selling crytocurrencies + Value of cryptocurrencies (indicated in CZK) – expenses in CZK (hardware, energy, administrative costs, utilities).
(For instance, production of oil: tax base = income from selling oil + value of oil reserves in a warehouse – expenses (milk, energy, administrative costs, etc)).
The tax rate for legal persons is 19%. In all other respects the same principles apply as for physical persons.
Cryptocurrencies and VAT
If a seller is a VAT payer and if a transaction is subject to VAT, the seller is obliged to pay VAT for it regardless of the currency used for the transaction. It means that the tax is to be paid.
Although the transaction is made using Bitcoins and the Financial management is not able to locate it in the account statement, non-payment of VAT in this case will be a violation of the law. This is the same case as when a client pays you in cash. You have the obligation to pay VAT in both situations: when cryptocurrencies are used and when cash is in use.
Cryptocurrencies and EET
Transactions in cryptocurrencies are subject to EET (Elektronická evidence tržeb, from Czech: Electronic inventory trade), so they are to be reported. For this purpose there are special cash registers processing cryptocurrency transactions, such as Lilka.
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