Crypto license in Czech Republic
Support in the issuance of Czech crypto license with a guarantee of a turnkey contract.
Currently, there is no specific crypto licensing regime in the Czech Republic, however provision of services related to cryptocurrencies is considered as licensed trade with obligation to register the company in the Trade Licensing Register administered by Czech Ministry Of Industry And Trade.
The Czech Republic does not imply requirements of opening a corporate account for the company’s incorporation (in the form of LLC) and the minimum share capital requirement is 1 Czech Krone per shareholder.
Czech legal acts also don’t establish separate requirements for incorporation of crypto-related companies. Therefore, Czech crypto company establishment may take from 1 up to 3 weeks and this term allows to pass all stages, including incorporation and obtaining of crypto license at Trade Licensing Register. Despite the absence of the licensing process ordinary for financial institutions supervised by the Czech National Bank (CNB), Czech companies involved in crypto-related activities are considered as obliged entities and have a supervisory authority in the form financial intelligence unit - Financial Analytical Office (FAÚ), which is responsible for control over their duties arising from Czech AML Act.
Obligations of Czech crypto companies include implementation of AML/KYC policies, certain reporting requirements and appointment of an Employee (AML Officer), responsible for fulfillment of compliance-related requirements.
Due to favorable legislation, the Czech Republic is attractive for cryptocurrency and IT activities. In 2018 the Czech Republic opened a specialized blockchain alliance, Blockchain Connect / Czech Alliance, whose main task is developing and implementing technology in the country. The Paralelni Polis Center operates in Prague and is also engaged in the development of crypto technology.
The support and funding of such structures indicate the government's interest in the progress of innovative financial technologies and the maintenance of stability at the state level.
Types of crypto licenses in the Czech Republic
Czech legislation doesn’t have separate types of licenses for crypto-activities and the license may be obtained in the field of activity No. 81 "provision of services related to a virtual asset" and Czech AML Act defines crypto company as entity, which in the course of its business activity, buys, sells, stores, manages, transfers or mediates the purchase or sale of a virtual asset, provides financial services related to the offer or sales of the virtual asset, or provides other similar services associated with the virtual asset. For this reason Czech crypto license covers the following transaction types:
Exchange of fiat currency to virtual currency and vice versa
Required when exchanging cryptocurrency for a fee.
Exchange of virtual currency to another virtual currency
Allows a firm to exchange digital currency for FIAT or vice versa for a fee.
Opening virtual currency wallets and keeping wallets’ private keys (Custodian wallet service)
When providing the exchange services of items 1 and 2
Virtual currency transfer service
Companies introducing wallets for storing cryptocurrency, creating encrypted client keys, as well as storing them.
Other crypto activities in the Czech Republic
Czech AML law defines cryptocurrency as electronically storable or transferable unit that is capable of performing a payment, exchange or investment function whether or not it has an issuer with exception of financial instruments (in the meaning of MiFID), electronic money (in the meaning of E-Money Directive) or fiat money (in any form). Therefore, Czech’s virtual currency definition covers all utility tokens, including some stablecoins, but for operation with security tokens additional license may be needed. It's important to note, that some of activities related to crypto assets may require additional licenses (e. g. investment firm license, asset manager or fund manager licenses, etc.), however there’s no restrictions or even requirements to be licensed for companies, which are using crypto for their own purposes, like:
- they only accept virtual currency as payment for goods or services;
- operate mining facilities or combined mining;
- they issue the game currency, i.e., the computer game operator issues the game currency, but it is not a virtual currency.
For understanding if some activity requires a crypto license in Czech Republic or another financial license (usually issued by CNB), as well as for qualification of certain cryptocurrency, it is recommended to consult with our lawyers. As for preliminary assessment of crypto-related activities we would also recommend reviewing the following legal acts:
- Banks Act – establishes grounds for Banks’ activities and may help for understanding principle of custody services provision.
- Law On Business On The Capital Market – contains definitions of Financial instruments, as well requirements for transactions with such instruments.
- Act on Investment Companies and Investment Funds – contains Basic principles of asset management and requirements for fund managers.
- Payment Systems Act – regulates payment systems (incl. EMIs) and licensing of this type of business
Advantages of Czech Republic crypto license
One of the fastest licenses in the EU (2-3 weeks). One week for company incorporation and 1-2 weeks for registering exchange and custody activities within the Trade Licensing Register
Allows to onboard EU customers freely. For non-EU residents EIDAS methods of verification apply in addition to generally accepted KYC measures
No local substance requirements. The company director, AML officer, and HQ could be allocated abroad
No strict qualification requirements for senior management. No due diligence of board members and KYC officer, except a requirement to provide a certificate of non-criminal record
One of the most attractive tax regimes in the EU based on the tax competitiveness index score 5 out of 37 EEA member states
Costs for initial legal setup and legal maintenance. Vary from 1900-7000 EUR depending on the infrastructure component preferences
No share capital requirements. 1 Czech Krone without requirement to open a corporate account
Service packages for registration of Czech crypto license
Choose the best package of services for obtaining a crypto activity license in Czech Republic
CZECH CRYPTO LICENSE REQUIREMENTS
- The company shall have internal policies (AML/KYC), as well as internal control policies
- Crypto company shall appoint employee responsible for fulfillment of AML/CTF obligations
- Obligation to identify customers and monitor the business relationship established
- Obligation to fulfill international sanctions regimes
- Obligation to store customers' data
- Obligation to report suspicious transactions and certain operations
- Obligation for the company's shareholders and senior management to have good business reputation and clear criminal record
- Obligation to implement risk-based approach in the course of licensed activity and take into account risks identified through national risk assessment
- Other obligations arising from applicable law
There's no requirements for local substance in the Czech Republic, including the existence of a local office, director or AML Officer and foreign investors have flexible options for company's management
Procedure for obtaining a Crypto License in the Czech Republic
Stage 1
GATHERING DOCUMENTS FROM THE CLIENT TO START THE PROCESS
Result: gathering basic information from the client; providing a preliminary package of documents for further execution of the power of attorney (PoA); clarity of project scope and budgets
- 1.Preliminary project analysis
- 2.Collection of KYC documents and business description
- 3.Preparation of power of attorney for notarization and legalization
- 4.Verification of a business name chosen
- 5.Collection of shareholder and director’s criminal record certificate
- 6.Documents receiving at our office in Prague
Stage 2
REGISTRATION OF A LIMITED LIABILITY COMPANY (S.R.O.)
Result: The company is registered in the desired name; the company is ready for obtaining the crypto license at Czech Trade Licensing Register
- 1.Sworn translation of power of attorney and certificate of criminal records into Czech
- 2.Carrying out the notarial deed of company registration
- 3.Entry of company data into the commercial register
Stage 3
LICENSING PROCESS
Result: The company has obtained a license in the field of crypto-related activities and it is ready for operations
- 1.Receiving additional information about the client’s business (to identify risk appetites, the geography of the customers, nature of the business, etc.) and development of AML/KYC policies tailored to the client company's cryptocurrency operations
- 2.Submitting application for the license to Czech authorities and communication in the course of license issuance
- 3.Hiring and training an AML officer for the company and adapting their skills to the company's operations. Instructing the officer on regulatory reporting and registration
- 4.Preparation of AML Officer’s registration form at FAU and application submission
Stage 4
CORPORATE ACCOUNT OPENING AND ACCOUNTING
Result: The company is fully operational; the corporate account is open and the organization meets the requirements of the tax authorities (accountant integrated) as well as the supervisory authority as a virtual asset service provider
- 1.Analysis of the most suitable Banks/EMIs, comparison of the risk appetite of the bank in relation to the risk appetite of the Client based on previously prepared AML policies
- 2.Collection of necessary documents from the Client side to initiate the process (flow of funds, source of wealth, description of the purpose of opening an account, key partners, company website, utility bill, etc.)
- 3.Initiation of the onboarding procedure simultaneously in 2-3 crypto friendly EMI's
- 4.Guiding the Client's company through the entire process of opening an account
- 5.Development of accounting rules for the client's crypto company
- 6.Integration of an accountant and preliminary consultation on the conduct of activities within the framework of crypto accounting
Taxation of crypto companies and crypto transactions in the Czech Republic
If you are planning to open a Czech cryptocurrency company, it is necessary to study cryptocurrency taxes in the Czech Republic. As in other European countries, taxation is regulated by the state tax authority. According to the generally accepted rules, the tax year must correspond to the calendar year, but the company may define the reporting year as the tax year.
Taxation for a crypto company may vary based on the services provided, but not from the standard regimes of other businesses, provided that the European Union government does not enact special legislation. Example: The CJEU (Court of Justice of the EU) has ruled that when paying value-added tax, cryptocurrency (such as BTC) is treated as traditional, and therefore the exchange services provided are exempt from VAT
Moreover, in 2007, the Czech government introduced an additional obligation for banks: cryptocurrency exchanges and other providers of virtual financial services are required to identify customers. This was aimed at the transparency of cryptocurrency and creating conditions where the use of cryptocurrency by anonymous taxpayers would be difficult for tax evasion.
Cryptocurrency transactions are generally not subject to VAT but can be passed on to cryptocurrency buyers if the government wants to collect tax on the transaction. This happens very rarely, mostly the buyer is exempt from paying this tax.
That said, crypto companies that provide different types of services and products need to get registered as VAT payers.
Czech companies must pay the following tax rates:
- Corporate Income Taxes (CIT) - 19%
- Taxes on profits (BT) - 19%
- Capital Gains Taxes (WCL) - 0% to 19%
- Value Added Tax (VAT) - the basic rate of 21%
- Social Security (SVP) - 24.8%
- Health insurance (SA) - 9%
In addition, if the company has officially employed employees, it is necessary to pay social insurance, and health insurance, and make contributions to the pension fund Companies that are Czech residents are taxed based on their profits, while non-resident companies are taxed only on profits that have been earned in the Czech Republic. However, if the main office of the company will be located in the Czech Republic, this company gets the status of a resident taxpayer Remember that evading any state-mandated crypto tax payments in the Czech Republic entails liability.
Legal acts applicable to crypto companies in the Czech Republic
In the course of crypto-relate activity in Czech republic, the following legal acts shall be taken into account:
- Act on Certain Measures Against the Legalization of Proceeds of Crime and the Financing of Terrorism – established grounds of AML/CTF framework in Czech Republic and defines virtual currency, as well as obligations of Czech VASPs
- Criminal Code – describes criminal offences and penalties, including activities related to money laundering and terrorist financing
- International Sanctions Implementation Act – implements international sanctions regimes (incl. UN and EU) into Czech jurisdiction
- Trade Licensing Act – establishes grounds for acquisition of license in certain field of activity
- Business Corporations Act – Czech law on companies, regulating their incorporation, management, etc
Client’s identification requirements for Czech VASPs
Czech crypto companies have an obligation to identify clients in case when volume of transaction(s) performed with the client exceeds 1 000 €. It’s applicable for one or more crypto exchange operations during the client’s lifetime (without term). Also, the same obligation exists, if there’s business relationship (long-term contract) is established with the client. It is applicable when VASP opens a crypto wallet for the client or makes an account on the platform.
Client's identification should be performed in the course of a face to face personal meeting with the client. It means real meeting, not video or any other procedure. Nevertheless there's some exceptions for avoiding personal meetings with a client. First exception is to use eIDAS means – it is in use in some EU countries, however there’s no many people outside the EU who have such means. Second option is using Bank ID – a specific solution, developed for the Czech market and used by Czech banks.
If these 2 options are not available, there's also another exception which exceptions for avoiding personal meetings with the client. They require to collect at least 2 documents confirming identity (e.g. passport & ID card or driver’s license), conclude contract in writing and perform 1stpayment in the course of service provided through an account opened on the name of the client in the European Economic Area (EEA) payment institution. It also may create additional issues for clients, who are not residents of EEA: usually it may be problematic to open an account in EEA payment institution for such clients. It’s important to note that verification procedure (incl. making payment through the relevant account) shall be performed before starting other interactions with the client (e.g. opening crypto wallet, performing crypto to crypto exchange, etc.). This approach creates additional issues for VASP, which are not involved in transactions with fiat currencies (e.g. DAOs, DEX, ICO with only crypto funding).
FAQ about crypto license in the Czech Republic
Is cryptocurrency activity legal in the Czech Republic?
Cryptocurrency activities are legal in the Czech Republic. According to a summary of the National Bank's "Security of Internet Payments and Cryptocurrencies", virtual currencies are subject to EU laws in the absence of restrictions by the laws of the Czech Republic. Investors who want to start a cryptocurrency company must comply with the rules developed by the Czech authorities, as well as the provisions of the European Union directive.
Do you need a license to trade cryptocurrency in the Czech Republic?
If you work with cryptocurrency as your asset - you do not need a license. However, for any entrepreneurial activity and commercial use of crypto-assets, you need to get a crypto license in the Czech Republic.
Who can carry out crypto activities in the Czech Republic?
Any person who meets all the requirements of the Czech legislation can set up a crypto company. It is not necessary to be a resident of the state.
Do I have to pay tax on cryptocurrency in the Czech Republic?
Companies that are Czech residents are taxed based on their profits. Non-resident companies are taxed only on profits that were earned in the Czech Republic. However, if the main office of the company will be located in the Czech Republic, this company gets the status of a resident taxpayer. Income tax in the Czech Republic (BT) - 19%
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