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Tax and Legal News - January 2025

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New Year with taxable currency and exempt crypto

Welcome to the New Year. The winter holidays are over and the tax/accounting world is entering a time when comfort and reflection are replaced by something radically different.

A number of challenges are ahead – from standard ones such as financial statements, reporting, tax filings/reports, to recent developments related to so-called top-up taxes (or Pillar 2, if you prefer). Most taxpayers are anxious to see how the safe harbor testing will play out on the sharp numbers of the just-ended 2024. While the deadline for the first report to the Tax Office is still relatively far away, the auditor will start asking for the first calculations much sooner.

Significant new developments await us this year in the area of personal taxation. We informed you last year about the introduction of a limit for exempt income from the sale of securities (including the interesting possibility of revaluation of existing positions as of the last day of 2024).

Just before the end of the year, however, a legislator added another unexpected gift to this change – tax exemption of income from the sale of crypto-assets.

Put simply, a proposal was ultimately (unanimously!) approved by MPs to introduce a time test for the exemption of income from the sale of crypto-assets in a similar way to that for securities. Thus, this is generally a 3-year test, with the understanding that the new CZK 40 million time test exemption limit for interests in a corporation/securities would also apply to income from the sale of crypto-assets (i.e. this is a common limit for such income). In addition, a value exemption limit would be introduced for income from the sale of crypto-assets not exceeding CZK 100,000 in aggregate over the period, similar to that for securities.

This change presents an interesting phenomenon (at least from our point of view): a specific exemption for profits from an investment in foreign currency was abolished last year to simplify the law, while a specific exemption for profits from an investment in cryptocurrency will be introduced. For anyone but the legislator, the coincidence of these two adjustments seems hard to understand.

Moreover, the practical application of this new exemption already raises many questions and food for thought, such as:

What exactly is (and isn't) a crypto-asset?

In the absence of any definition in Czech legislation, the definition of the term in the directly applicable EU regulation governing crypto-assets markets will probably be decisive. But already here a number of ambiguities arise. The Regulation only covers certain types of crypto-assets and excludes many others from its scope. So will the tax exemption also apply to these other types of crypto-assets?

A further interpretative ambiguity arises from the wording according to which the time test is not interrupted when crypto-assets are merged or amalgamated. Can such a situation even occur? Against the conclusion that the provision is obsolete stands the accepted (though admittedly somewhat theoretical) concept of the rational legislator. On the basis of this concept, the legislator does not in principle create rules without normative meaning. However, participants in the crypto-asset market are mostly progressive and inventive, so we can only look forward to what new situations this rule will bring in the future.

What will be considered sufficient evidence of the acquisition of a crypto-asset?

The second question is no less pressing for the practical application of the tax exemption. In tax practice, proving anything is challenging. In the case of crypto-assets, where only a minority of trades take place on an exchange or other non-anonymous market, it may be almost impossible to provide conclusive evidence of when and at what price the taxpayer acquired a crypto-asset. The burden of proof is (as in most cases) on the taxpayer.

Losses from the sale of crypto-assets

The fact that gross income, not net profit, is subject to taxation may not be entirely intuitive at first glance. Although the law generally allows the purchase price to be claimed against gross income, the prerequisite is again that the taxpayer prove it unequivocally. Therefore, unless an exemption is applied, even loss-making transactions are generally subject to taxation. The amount of gross income will also be decisive for the assessment of the aforementioned limit of CZK 100,000 or CZK 40 million. If the loss can already be proven, we will (similarly to investment instruments) worry about (not) being able to apply the loss from the sale of crypto-assets against gains realised in future periods. However, will it be possible to offset such a loss at least against gains realised on the sale of other crypto-assets in the same period?

Starting when?

The legislative process has not yet been completed, so it is questionable when this regulation will be applicable.

We’re eager to see what practice brings.

In any case, we wish you a successful 2025, may it bring you more than just taxable gains from currency transactions and tax-free gains from crypto-assets. 



This change brings (at least from our point of view) an interesting phenomenon: a specific exemption for profits from an investment in foreign currency was abolished last year to simplify the law, while a specific exemption for profits from an investment in cryptocurrency will be introduced.



Content of the January issue

Amendments – Overview of current tax amendments

Law – Welcome court decisions related to electronic signatures

VAT –  Early termination of a contract in the light of CJEU case law

Judicial window – A dark chronicle of tax planning

Judicial window – Supreme Administrative Court on the topic of deductibility of refinancing interest

Read more from our January Tax and Legal News here.

Download the January Tax and Legal News (PDF)

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Tax and Legal News – January 2025.
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