Czech Republic: Bitcoin Tax Exemptions and Reserve Considerations

The Czech Republic has taken a significant step towards embracing cryptocurrencies by passing legislation that exempts Bitcoin and other digital assets from capital gains tax if held for more than three years. President Petr Pavel signed the law, aligning the country's crypto taxation with traditional securities and bringing its regulatory framework in line with the European Union's Markets in Crypto-Assets (MiCA) rules.

The tax exemption applies to individuals and non-business activities, eliminating previous tax disadvantages for long-term crypto investors. The amendment is set to take effect in mid-2025. The Chamber of Deputies approved the law in January as part of broader efforts to modernize the country's financial regulations. Under the new rules, Bitcoin (BTC) holders who sell their assets after three years will no longer owe income tax on profits, mirroring the tax treatment of long-term stock investments.

In addition to the tax exemption, the Czech Republic is also considering adding Bitcoin to its foreign exchange reserves. The Czech National Bank is reviewing a proposal to allocate up to 5% of its reserves to Bitcoin, which could amount to approximately $7.3 billion worth of BTC. Governor Ales Michl introduced the idea, but the process may take months, and any exposure would be far lower than the initially suggested 5%. The central bank commissioned a study to evaluate Bitcoin's feasibility, with Michl stating he would accept its findings, even if they reject the plan.

The Czech Republic's new legislation has been praised by the Czech Cryptocurrency Association (CKMA) as a "landmark" bill that provides regulatory clarity on digital assets and aligns with broader European Union laws. The new legislation simplifies crypto tax rules and implements the EU's MiCA regulation in a way that supports innovation and development of the entire industry. After years of lobbying, CKMA played a role in preparing the legislation.

The regulatory framework is intended to standardize and regulate the cryptocurrency market across the EU, with provisions on investor protection and financial stability. MiCA legislation covers platform and issuer requirements, cross-border cooperation among EU member states, and ways to prevent market abuse. Czechia's legislation was passed less than two months after EU member states received the final guidance on MiCA laws, which went into effect on Dec. 30.