Crypto License in the Czech Republic 2024

Crypto License in the Czech Republic - Samson Solutions
02 Feb 2024
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Author: Daniil Samsonov

Explore the comprehensive guide to obtaining a crypto license in the Czech Republic in 2024. Our article provides an in-depth look at the regulatory landscape, including the process of setting up a cryptographic company, the intricacies of licensing, and the tax framework within this forward-thinking European nation. Unveil the requirements for maintaining compliance with local and EU standards, and discover how Samson Solutions can assist you in navigating the complexities of the crypto market. Whether you're a startup or an established enterprise, gain valuable insights and practical advice on flourishing in the Czech Republic's dynamic crypto space. Join us as we decode the regulations, uncover the benefits, and offer tailored solutions for your crypto business in 2024.

A Liberal Haven for Crypto Enterprises

The Czech Approach to Digital Currency Integration

Renowned for its liberal stance on digital currencies, the Czech Republic stands out as a hub for crypto innovation and enterprise. The nation's regulatory environment embraces cryptocurrencies, allowing companies to integrate digital assets seamlessly into their business models while adhering to the EU's AML/CFT guidelines. This liberal approach is exemplified by the increasingly commonplace use of cryptocurrencies for purchasing goods and services, signaling a mature and accepting market.

The Role of the Czech National Bank in Crypto Regulation

The Czech National Bank (CNB) plays a pivotal role in maintaining financial market stability, yet it notably does not classify cryptocurrencies as legal tender. In the Czech regulatory framework, blockchain-encrypted data is neither considered a monetary claim in traditional national currencies nor issued by recognized financial institutions. As outlined in article 4 (1) of the Payment System Act and Article 2(1)(c) of the Law on the Payment System, cryptocurrencies are not recognized as electronic money or funds but are instead treated as commodities, showcasing the country's progressive regulatory perspective.

Fostering Crypto Innovation: Support Networks and Initiatives

Local Support and Resources for Crypto Entrepreneurs

Entrepreneurs looking to delve into the Czech crypto market can leverage extensive local support. Initiatives like CzechInvest's CzechStarter incubator program offer not only financial backing but also crucial resources such as expert consultations and educational seminars. This nurturing environment fosters innovation and growth within the crypto sector.

Promoting Blockchain Technology and Fighting Fraud

The Blockchain Connect Association / Czech Alliance, established in 2018, is testament to the country's commitment to blockchain technology and its potential. This organization not only promotes the technology's adoption but also actively works to combat fraud and corruption, strengthening trust in the digital economy.

Advocating for a Decentralized Economy

The Cryptoanarchy Institute, backed by Paralelni Polis, is at the forefront of advocating for a decentralized economy, championing the unrestricted dissemination of information and advocating for blockchain-based products and services, including cryptocurrencies.

The FinTech CNB contact point epitomizes the nation's progressive approach, offering a direct line for crypto companies to navigate the regulatory landscape and validate their financial innovations. While this service provides initial guidance, for comprehensive legal advice, our team is well-prepared to offer in-depth support and insights, ensuring your crypto venture in the Czech Republic is not only compliant but also positioned for success in this liberal and forward-thinking market.

Crypto Legislation in the Czech Republic

Aligning Czech Crypto Operations with EU Regulatory Standards

While the Czech Republic does not possess a comprehensive national cryptocurrency regulatory framework that fully encapsulates investor protection, Czech crypto companies are nonetheless held accountable to EU law, as underlined in the “Security of Internet Payments and Cryptocurrency” report published in 2018 by CNB.

The Czech Republic's legislation is in sync with the EU's Fourth and Fifth Anti-Money Laundering Directives (4AMLD & 5AMLD), which mandate crypto exchanges and wallet providers to implement rigorous AML/CFT measures, including Know Your Customer (KYC) protocols. The modified Czech legislation also broadens its scope to include a more extensive range of crypto-related economic activities, applicable to entities that trade, store, administer, broker the purchase or sale of virtual currencies, or provide other cryptocurrency-related services.

For AML/CFT purposes, digital currency is conceptualized as a digital representation of value, distinct from fiat currency, yet accepted as a payment method for goods and services by parties other than its issuers.

Czech companies engaged in crypto-related economic activities are obliged to adhere to certain AML/CFT laws, including the Law on Combating Money Laundering (Law No 253/2008 Coll.), the Criminal Code (Law No. 40/2009 Coll.), and the Law on International Sanctions (Law No. 69/2006 Coll.). These legislations are instrumental in setting out measures against money laundering and terrorist financing, defining criminal acts, and stipulating rules for the application of international sanctions.

The Financial Analysis Authority (FAU) is the principal AML/CFT supervisory body, with the Czech National Bank (CNB) being responsible for the enforcement of other financial market legislations. Currently, the regulatory framework does not necessitate a complex registration process for crypto companies, thus facilitating market entry.

Crypto enterprises must also be mindful of general financial service laws such as the Trade Licensing Act (Act No. 455/1991 Coll.), Law on Banks (No. 21/1992 Coll.), Act on Obligations on the Capital Market (No. 256/2004 Coll.), Law on Management Companies and Investment Funds (Law No. 240/2013 Coll.), and Law on Insurance (No. 277/2009 Coll.). These laws assist crypto companies in situating their operations within the financial market's regulatory framework.

MiCA's Influence on the Czech Crypto Market

Introducing EU's Markets in Crypto-Assets Regulation (MiCA)

The introduction of MiCA represents a pivotal movement towards a unified EU-wide regulatory framework for crypto-assets, placing an emphasis on clarity, consumer protection, and market integrity. This harmonized approach is set to redefine the landscape of crypto businesses within the Czech Republic as part of the larger European financial ecosystem.

Preparing for MiCA Compliance with Samson Solutions

In the evolving landscape of the European Union's crypto market, entities engaging in the issuance, trading, and management of crypto-assets are required to align their operations with the Markets in Crypto-Assets Regulation (MiCA). This comprehensive regulation applies to a broad spectrum of businesses, including crypto exchanges, wallet providers, and companies offering related financial services. It's imperative for these entities to adhere to the new regulatory standards to ensure market integrity, investor protection, and financial stability.

At Samson Solutions, we possess the comprehensive expertise necessary to guide crypto businesses in the Czech Republic through the process of achieving full compliance with the Markets in Crypto-Assets Regulation (MiCA). Our suite of services is meticulously designed to ensure a straightforward journey toward meeting the MiCA standards. We offer proficient consultancy to decode the regulatory framework and guarantee that your legal and normative documents are fully aligned with MiCA requirements. Our adept team efficiently navigates the licensing process, manages tax obligations, and delivers continuous support to maintain ongoing compliance. Our commitment lies in equipping your business to meet and surpass the rigorous standards of MiCA, solidifying your standing in a regulated European crypto market. Partnering with Samson Solutions means entrusting your business to a team that possesses the requisite skills and knowledge to turn compliance into a strategic asset, ensuring your operations embody the transparency, governance, and integrity demanded by the contemporary digital asset marketplace.

Types of Crypto Licenses in the Czech Republic

In the Czech Republic, crypto companies seeking to commence economic activities are generally required to obtain a trade license from the Trade Licensing Register. This crucial step authorizes them to operate within the EU, facilitating the opening of offices in any member country with minimal bureaucratic hurdles, as long as local authorities are properly notified in compliance with local regulations.

Classification of Crypto Business Activities

The activities of crypto companies can be classified based on the nature of the operation and the regulatory requirements:

  1. Notification-Based Transactions: Activities that may commence immediately after the company has notified the relevant authorities.
  2. Authorized Activities: Operations that require a concession or a special commercial license, usually granted when certain conditions are met, such as having relevant professional experience or specific educational credentials.

Licensing Options for Crypto Companies

Depending on the intended use of the cryptocurrency and the nature of services provided, companies may apply for one of the following licenses:

  1. The Classic: This license pertains to companies facilitating the exchange of one cryptocurrency for another, typically charging a fee for the service.
  2. Fiat: Aimed at businesses that enable the exchange between cryptocurrencies and fiat money, operating on a commission basis.
  3. Traditional: For companies that act as intermediaries in the exchange of various currencies, encompassing both crypto and traditional fiat currencies.
  4. Specialized: Tailored for businesses offering specific products and services related to cryptocurrency, such as crypto-wallets, encrypted client keys, and other niche services.

Failure to acquire the appropriate license may expose a crypto company to substantial risks, including being labeled as fraudulent, facing fines up to 500,000 CZK (approximately 20,204 EUR), and potentially being forced to cease operations. It's crucial for companies to navigate this landscape diligently and ensure compliance with the regulatory standards set forth by the Czech authorities.

Establishing a Crypto Company in the Czech Republic

In the Czech Republic, starting a crypto company involves obtaining a trade license and adhering to specific legal and regulatory requirements. The process is streamlined for efficiency but demands thorough preparation and understanding of the legal framework.

Initial Steps for Company Registration

To operate legally, a crypto company must be registered in the Czech Republic, with the Limited Liability Company (SRO) being a favored business structure. This preference stems from its advantages, including low minimum equity requirements, a limited number of founders needed, and potential exemptions from financial audits. Typically, registration can be completed within three weeks, assuming all necessary documentation is promptly submitted.

Core Requirements for a Crypto Company

To navigate the intricate process successfully, a crypto company must meet several key requirements:

  1. Business Plan Development: A comprehensive plan that outlines the business model, operational complexities, continuity strategies, and financial projections.
  2. Registered Physical Office: A legitimate physical presence within the Czech Republic.
  3. AML/CFT Policy Implementation: Establishing robust anti-money-laundering and counter-financing of terrorism policies to detect and report any fraudulent activities.
  4. AML Officer Appointment: Recruiting a trained anti-money laundering officer who is well-versed in the company’s operational model and specific reporting requirements.
  5. Technology Infrastructure Disclosure: A detailed description of the hardware and software that will be utilized for the intended economic activities.
  6. Data Protection Compliance: Formulating data protection procedures that adhere to GDPR and other pertinent legislation while facilitating data exchange with authorities as required.
  7. Client Fund Security Measures: Developing stringent policies and procedures to guarantee the security of client funds.

Key Steps for Launching an SRO for Crypto Operations

To establish an SRO for crypto activities, the following steps must be meticulously followed:

  1. Company Name Verification: Ensuring the chosen name for the new company is available and appropriate.
  2. Criminal Record Clearance: Acquiring a statement from the competent authority to confirm the absence of legal impediments for engaging in crypto-related economic activities.
  3. Securing a Legal Address: Obtaining a legal address for the company for a minimum duration of one year.
  4. Corporate Bank Account Setup: Opening a bank account specifically for corporate transactions.
  5. Capital Contribution: Transferring the minimum required share capital, which stands at only 1 CZK (approximately 0.04 EUR).
  6. Trade License Acquisition: Obtaining the necessary trade license from the Trade Licensing Registry.
  7. Founding Contract Formalization: Preparing and having the founding contract notarized.
  8. State Fee Payment: Covering the state fees associated with registration, amounting to about 6000 CZK (approximately 243 EUR).
  9. Official Registrations: Registering the company with the Enterprise Register, Tax Authorities, and the FAA for AML/CFT reporting purposes.

All documentation involved in these steps must be submitted in Czech. For those requiring certified translation services, it's advisable to engage a professional translator to ensure accuracy and compliance. Additionally, for entrepreneurs preferring a hands-off approach, the option of remote company formation is available, where you can authorize a representative to manage the setup process on your behalf through a power of attorney.

The Crypto Licensing Process in the Czech Republic

While the Czech Republic does not offer a license exclusively for crypto-related activities, companies involved in this sector must adhere to the general authorization procedures established by the Trade Licensing Register. This process, which includes the formation of the company, can take up to four months.

Application Submission and Requirements

Crypto companies are required to submit a comprehensive application in Czech to one of the general Trade Offices. This application must include:

  1. Company and Founder Information:
    • Detailed data about the company and its founders or shareholders.
  2. Business Plan:
    • A well-structured business plan outlining the company's strategy, operational model, and financial projections.
  3. Supporting Documentation:
    • Various background documents that provide additional context and support for the application.

Applications can be submitted electronically using a secure electronic signature and directed to the central Electronic Filing Room of the Trade Register. The competent Trade Licensing Office, as indicated by the applicant, is responsible for processing these submissions.

Application Assessment and Licensing

The assessment process may involve sharing information with foreign regulatory authorities to ensure thorough evaluation. If the application meets all criteria:

  1. Issuance of License: A license is granted, authorizing the company to conduct specific crypto-related activities. It's important to note that this license may be conditional, requiring the licensee to meet further stipulations before commencing operations.
  2. Reporting Obligations: Licensed crypto companies are required to provide regular reports, such as client information, to authorities like the CNB and the FAU. Compliance with these reporting obligations is crucial to maintain the validity of the license.

Failure to adhere to the conditions or the provision of incorrect information can lead to the suspension of the license. It is imperative for companies to approach the licensing process diligently, as any significant misstep could not only result in the loss of the license but also categorize the company as fraudulent, hindering any future attempts to re-enter the market.

Crypto Regulation in the Czech Republic

The Czech Republic offers a conducive and efficient regulatory framework for those looking to establish or expand a cryptocurrency business within its jurisdiction. Here are the salient points to note:

  1. Application Processing Time: Applications for cryptocurrency-related businesses are processed within a maximum period of one month, enabling swift market entry.
  2. Application Fee: A nominal state fee of 250 EUR is required when submitting the application, which is relatively modest compared to other jurisdictions.
  3. Capital Requirement: The threshold for the required share capital is exceptionally low, starting at just 0.04 EUR, making it accessible for startups and small enterprises.
  4. Taxation: The corporate income tax is fixed at 19%, which is reasonable and competitive within the EU.
  5. Ongoing Regulatory Costs: Notably, businesses are not burdened with annual fees for regulatory supervision, which can often be a significant recurring expense in other regions.
  6. Operational Flexibility: The absence of a mandate for hiring local staff or maintaining a physical office provides significant operational flexibility and cost savings.
  7. Compliance Requirements: Simplified compliance is evident, as there is no stipulation for routine accounting audits, allowing businesses to focus on growth rather than administrative processes.

In summary, the Czech Republic’s regulatory framework for crypto businesses is designed to be accessible and business-friendly. With streamlined procedures, low entry barriers, and a supportive regulatory environment, the Czech Republic is positioning itself as an appealing destination for crypto entrepreneurs and investors. This forward-thinking approach may serve to attract a variety of crypto-focused businesses seeking a foothold in the European market.

Taxation Framework for Crypto Businesses in the Czech Republic

The taxation environment for cryptocurrency businesses in the Czech Republic is structured to integrate these entities into the existing tax system seamlessly. Regardless of the trading license your company acquires, it will be recognized as a common taxpayer by the Czech tax authorities.

Taxation and Fiscal Year

The fiscal year for tax purposes aligns with the calendar year, although companies have the option to designate their accounting year as their tax year. This flexibility allows for alignment with corporate financial practices.

Tax Regime Specifics

The tax regime for crypto companies is generally consistent with that of other commercial enterprises, pending any specific legislation that may be enacted by the EU. A notable decision by the Court of Justice of the European Union (CJEU) is that cryptocurrencies like Bitcoin are treated as traditional currency for VAT purposes. Consequently, crypto exchange services are VAT-exempt.

VAT Registration and Tax Rates

Crypto companies that provide various products and services are required to register as VAT payers, with the initial tax period being set as a calendar month. The standard tax rates are as follows:

  • Corporate Income Tax (CIT) – 19%
  • Tax on Branch (BT) – 19%
  • Capital Gains Tax (WCL) – Ranges from 0% to 19%
  • Value Added Tax (VAT) – 21%
  • Social Insurance (SVP) – 24.8%
  • Medical Insurance (SA) – 9%

Tax Liability for Resident and Non-Resident Companies

Tax liability in the Czech Republic is determined based on the company's residency status. Resident companies are taxed on global income, while non-residents are taxed only on income sourced within the Czech Republic. Taxable income is calculated based on the profit as per Czech accounting standards.

Tax Compliance for Crypto Licensees

Crypto businesses must ensure full compliance with the tax system, despite the innovative nature of their activities. For instance:

  • Salaries paid in cryptocurrency are subject to standard taxation for both employees and employers.
  • Income from operational fees is taxable at the standard CIT rate, even if certain VAT exemptions apply.
  • Payments received in cryptocurrencies for standard products and services are taxed equivalently to those received in fiat.

Legal Consequences of Non-Compliance

It is critical to note that while the crypto market might be largely unregulated, any attempts to use cryptocurrencies for tax evasion will result in legal action. The Czech government prioritizes curbing tax evasion facilitated by the anonymity of cryptocurrency transactions.

Tax Benefits and Incentives

On a positive note, crypto licensees are eligible for existing tax benefits, such as the R&D tax credit. Eligible companies can deduct up to 100% of their R&D expenses from their tax base, effectively allowing a double deduction for tax purposes. Additionally, if R&D expenses exceed those of the previous year, an extra 10% supplement can be applied.

For clarity on your crypto company’s tax obligations and to explore potential tax benefits, our tax professionals are available to provide expert advice tailored to your specific circumstances.

Comprehensive Tax Services for Crypto Businesses by Samson Solutions

Samson Solutions offers a full suite of tax-related services specifically tailored for the unique needs of crypto businesses operating in the Czech Republic. We understand the complexities of cryptocurrency taxation and provide specialized consulting to navigate this intricate domain. Our team of experts is proficient in preparing and submitting all necessary tax documentation, ensuring full compliance with the Czech tax regulations. We also handle the registration processes for VAT and other tax obligations, offering end-to-end support. From strategizing on tax optimization to managing day-to-day fiscal responsibilities, Samson Solutions stands as a comprehensive partner for all your cryptocurrency tax requirements. Whether you are just starting out or looking to streamline your existing operations, we deliver customized solutions to keep your business ahead in the dynamic landscape of cryptocurrency taxation.

Adhering to Reporting Standards for Crypto Licenses

Crypto license holders in the Czech Republic must adhere to rigorous corporate reporting standards that align with the International Financial Reporting Standards (IFRS).

Requirements for Annual Financial Statements

Companies are required to prepare annual financial statements that include:

  1. Balance Sheet: A detailed snapshot of the company’s financial position.
  2. Income Statement: A report that shows the company's financial performance over the reporting period.
  3. Notes: Additional explanations and details pertaining to the financial statements.

For companies where financial statement audits are mandatory, further documents are necessary:

  1. Statement of Cash Flows: A summary of the company’s cash inflow and outflow during the fiscal year.
  2. Statement of Changes in Equity: A report detailing the movements in equity over the reporting period.

These financial statements are to be made public via the Business Register and must be filed in conjunction with the company's tax return.

Criteria for Mandatory Auditing

An audit becomes mandatory for companies that meet at least two of the following conditions:

  1. Turnover Threshold: If the annual turnover exceeds 80 million CZK (approximately 3,234,413 EUR).
  2. Asset Size: If the total assets surpass 40 million CZK (approximately 1,617,206 EUR).
  3. Employee Count: If the company employs an average of more than 50 staff members.

Expert Support with Samson Solutions

For businesses seeking to obtain a crypto license in the Czech Republic, Samson Solutions provides expert guidance through every step of the process. Our team is equipped to assist with the formation and licensing of your crypto company and to handle all aspects of accounting services. We also offer specialized advice on taxation and corporate reporting requirements, ensuring that your financial disclosures meet the stringent standards set forth by the Czech authorities. At Samson Solutions, we are committed to delivering services marked by efficiency, confidentiality, and a meticulous focus on the details that drive the success of your venture. Our hands-on approach ensures that every aspect of your reporting and compliance needs is managed effectively, giving you the peace of mind to focus on growing your business. Reach out to us to schedule a personalized consultation and take the first step towards ensuring your crypto business is fully compliant and positioned for success.

Frequently Asked Questions (FAQ) about Crypto Business in the Czech Republic

  1. What is the processing time for a crypto license application in the Czech Republic?
    • The processing time can take up to one month.
  2. Is there a state fee for crypto license applications?
    • Yes, there is a nominal state fee of 250 EUR for the application process.
  3. What is the required minimum share capital for a crypto business in the Czech Republic?
    • The minimum share capital required is exceptionally low, starting from 0.04 EUR.
  4. What is the corporate income tax rate for crypto businesses in the Czech Republic?
    • The corporate income tax rate is fixed at 19%.
  5. Are there any annual fees for regulatory supervision of crypto businesses?
    • No, there are no annual fees for regulatory supervision.
  6. Do I need to hire local staff or have a physical office for my crypto business in the Czech Republic?
    • No, there are no such requirements for local staff hiring or maintaining a physical office.
  7. What are the auditing requirements for crypto businesses in the Czech Republic?
    • Auditing is mandatory for companies exceeding certain thresholds in turnover, asset size, or employee count.
  8. Can Samson Solutions assist with the entire process of setting up a crypto business in the Czech Republic?
    • Yes, Samson Solutions offers comprehensive services, including company formation, licensing, accounting services, and tax advice.
  9. Are crypto businesses exempt from VAT in the Czech Republic?
    • Crypto exchange services are VAT-exempt, but companies providing various types of crypto products and services must register as VAT payers.
  10. What are the risks of non-compliance with tax regulations for crypto businesses in the Czech Republic?
    • Non-compliance can lead to legal action, as the Czech government prioritizes the elimination of tax evasion facilitated by cryptocurrency anonymity.