New crypto legislation in the Czech Republic was approved in the third reading. It aims to stimulate growth in the cryptocurrency and blockchain industries in the EU state. The Digitalization of the Financial Market Act addresses critical challenges encountered by crypto businesses and investors and amends local laws to comply with up coming MiCA regulations.

Alongside clarification of terms and common guidelines for the registration and provision of services associated with virtual assets and related responsibilities (mirroring the MiCA regulations), the bills establish the following tests that bring crypto closer to traditional investment assets:  

  • Time test exempts cryptocurrency sales gains from taxation if the assets are held for over three years.
  • Value test eliminates the need to report transactions up to CZK 100,000 (around $4200) in a calendar year.

According to the chairman of the Czech Cryptocurrency Association, František Vinopal, the approval of the time and value tests for crypto assets means the end to absurdities in tax legislation. Local experts believe that cryptocurrencies will now become more interesting for long-term investors; conversely, the value test will encourage the everyday use of cryptocurrency. A similar approach is used in Germany and Switzerland.

Reportedly, the U.S. is also considering a capital gains tax relief for crypto assets, but to a greater extent. The decision to eliminate all capital gains taxes on сryptocurrencies issued by U.S. companies might totally reshape the investment market as Americans typically face 15% to 20% taxes.

Some experts believe that completely exempting a single kind of asset can lead to abuses. From this point of view, the Czech path seems less risky while still encouraging enough for the gradual development of the industry.

The new law also guarantees that licensed crypto entities have the right to open bank accounts, avoiding unjustified denials and unexpected account closures. Thus, it lowers possible barriers to entering the industry and protects crypto-related businesses.

Interestingly, the guidelines also set out requirements for "professional competence." This includes the ability to explain clearly to a customer the nature of crypto-assets, provide information about crypto-related services, and provide clear and justified recommendations. It is not clear yet who will be subject to such requirements and how the level of expertise will be examined.

The Czech National Bank (CNB) will supervise the market and have the right to impose a fine of up to CZK 50 million ($2.1 million) for violating the rules or even ban the activity of a crypto service provider. It will also maintain lists of crypto-asset issuers with permits to operate.

Lawmakers are now discussing licensing with the CNB and other concerned entities. The law author, Jiří Havránek, shared that they seek options to make the process for individual companies as quick as possible.

Jiří Havránek, a member of Parliament and a municipal representative from the ODS party, has been working on the bill alongside the MiCA regulation for the last two years.

"I have to say that from the very beginning, we were very sceptical that it would actually pass in the form in which it passed… then we realised that it actually has support, and we were very happy that we are on the right track. The Czech Republic being a crypto Switzerland is a wish that I have really been holding in my heart for the last two years," - shared Havránek (translated).

The draft law was approved unanimously by the Chamber of Deputies and supported by Petr Fiala, the prime minister of the Czech Republic, and all major parties. 

The draft law's text is still being prepared for publication and submission; however, its strong support suggests it will likely be approved by the Senate as soon as it's ready.

Lawmakers believe the Czech Republic's environment for crypto development is one of the best in Europe. Crypto flourished even without state support or any other intervention. With the new regulations, they expect to attract more projects and push further development.

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