Cryptocurrencies and taxes - how to deal with them?

Taxation of cryptocurrencies: when do you have to pay tax?

Cryptocurrencies in tax returns. Where to go with them?

For all individuals, taxable crypto transactions are included in the tax return as other income from a transfer for consideration under Section 10 (1)(b) of the Income Tax Act and they can claim related expenses (purchase price, fees, etc.).

From the point of view of the state authorities, cryptocurrencies are intangible movable property, i.e. they are not recognised as cash and their purchase and sale is not a payment service. Trading in cryptocurrencies is also a continuous activity - managing one's own property, so it is not an occasional income up to CZK 50,000.

Cryptocurrencies cannot be considered capital income either, but from 2025 you can apply a time or value exemption to them, similar to securities transactions.

How to tax a cryptocurrency employee?

Generally, as an employee , you do not have to file a tax return if you meet the following 3 conditions under Section 38g(2) of the Income Tax Act:

• You have signed a "pink" taxpayer declaration.
• Your income is derived only from employment.
• Other income does not exceed CZK 20,000 per year (e.g. from rent, capital assets or other income including cryptocurrencies that do not qualify for exemption). Note that this is income without expenses, not profit.

When your taxable income outside of work exceeds CZK 20,000, you are required to file a return yourself and are advised to contact a tax specialist.

How do self-employed people tax cryptocurrencies?

If trading cryptocurrencies is not your business(you do not have crypto in your business assets), you can still claim the exemption of this income as a self-employed person using the value or time test.

Do you use one of the flat-rate tax schemes? Then you proceed as follows:

Currency conversion and tax on cryptocurrency gains

When trading in cryptocurrencies, the positive difference between income and expenses is always subject to tax, and is treated in accordance with Section 10(4) of the Income Tax Act. According to Section 10(5) of the Income Tax Act, the purchase price at which you acquired the cryptocurrency is an expense, and related costs, such as exchange fees, can also be claimed.

To convert currencies not listed in the exchange rate ticket, you use the third currency conversion. For example, for tax filing purposes, for bitcoins, you can use the rate per bitcoin (BTC) expressed in the currency of the specific exchange, e.g. US dollars (USD).

The purchase price can be determined in several ways:

• A weighted average of cryptocurrency purchase prices.
• FIFO, or first in, first out - a procedure whereby you sell cryptocurrencies that you have bought first in the past.

You can apply the loss against the same type of income, i.e. a loss from one bitcoin transaction against a gain from another. The minimum taxable amount is 0 CZK.

What about the tax rate? In addition to the standard 15% income tax, there is an increased progressive tax rate of 23%, which applies to individuals whose income exceeds three times the annual average wage. Only the amount that exceeds this limit is taxed at the increased rate.

Not sure how to tax cryptocurrencies? Contact us

We hope this article has given you a better understanding of how to tax cryptocurrencies. If you're struggling to navigate the topic and are looking for someone to handle your entire tax return for you, don't hesitate to contact us.