Cryptocurrency taxation: we know how to do it

Legal status of cryptocurrencies in the Czech Republic

Czech law does not consider cryptocurrencies to be legal tender, but they are classified as intangible movable property. As a result, cryptocurrencies are not subject to the same rules as traditional currencies or securities, but are treated similarly to other types of property, such as commodities. In recent years, the Czech Financial Administration has focused on regulating digital currencies to ensure that they are taxed correctly to the maximum extent possible.

Both exchanges and cryptocurrency exchanges are subject to client identification obligations under the Anti-Money Laundering (AML) Act. While payments in cryptocurrencies are legal, they are not equivalent to payments in crowns or euros.

As far as accounting is concerned, cryptocurrencies are not a financial instrument, but you can account for them as inventory, investments or other intangible assets.

When are cryptocurrencies taxed?

The biggest myth surrounding the taxation of cryptocurrencies is that only the sale of cryptocurrencies is taxable. But that’s not true, because you have to take taxes into account for other transactions as well. So in what cases should you address the taxation of cryptocurrencies?

• If you sell cryptocurrency and transfer the money to your bank account.
• If you exchange one cryptocurrency for another.
• If you sell a cryptocurrency and keep the proceeds in your cryptocurrency wallet.
• If you use cryptocurrency to pay for the purchase of a good or service.
• If you mine cryptocurrency (note that you must have a business license to use mined cryptocurrency).

You do not have to tax the cryptocurrency if you only purchase it and do not exchange or sell it in any way = possession of cryptocurrency is not taxable.

Income from staking, liquidity pools and lending is taxed as other income. The time test does not apply to it as it is an active form of income.

Taxation of cryptocurrencies for individuals

As we have already mentioned, cryptocurrencies are subject to income tax. If you sell cryptocurrency at a profit, then you must report this income on your tax return. The income is taxed as other income under Section 10 of the Income Tax Act, at a rate of 15% or 23% depending on the amount of annual income. The 23% rate applies to annual income in excess of EUR 1.582 million. CZK per year.

However, in February 2025 a new time test came into force which brings an important change:

• If an investor holds a cryptocurrency for more than 3 years, the profit from its sale is tax-free.
• If the income from cryptocurrencies does not exceed CZK 100,000 per year, then no tax is payable.

For shorter holding periods, the standard rules for taxation of profits apply. In order to apply the time test, you will need to provide evidence of holding cryptocurrencies to prove that you have held them for longer than the three years mentioned. Proof can be made, for example, by a stock exchange statement. The introduction of the time test brings cryptocurrencies closer to securities in terms of tax policy and provides investors with more favourable conditions for holding cryptocurrencies over the long term.

Example:

Peter bought one Bitcoin for 800,000 CZK in 2021. In March 2025, however, he managed to sell it for CZK 1,500,000. Since he held this Bitcoin for more than three years, he does not have to tax this CZK 700,000 profit. However, if he had sold the Bitcoin in 2023, two years later, he would have had to include this gain in his tax return.

If you are an employee, you do not have to file a tax return if you have signed a “pink” taxpayer declaration, if your income is derived only from employment, and if your other income does not exceed CZK 20,000 per year.

If you are self-employed, you can claim the exemption for cryptocurrency income through the time/value test if your business is not crypto mining. The flat rate expenses do not apply to cryptocurrency income.

Cryptocurrencies and tax returns

Crypto transactions are included in other income from a consideration transfer. Investors must report taxable transactions on their tax return and substantiate their value. You can claim the cost of acquiring cryptocurrency as a tax-deductible expense, which can reduce your tax base. However, it is important to keep records of cryptocurrency purchases and sales, use the market rate on the date of the transaction and calculate the profit correctly, especially for frequent traders.

If you would like to avoid paying tax on cryptocurrencies, we strongly advise against it. The tax authorities can trace crypto transactions thanks to the public blockchain and cooperation with exchanges.

Corporate taxation of cryptocurrencies

Entrepreneurs and companies using cryptocurrencies must include their transactions in their accounting. They can report cryptocurrencies as inventory, financial investments or receivables. Companies must therefore pay corporate income tax on cryptocurrencies. They are also able to deduct costs associated with mining or managing cryptocurrency portfolios.

Corporations must tax cryptocurrencies acquired by selling, exchanging for other assets, mining or staking. Cryptocurrencies received as payment for goods or services are treated as ordinary income.

If a company can prove that it has incurred costs associated with the purchase, management and sale of cryptocurrencies to earn, provide or maintain taxable income, then those costs are tax deductible.

TheEuropean Court of Justice has ruled that the exchange of cryptocurrencies is not subject to VAT. However, certain activities such as mining cryptocurrencies or providing services related to digital assets may be subject to VAT.

International taxation of cryptocurrencies

For cross-border transactions, you need to keep an eye on the differences in tax regimes, which vary widely. Some countries, such as Germany, offer even more favourable tax conditions than the Czech Republic (exemption after one year of holding). On the other hand, the US has strict regulation and tax obligations even for exchanging cryptocurrencies between each other.

Further tightening of regulation of cryptocurrency exchanges and automated reporting of transactions to tax authorities can be expected in the coming years. It is also possible that global taxation of cryptocurrencies will be introduced under the auspices of the OECD. Currently, however, the new time test brings positive changes, especially for long-term investors. If you are unsure how you should tax your cryptocurrencies, we recommend consulting a tax advisor and/or our attorney specializing in digital assets on the matter.

Summary

Cryptocurrencies are not legal tender, but intangible movable property and are subject to personal and corporate income tax. From February 2025, a new time test applies – if you hold a cryptocurrency for more than three years, the income from its sale is tax-free. Tax is also not payable if the annual income from cryptocurrencies does not exceed CZK 100,000. Taxation applies not only to the sale, but also to the exchange of cryptocurrencies, payments for goods, mining or staking. For individuals, it is taxed according to Section 10 of the Income Tax Act (rate of 15% or 23% for higher annual income), for legal entities, income from cryptocurrencies is included in the accounting and subject to income tax. The tax administration has the ability to trace crypto transactions, so it is necessary to keep accurate records of transactions and comply with tax obligations.