Cryptocurrencies and taxes - how to deal with them?

Cryptocurrencies are a big topic and, after skyrocketing in value, an investment hit. This is proven by the latest research by Bit.Plus, which states that Czechs bought cryptocurrencies worth about CZK 4.5 billion in 2021. This logically raises the question that more and more people are asking - how are virtual currencies taxed in the Czech Republic?

YOU TAX NOT ONLY THE PROFIT FROM THE SALE

Taxation of cryptocurrencies is not a simple matter, even for seasoned tax specialists. There are many myths and confusions about it, so let's start by summarizing which transactions are taxable and which are not.

WHAT DO YOU HAVE TO TAX?

WHEN DO YOU AVOID TAXATION?

**fiat currency = current currency (money) in any currency

CRYPTOCURRENCIES ON YOUR TAX RETURN. WHERE TO GO WITH THEM?

Income from cryptocurrencies belongs to other income from transfer for consideration according to Section 10(1)(b) of Act No. 586/1992 Coll., on Income Taxes.

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 a continuous activity - managing one's own assets, so it is not an occasional income up to CZK 30,000.

Nor can cryptocurrencies be considered capital income and be subject to the time or value exemption as in the case of securities transactions.

HOW TO TAX A CRYPTOCURRENCY AS AN EMPLOYEE?

As an employee, you don't have to file a tax return if you meet these three conditions:

• you signed the taxpayer's declaration,
• your income comes from employment only,
• other income (e.g. from rent, capital assets or other income including cryptocurrencies) does not exceed CZK 6,000 per year - note that this is income without expenses, not profit.

If you have earned more than CZK 6,000 in income outside of work, you are obliged to file a return yourself and we recommend you contact a tax specialist.

HOW TO TAX CRYPTOCURRENCIES AS SELF-EMPLOYED?

If trading in cryptocurrencies is not your business, you will include these transactions in your tax return as other income under Section 10(1)(b) and claim the related expenses (purchase price, fees, etc.).

Do you use any of the flat-rate plans? Then here's how to proceed:

CURRENCY CONVERSION AND CRYPTOCURRENCY PROFIT TAX

If you trade in cryptocurrencies during the tax year, the positive difference between income and expenses is always subject to tax, 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, use the third currency conversion. For tax reporting purposes, for example, for bitcoins, you can use the rate per bitcoin (BTC) expressed in the currency of a specific exchange, e.g. US dollars (USD).

The purchase price can be determined in several ways:

• Weighted average of cryptocurrency purchase prices.
• FIFO or first in, first out. The practice of selling cryptocurrencies that you have bought first in the past.

You can claim a 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 15% income tax, an increased rate of 23% is introduced from 2022. This applies from 2021 and is intended for individuals whose annual income exceeds 48 times the average wage or gross monthly salary exceeds CZK 141,700. Only the amount exceeding this limit is taxed at the increased rate.

NOT SURE ABOUT THE TAXATION OF CRYPTOCURRENCIES?
CONTACT US

The truth remains that the topic of virtual currencies is new and not included in Czech legislation. If you cannot find your way around the topic and are looking for someone who can deal with the taxation of cryptocurrencies or nebo tax returns in general, do not hesitate to contact us.