Czech Republic Approves Exemption of Capital Gains Tax for Bitcoin Held Over Three Years
The government of the Czech Republic has approved a critical amendment, exempting Bitcoin held over three years from paying capital gains tax. As declared on December 6, 2024, the effective date of the new rule is January 1, 2025, aimed at encouraging investments in digital assets for a longer duration.
Salient Features of the New Tax Rule
Tax-Free Thresholds:
- Annual crypto gains of less than CZK 100,000 are not taxed.
- Bitcoin and other digital currencies are exempt if held for a period of three years.
Limitations and Exclusions:
- Does not apply to electronic cash tokens.
- Only non-enterprise assets held three years beyond the termination of self-employment apply.
Alignment with Securities:
The law reflects similar tax exemptions for securities, capping gains from securities, business shares, and cryptocurrency at CZK 40 million in aggregate.
Current Tax System and Changes
Currently, Bitcoin transactions are subject to 15% taxation for individuals and 19% for businesses. High-income earners above CZK 1,935,552 ($81,579) are levied at 23%. Long-term holders, with the new rule, will be exempted from paying a higher tax burden, creating a more friendly environment for investment.
Expert Opinions
- The Income Tax Act has not defined digital assets precisely, hence leaving room for doubt.
- It is still vague how a taxpayer can prove the length of time they owned an asset.
- The transition provisions for assets acquired before 2025 are not yet known.
Because of these issues, there have been calls for the government to issue more detailed guidance.
Tax experts, such as KPMG and BTC Prague, have welcomed the amendment for putting Bitcoin on par with securities legislation. For BTC Prague, this might even encourage long-term investment. Yet, without an explanatory memorandum, some of the technical aspects remain subject to interpretation.
Wider Consequences
This reform puts the Czech Republic on the growing list of countries adopting crypto-friendly tax policies. In that way, the country reinforces its position as a modern player in the cryptocurrency space by encouraging long-term holding of Bitcoin.
With implementation set for January 2025, it is expected that taxpayers, exchanges, and advisors will begin adjusting their practices to conform to the requirements of the law.
The important step thus indicates a shift in the approach of the Czech Republic towards digital assets and the intention to support innovation and growth in the field of cryptocurrency.
