Exemption of Income from Sale of Crypto-assets in the Czech Republic

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. The Czech Republic recently implemented the regulation into its legal system and in this context it also adopted tax regulation of 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 effective as of 15 February 2025 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 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, income from the sale of crypto-assets held by an investor for more than three years is 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 is now common for income from the sale of securities and crypto-assets.

Another important change is that exchanging crypto-assets (for example, during a protocol update) does not interrupt the running of the exemption time test.

Income from the sale of crypto-assets may be realised on such form of crypto-assets that do not enjoy the benefits of the Income Taxes Act. We therefore recommend that you always check the type of asset in relation to taxes.

We would like to inform you that the new exemptions described above will unfortunately not be applicable to income from the sale of crypto-assets realised before the act’s effective date, i.e. before 14 February 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 for them. However, in practice, this principle brought significant problems of registration and, in particular, interpretation, primarily for employees changing 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 had to be paid on it. The payment of tax and insurance premiums was only unified on 1 July 2024.

An amendment to the act currently before the Senate 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 before the amendment’s effective date.

The principle of deferred taxation and payment of insurance premiums will remain in the act, but only as a voluntary option for an employer. It 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 drawn-out legislative process, it will not take effect until after the start of 2025, on the first day of the first calendar month following the date of the act’s publication in the Collection of Laws.

The expected Methodological Instruction of the General Financial Directorate should remove the interpretation ambiguities related in particular to settlement for 2024 and part of 2025 and the Czech Social Security Administration should also comment on the issue of insurance premiums. We will continue to monitor the situation.

In case of specific questions, please do not hesitate to contact us, we are always at your disposal.

Team WTS Alfery