Do you invest in cryptocurrencies?
The Czech Republic is a leader in the world of cryptocurrency innovation. The development of the global leader in hardware wallets or successful developments in the field of blockchain, cryptocurrency mining or security of cryptocurrency operations, etc. speak for themselves.
Did you know that the Czech Cryptocurrency Association (ČKMA), which brings together companies that are active in the cryptocurrency world, defends their interests and cooperates with state institutions (for example, in detecting cybercrime or participates in the creation of legislative and regulatory framework for business in the field of cryptocurrencies), has existed in the Czech Republic for 2 years? It is already quite publicly known that the area of cryptocurrencies in the Czech Republic is not much regulated in legislation and in general big question marks remain in all areas around cryptocurrencies. This brings legal uncertainty both for companies that want to do business in the cryptocurrency world and for individuals who have found cryptocurrencies to their liking and decided to acquire some.
An individual (natural person) may have different reasons for acquiring cryptocurrencies, e.g., he/she sees them as a promising investment or wants to pay for goods and services with them or simply exchanges one for another to make a profit on the exchange rate difference. Even if these are purely private and usually leisure activities, did you know that they may also incur tax liabilities?
The taxation of income from cryptocurrencies for individuals (natural persons) is not specifically regulated in law, unlike, for example, the taxation of securities trading. The current interpretation of the law is that any exchange of one cryptocurrency for another or exchange of goods or services for cryptocurrency (in simple terms, payment in cryptocurrency for goods or services) constitutes taxable income. That is exactly how, for example, even buying a coffee at a coffee shop is a transaction that you are expected to tax. Therefore, all such transactions should be reported by cryptocurrency holders on their tax returns. Yet many still incorrectly believe that they should only be taxed when they transfer money from a crypto bank or wallet to their current account in a national currency, e.g., CZK, Euro, dollars, etc. (so-called fiat currency).
You may be thinking that in 2022 you have made a loss on cryptocurrencies due to their development and there is nothing to tax when you are essentially in the red. However, you may have made a profit on cryptocurrencies in the past, but you do not wish to dwell on that too much – after all, who would scrutinize that…?! However, letting it go completely out of your mind and not taking remedial action is not the best solution, as the Financial Administration has started to focus heavily on this area. Read more in our next article.
Are you uncertain as to how to tax cryptocurrencies? Our specialists in the Personal Income Tax team will be happy to discuss your situation and related tax obligations with you.