With regard to the gradual expansion of so-called cryptocurrencies – particularly Bitcoins – into business practice in the Czech Republic, we provide basic information on their legal nature and on certain tax issues related to their acceptance.

Legal Nature of Bitcoins

The Czech National Bank issued in February of this year its opinion entitled “Trading in bitcoins”. It took the view that trading in Bitcoins does not require authorisation from the CNB (the CNB cannot even grant such authorisation) and is not subject to CNB supervision. It further concluded that CNB authorisation is not necessary for accepting payments for goods and services by means of Bitcoins. At the same time, however, it warned that systematic refusal of domestic banknotes and coins could fulfil the elements of the criminal offence of endangering the circulation of domestic money pursuant to Section 239 of the Criminal Code, which prosecutes anyone who, without lawful reason, refuses domestic money.

Bitcoins therefore cannot be regarded as non-cash monetary funds or electronic money; they are not monetary funds at all within the meaning of the Act on Payment Transactions (Act No. 124/2002 Coll., as amended). The purchase, sale or other transaction with Bitcoins on one’s own account does not represent any of the payment services. In the case of exchange (or purchase) of Bitcoins for Czech crowns or another currency, the elements of exchange office business within the meaning of the Act on Exchange Office Activities are also not met.

The above legal opinion expressed by the CNB can be agreed with. Bitcoins must thus, with some simplification, be approached as any other goods, that is, as non-monetary consideration. Transactions in which payment is made in Bitcoins can then be compared to the exchange of goods – so-called barter.

Tax Liability

From a tax perspective, it is primarily necessary to recall that tax regulations also work with the concept of non-monetary consideration. Such consideration is in principle subject to taxes.

By way of example, reference may be made to the provision of the Income Tax Act (Act No. 586/1992 Coll., as amended), according to which income means both monetary and non-monetary income obtained including by exchange. Such non-monetary income must then be valued for income tax purposes. Income obtained by exchange is assessed for the purposes of the Act similarly to income obtained by sale. Also according to the Value Added Tax Act (Act No. 235/2004 Coll., as amended), consideration means an amount in monetary funds or the value of non-monetary consideration that is provided in connection with the subject of tax.

If any entity decides to accept Bitcoins for its goods and services, it is advisable to consult in advance the related tax and accounting issues with a tax adviser or accountant.

When accepting Bitcoins, it is then of course essential to implement all measures against money laundering that legal regulations impose (so-called AML measures).

Petr Kočí

Law Office Mašek, Kočí, Aujezdský www.e-Advokacie.cz – on-line legal counselling

This text was originally prepared by the law office Mašek, Kočí, Aujezdský in cooperation with the association Association for Electronic Commerce (APEK) as legal bulletin No. 10/2014 intended for members of this association.

This text was translated from Czech to English using an AI translator.