The hitherto almost unregulated crypto world is about to undergo a revolution. In June 2023, the long-awaited EU Regulation known as MiCA (Markets in Crypto-Assets) was published in the Official Journal of the EU. Some parts of MiCA are to be applied from 30 June 2024 (Title III and IV) and the remaining parts from 30 December 2024.

The MiCA regulation is the first comprehensive legal framework that brings harmonised rules for the issuance, offering and admission to trading of crypto-assets, as well as uniform rules for the provision of services related to crypto-assets. The MiCA regulation introduces rules similar to those set out in the Markets in Financial Instruments Directive (MiFID II) governing financial and investment services.

MiCA is intended to protect consumers from some of the risks associated with investing in crypto-assets and thus eliminate fraudulent behaviour in the industry. Until now, consumers have had relatively limited rights to protection or redress.

MiCA first defines the basic concepts. A Crypto-asset is a digital capture of value or rights that can be transferred and stored electronically using distributed ledger technology (DLT) or similar technology – e.g. blockchain. Crypto-assets are practically divided into the following subcategories:

“Asset-Referenced Tokens” (ART)              

• An ART is a type of crypto-asset that is not an electronic money token and whose purpose is to maintain a stable value by referencing another value or right or combination thereof, including one or more official currencies.
• ARTs should be subject to stricter rules (see Title III).

“Electronic Money Tokens” (EMT)

• An EMT is a type of crypto-asset, whose purpose is to maintain a stable value by referring to the value of a single official currency.
• EMTs should be subject to stricter rules (see Title IV).

Other crypto-assets and “Utility Tokens” (UT)

• A UTis a type of crypto-asset that is intended only to provide access to a good supplied or a service provided by its issuer.
• The terms and obligations relating to crypto-assets that are neither ARTs nor EMTs and are not specifically excluded from the definition of crypto-assets are governed by Title II of MiCA.

MiCA will not apply to financial assets that are already regulated under MiFID II (Investment Tokens), as well as to some so-called “Non-Fungible Tokens” (NFTs), for which separate legislation is to be prepared at EU level.

MiCA sets out rules for different types of crypto-assets, but it should be noted that there are many exceptions.

According to MiCA, basic information on crypto-assets should be published in a “white paper”. In addition to general information, the white paper should include information about the project related to the crypto-asset, the public offering of the crypto-asset or its admission to trading, information about the crypto-asset, the rights and obligations associated with the crypto-asset, the underlying technology, risks, etc. A model form of “white papers” (divided by type of crypto-assets) is published in the Annexes to the MiCA Regulation.

In addition to the requirements for issuers and traders of crypto-assets, the MiCA requirements also apply to crypto-asset service providers (Crypto-Assets Service Providers - CASP). These are the following service categories:

• providing custody and management of crypto-assets on behalf of customers (e.g. crypto-account custody, wallet);
• operating a trading platform for crypto-assets (e.g. crypto-exchanges);
• exchange of crypto-assets for cash (e.g. cryptocurrencies)
• exchange of crypto-assets for other crypto-assets;
• executing orders for crypto-assets on behalf of customers;
• placement of crypto-assets;
• receiving and transmitting orders for crypto-assets on behalf of customers (e.g. buying and selling on behalf of customers);
• providing consulting on crypto-assets;
• providing crypto-asset portfolio management;
• providing services of crypto asset transfer on behalf of customers.

Only legal entities established in the EU and authorised by the competent national authority will be able to provide cryptocurrency services. In the Czech Republic, the competent authority authorised to issue permits is the Czech National Bank.    

Other parts of the MiCA deal with e.g. conditions for authorisation and for the performance of a service provider’s activities related to crypto-assets (Title V), prohibition of market abuse involving crypto-assets (Title VI), competent authorities and coordination between ESMA and EBA (Title VII), delegated acts (Title VIII), transitional and final provisions (Title IX).

Reaction to MiCA in Czech legislation

Following the approval of MiCA, the Czech legal environment is already commenting on the draft Digital Finance Act, which responds to both MiCA and DORA regulations (rules for digital operational resilience of the financial sector).

The Digital Finance Bill only regulates some of the rights and obligations of persons covered by MiCA. These include, for example, the asset reserve, the information obligation, the establishment of a competent authority (the CNB), supervisory measures, offences, etc.

Development of crypto-assets from an accounting and tax perspective

Although the area of crypto-assets has been developing for quite a long time and rapidly, Czech legislation has practically not undergone any changes and the tax administration has so far reacted only through various recommendations or information according to which crypto-assets have been treated in accounting and tax terms in combination with basic legal principles.

For example, according to the 2018 recommendation of the Ministry of Finance of the Czech Republic, cryptocurrencies should be accounted for as inventories of a kind. However, despite this recommendation, questions have arisen as to whether the reporting of crypto-assets as inventory of a kind is consistent with fundamental accounting principles (e.g. a true and fair view of facts). The GFD of the Czech Republic itself stated in Coordination Committee No. 602/30.11.22 (acceptance of virtual assets in tax records) that the recommendation of the Ministry of Finance of the Czech Republic was merely a recommendation, which does not prevent accounting units from choosing a method of accounting treatment that reflects the intention to acquire crypto-assets.

With the advent of MiCA, we can therefore expect the accounting and tax treatment of crypto-assets to gradually take shape. It can also be expected that various types of transactions, which are already taking place in the crypto-world but have not yet been mentioned in Czech legislation or various pieces of information from the state administration, will be discussed more.

Our team will continue to monitor the development of crypto-assets in relation to accounting and tax regulations so that we can assist you in this area if necessary. Please, do not hesitate to contact our colleagues Petr Němec and Michal Hlaváč.