From the legal point of view, it is especially important to identify under which of the existing categories the particular cryptocurrency can be included, refer, for example, to the opinions of the Czech National Bank (ČNB) or the Ministry of Finance below. This identification then overlaps tax, accounting and other legal areas. With regard to the developments abroad, it is also possible that the cryptocurrencies will ultimately be sui generis and will be given a separate legal regulation.

You can read about the accounting for and recognition of the digital currency in the June edition of dReport. According to the current opinion of the Ministry of Finance as of 15 May 2018, the digital currency is considered an intangible asset and it is recommended that a digital currency be accounted for and recognised as inventory “of its kind”. This information can be used as a guideline for income tax of legal entities (and natural persons who keep accounting records) arising from digital currency transactions, such as transactions in which a legal entity uses the digital currency as a means of payment, in digital mining or when issuing a new digital currency.

Since the digital currency is not a currency from the ČNB’s point of view, but an intangible asset, in case of exchange or mining of the digital currency, the income can be assessed under Section 7 (for natural persons-entrepreneurs) or Section 10 (for other natural persons) of the Income Taxes Act.

Value Added Tax (“VAT”) regulation of the digital currencies is affected primarily by the judgment of the Court of Justice of the European Union, which treats the exchange of cryptocurrencies as a financial service, i.e. exempt performance without the right to deduct.

The article is part of dReport – September 2018, Tax news; Grants and investment Incentives.