Although it may seem unbelievable, it has been more than ten years since the bitcoin came into existence, and it is still considered controversial. Mainly due to the fact that it is basically unregulated, is characterised by great fluctuations on the market and is being connected to grey economy or even to criminal activities. Nevertheless, it is possible to say that its popularity and the popularity of virtual currencies in general continues to increase. At the end of the year 2018, for example, more than 2,000 different virtual currencies were registered.

The attitude of governments throughout the world to these currencies is very reserved. In some countries, the use of these currencies is even banned under threat of high fines. In the Czech Republic, virtual currencies are not considered non-cash financial means, electronic money, investment instruments and according to the Czech National Bank, purchase or sale of virtual currencies on own account does not represent any of the payment services and it is no foreign exchange transaction either. According to the finance ministry, they are an intangible asset. With regard to the fact that virtual currencies are now bought for different purposes increasingly more often, and frequently these are also activities for the purpose of achieving profit, it is necessary to also deal with how such profit will be taxed. The form of taxation differs depending on whether this is a natural person or a legal entity and depending on the purpose of the given transaction with virtual currencies.

Taxation in the case of natural persons

Virtual currency is most frequently bought for the purpose of investment or speculations, and for this reason, we will focus on the form of taxation of these activities in this article. This form of taxation will depend on whether it is only an occasional activity, or it is a systematic activity, which is performed independently, in one's own name, on one's own responsibility, for the purpose of achieving profit and de facto is already a matter of enterprising. In case of occasional speculations, when the taxpayer acquires virtual currency into his private assets (not his business assets), this will be so-called “other income”, and the tax base will be the income lowered by the price, for which the virtual currency was demonstrably acquired. From the tax base, 15% tax is calculated. Such income is not subject to social and health insurance levies. In case this concerns business, the tax base will be the income lowered by related expenses (especially the price paid when buying the virtual currency and related fees), or “flat-rate” expenses using a percentage of the income may be applied. Tax reaching 15% is calculated from the tax base, and possibly also a 7% solidarity tax increase, if the tax base exceeds the limit set by law. This income (tax base) is further subject to social and health insurance levies.

In terms of income from virtual currency mining, the question is, if it can be considered business or not. Most interpretations tend to conclude that it probably can. Taxation would thus take place in the same way as in the above case.

Taxation in case of legal entities

Here, taxation will basically be based on the accounting. We will handle the accounting solution of virtual currency operations in one of the following issues of our newsletter. In principle, it is possible to say that income from transactions with virtual currencies mentioned above will be subject to corporate income taxes and the determined tax base will be subject to 19% corporate income tax.

With regard to the evolutionary nature of virtual currencies, Czech legislation and the financial administration will soon react to this development, too. We will continue to monitor the development in this area and will inform you about any changes. In case you are interested in consultation on this topic, please, do not hesitate to contact us.

Daniela Riegel & Jan Tahal