New Rules for Taxation of Crypto-assets from 2025
European Regulation 2023/1114 on markets in crypto-assets (MiCA or the Markets in Crypto-assets Regulation) represents a major breakthrough in the regulation of the cryptocurrency market by the European Union. The regulation was approved in 2023 and aims to create a regulated framework for the provision and offering of services related to selected crypto-assets and investor protection in EU Member States.
At the end of 2024, the Czech Republic started the implementation process of the EU regulation into its legal system. In this context, it also adopted tax provisions related to crypto-assets for the first time in its history.
The taxation of crypto-assets was not previously specifically regulated in the Czech Republic, so income from the sale of crypto-assets was always taxed regardless of the investor, the period crypto-assets were held for and the amount of income from their sale.
An amendment to the Income Taxes Act provides two options for the exemption of income from the sale of crypto-assets for natural persons, non-entrepreneurs, and thus puts crypto-assets on the same level as securities in this respect. However, the exemption only applies to crypto-assets not included in business assets. If crypto-assets are used in the course of business, income from their sale remains subject to standard taxation without any possibility of exemption.
Small investors will appreciate the introduction of a value limit of CZK 100 th (approx. EUR 3,900) of gross revenue from the sale of crypto-assets per year. Provided an investor does not exceed this annual limit, income from the sale of crypto-assets will be exempt from income tax.
In addition, capital gains from the sale of crypto-assets held by an investor for more than three years are exempt. The exemption applies to total gross income from the sale of crypto-assets up to CZK 40 m. We would like to point out that the exemption threshold of CZK 40 m (EUR 1,568 th) is common for gains from the sale of securities and crypto-assets from 2025.
Another important change is that exchanging crypto-assets (for example, during a protocol update) does not interrupt the running of the exemption time test.
The regulation of crypto-assets has been long awaited in the Czech Republic, because crypto-assets are very popular. The new legislation has brought significant changes to their taxation, in particular flexibility and greater tax relief for long-term investors. At the same time, stricter regulation for high-income investors and cryptocurrency trading activity has been maintained.
The legislative process for the amendment has not yet been fully completed, but the provisions should be effective for 2025.
Change to Time of Taxation of Employee Shares
There were several changes to the taxation of employee shares in the Czech Republic in 2024.
Income from an employee stock option plan has always been treated as employment income in the Czech Republic. The law specifies exactly when this income is to be taxed, and the payment of social security and health insurance contributions is linked to taxation.
It is the moment of taxation that changed in 2024; it shifted to the future, as the legislation introduced the principle of “no tax before cash”. Therefore, taxes were to be paid on shares received in 2024 and thereafter in most cases only when an employee monetized his/her shares and had the means to pay the respective tax amount. However, in practice, this principle brought major problems of registration and, in particular, interpretation, especially for employees who changed their tax domicile.
At the same time, a legislative oversight led to a situation where the deferral of taxation did not apply in the first half of 2024 to health and social insurance. This meant that income from a stock plan was not taxed for an employee, but insurance premiums nevertheless had to be paid. The payment of tax and insurance premiums was only unified on 1 July 2024.
An amendment currently being prepared brings back the original taxation rules, i.e. tax and insurance premiums should be paid again at the moment shares are received. The old rules can be applied retrospectively for 2024 and part of 2025, if an employer wishes to do so. In such a case, there will be no penalty for the additional tax and insurance premiums.
The principle of deferred taxation and payment of insurance premiums will remain in the Act, but only as a voluntary option for an employer. The employer will have to inform its tax administrator of the choice of scheme, for the first time by the end of the second month following the amendment’s entry into force.
The amendment was originally planned to take effect on 1 January 2025, but due to the lengthy legislative process the effective date has been moved to 1 May 2025. We expect the passage of the amendment to the Act to go smoothly, as it will significantly clarify employers’ payment duties.
In case of queries, please contact:
WTS Alfery s.r.o., Praha
