The most significant update is the previously mentioned new Digital Finance Law No. 31/2025 Coll., ‎announced on February 14, 2025, which was also discussed in our previous article primarily dealing ‎with the Czech National Bank’s supervisory activities over entities providing services related to ‎cryptoassets, possible licenses, or fines. However, the Act also introduces several key changes in ‎the area of taxation, particularly regarding personal income tax. These changes have, in turn, given ‎rise to several new and important questions.‎ 

Before diving into the tax-related issues themselves, it is essential to first clarify which legal ‎instrument defines the term cryptoasset, as this definition is missing in Czech legislation. Therefore, ‎we must look elsewhere – specifically to the European cryptoassets regulation (“MiCA”), which is ‎directly applicable to all European Union states. The Czech law does not further complement or ‎elaborate on the definition presented in this regulation. Questions related to cryptoassets—including ‎their definition—also appeared at the Coordination Committee on April 30, 2025, specifically in ‎Contribution No. 625. Among other topics, this contribution addressed the issue of tax-exempt ‎income from the paid transfer of cryptoassets, a matter on which we participated in the consultation ‎process.‎ 

The MiCA regulation defines cryptoassets as digital representations of value or rights that can be ‎transferred and stored electronically using distributed ledger technology (DLT) or similar technology. ‎A distributed ledger refers to a data storage system that records transactions and is maintained ‎across a network of nodes, which are synchronized through a consensus mechanism (blockchain ‎being a prime example of such a system). In simpler terms, it is a synchronized network of ‎computers that records and facilitates all transactions associated with a particular crypto project. ‎All major crypto projects – and the related products built around them – are based on this or ‎comparable technology.‎ 

Now, considering the given definition, we arrive at the division of cryptoassets into three ‎categories:‎ 

• Electronic money tokens (e-money tokens): These stabilize their value by linking to official ‎currency. Examples include cryptocurrencies like USDT or USDC, which are pegged to the ‎dollar. The value of such cryptoassets is (ideally) stable and most commonly used for ‎trading, either as a medium of exchange or as collateral.‎
• Asset-referenced tokens: These are tied to assets like gold, silver, government bonds, and ‎others. Their value should also be ideally relatively stable.‎
• Other cryptoassets: Defined specifically as “cryptoassets other than Asset-referenced ‎tokens or e-money tokens.” These include well-known cryptocurrencies like Bitcoin, ‎Ethereum, Solana, and many others. Here, the cryptoassets are highly volatile in their ‎pricing.‎

Within Czech legislation, the definition of cryptoassets in the MiCA regulation is further ‎complemented by the definition of so-called virtual assets in the AML Act No. 253/2008 Coll. (Act on ‎Certain Measures against Money Laundering and Financing of Terrorism), although this definition is ‎not relevant from a tax perspective.‎ 

How will individuals tax cryptoassets?‎ 

Moving on to taxation, the most significant changes concern individuals. For them, new rules for ‎income exemption apply, similar to those for securities. At first glance, these rules appear very ‎similar to those applicable to securities. However, from the perspective of transactions with ‎cryptoassets, they may be somewhat insufficient in some respects.‎ 

Two new exemption tests have been introduced. One is the so-called value test (set out in Section 4, ‎Paragraph 1, Letter zj) of the Income Tax Act). It states that when selling cryptoassets up to CZK ‎‎100,000 during one year, the income is exempt from tax. Note that this exemption does not apply to ‎electronic money tokens. A positive aspect of this provision is that it is separated from the same type ‎of provision for securities, thus allowing the taxpayer to use the CZK 100,000 limit both for selling ‎cryptoassets and for income from selling other securities, such as shares.‎ 

The second test is the time test (set out in Section 4, Paragraph 1, Letter zk) of the Income Tax Act), ‎which talks about exemption from income when selling a cryptoasset if the holding period is longer ‎than three years. However, it is necessary to mention the CZK 40,000,000 limit, which is the ‎maximum amount up to which income from sales can be exempt according to this provision, ‎including income from other securities sales. This limit thus applies to income from securities and ‎cryptoassets collectively.‎ 

There may be a question whether this test applies to holding only a part of a cryptoasset. If we ‎assess the relevant provisions concerning securities, specifically shares, the time test only applies ‎after completing an entire company share, not when holding only part of a share (i.e., fractional ‎shares). In this case, such limitation makes sense because a share is significant as a whole (for ‎voting at general meetings, where each share represents one vote). In the case of cryptoassets, this ‎limitation should decidedly not apply because cryptoassets are often further divided into smaller ‎directly named units. Moreover, cryptoassets often serve as a medium of exchange (hence the ‎direct designation of many tokens as cryptocurrency), maintaining this function even when holding ‎part of the cryptoasset. Therefore, the time test should apply to holding only part of the cryptoasset ‎in our opinion.‎ 

If we delve deeper into the details, it is also necessary to address the issue of the “merger and ‎consolidation” of cryptoassets, where, according to the law, the holding period test is not ‎interrupted. In cases where one type of cryptoasset merges or consolidates with another – for ‎example, when two crypto projects combine into one – this provision can be applied, allowing the ‎taxpayer to benefit from the exemption under the holding period test, especially when such merger ‎or consolidation is mandated by the developers of the respective projects. The same principle ‎applies to the “exchange” of one cryptoasset for another, such as when cryptoasset A is ‎automatically converted into cryptoasset B, often based on a decision by the project developers.‎ 

However, upon closer examination, there is an inadequate regulatory framework concerning how the ‎definition of cryptoassets is handled within tax legislation. Moreover, these definitions and related ‎provisions lack appropriate commentary or illustrative examples. For instance, the wording of the ‎law might suggest that the holding period test is not interrupted even during the gradual ‎accumulation of a cryptoasset, which is undesirable. If a certain amount of cryptoasset was ‎acquired in 2020, and additional units of the same cryptoasset were purchased in 2025, then upon ‎selling in 2026, only the portion acquired in 2020 should be exempt from tax—not the part acquired ‎in 2025. We believe this scenario should be explicitly excluded from cases where mergers or ‎consolidations apply. It is not decisive which specific units of the cryptoasset are sold in 2026; ‎rather, the key point is that the volume sold, for exemption purposes, corresponds to the volume ‎acquired in 2020.‎ 

The law also does not address a significant situation in the realm of cryptoassets known as a hard ‎fork. This occurs when, based on network consensus, the community decides to split the original ‎cryptoasset into two new ones, with one of them remaining the original cryptoasset. This scenario is ‎not described anywhere in the legislation, leaving it unclear whether tax exemption can be applied in ‎such cases.‎ 

It is important to note that the exemptions mentioned above apply only to non-business individuals, ‎and not to self-employed individuals. In the latter case, it must be demonstrated that the ‎transactions or holdings of cryptoassets are not part of business activities but rather represent ‎purely personal activities, which are treated as other income under Section 10 of the Income Tax ‎Act. However, if the activity does not involve, for example, cryptoasset mining—which is generally ‎considered a business activity aimed at generating profit under Section 7 of the Income Tax Act—and ‎involves only holding cryptoassets or occasional trading, it will likely not be difficult to prove this. ‎Naturally, the fundamental requirement is that the cryptoassets are not classified as business ‎assets.‎ 

For legal entities, the situation is somewhat different. In terms of sale income, there are no ‎exceptions found, which apply only to non-entrepreneurial individuals. However, there remains the ‎long-discussed topic of accounting and valuing cryptoassets in legal entities, which deserves more ‎attention from lawmakers. Although we know ways to account for cryptoassets according to existing ‎rules – usually as inventory – this approach does not always correspond to their real-world usage in ‎practice. It is not that accounting cannot be done correctly; rather, the current framework is often not ‎entirely suitably set considering the specifics of cryptoassets.‎ 

In the final section, we would like to mention several partial topics that we believe also require ‎attention. The first is so-called staking. This situation involves a holder’s cryptoasset being “locked” ‎and then placed into a shared mining pool (for example, the crypt-asset is locked on an exchange ‎that operates its own pool). This pool serves as a so-called validator/miner (which can be achieved ‎by holding a certain number of tokens, hence why people band together into larger groups) and is ‎responsible for verifying ongoing transactions and closing blocks within the distributed ledger. If a ‎block is closed by this validator, it receives a reward in the form of newly created cryptoassets. In ‎staking, tokens are provided to the pool and are then exchanged for an economic interest ‎proportionate to the number of tokens deposited. This situation is not defined in the law at all, ‎although it is a very complex operation from which many tax and legal questions may arise.‎ 

Another completely unresolved topic is NFTs (non-fungible tokens). The main purpose of an NFT ‎token is not, unlike many cryptoassets, exchange, but proving ownership of certain digital or, in some ‎cases, physical products. Under these circumstances, the question arises as to how these tokens, as ‎well as their possible purchase, sale, or other operations, should be classified legally and treated for ‎tax purposes. NFT tokens generally present a very broad area with potentially wide application in the ‎future, generating so many questions from their nature and possible handling that it would warrant a ‎separate article.‎ 

The last topic is airdrops. This refers to situations where users or community members are given a ‎certain number of tokens of a given cryptoasset. This is usually a type of marketing campaign during ‎the launch of a new crypto project (issuance of new tokens), where selected users receive ‎cryptoassets as a reward for activity, such as promoting the project or holding a certain amount of ‎tokens. However, from a tax perspective, the evaluation of such acquisitions is more complicated. ‎Would a potential airdrop be considered a compensatory or non-compensatory income?‎ 

In conclusion, despite the very proactive approach of Czech lawmakers towards this topic and ‎growing regulation, many areas remain unclear. This uncertainty spans from the basic handling of ‎the definition and categorization of cryptoassets, through the correct identification of income types, ‎to issues entirely unaddressed by law, even though they are relatively common, significant, and hold ‎great future potential.‎ 

From this standpoint, it is essential to view cryptoassets from a more practical perspective. ‎Cryptoassets and related products represent a relatively new, technically demanding, and complex ‎area likely requiring a similar approach in terms of legislation.‎