Since 2021, a new branch of free trade has been added to the list of trades under the Trade Licensing Act, namely branch No. 81 – Provision of services related to virtual assets. This change is part of the amendment to the Anti-Money Laundering (AML) Act. According to this law, virtual assets are electronically stored units capable of serving at least one of three functions, namely payment, exchange or investment. Therefore, if you buy, sell, store, manage, transfer or broker the purchase or sale of cryptocurrencies for another in the course of your business for profit, you must register your trade No. 81 with the Trade Licensing Office following the company Incorporation. Another specific activity is so-called cryptocurrency mining, where you use special hardware to carry out transactions of other cryptocurrency holders and are rewarded for this consistently performed activity. The scope of free trade No. 81 is not sufficient for this activity, so it is necessary to have the trade office register the scope of free trade No. 56 – Provision of software, consulting in the field of information technology, data processing, hosting and related activities and web portals.

AML Rules

The rules for combating money laundering and terrorist financing have been in the Czech legal system for some time and are gradually being tightened and clarified, which is supported by the European Union’s AML directives. The rules also apply to the area of cryptocurrencies. Specifically, these rules apply to a person providing services related to a virtual asset. You will then be obliged to identify the client to whom you provide the service, to retain that identifying information for a period of time, and other obligations. You will be supervised by the Financial Analysis Authority (FAU). It is strongly recommended, that you keep the appropriate documentation honestly to ensure that you do not subsequently problems with the authorities. It is recommend that you develop a KYC (know your customer) methodology, internal guidelines and a questionnaire for customers in case of identification and/or control.

Development of legislation

It is important to note that the area of cryptocurrency regulation is dynamic and constantly evolving, mainly in present time. The Czech Republic, like other EU Member States, is implementing the European MiCA Directive, which will bring further significant changes to the regulation of cryptocurrencies. Many laws have not been adopted so far, and therefore, it is hardly predictable what kind of further obligations could be imposed in the future (please see below).

From a legal perspective, the adoption of cryptocurrencies in the Czech Republic could lead to changes in the way contracts are concluded and executed. Cryptocurrencies are considered as a form of property in the country and their use in transactions may affect the enforceability of contracts. This is due to the fact, that the legal system in the Czech Republic is based on the tradition of civil law, which requires a clear and unambiguous agreement between the parties.

Another legal consequence of the widespread adoption of cryptocurrencies in the Czech Republic is the impact it could have on the banking ecosystem. The use of cryptocurrencies could disrupt the traditional banking model as more and more people would choose to store their wealth in digital assets rather than traditional bank accounts. This could lead to a change in the way banks operate, with some banks offering cryptocurrency services to remain competitive. It could also lead to the emergence of new forms of financial services and products, such as decentralised financial platforms (DeFi) that run on blockchain technology.

From a tax perspective, the adoption of cryptocurrencies in the Czech Republic could also have consequences. Cryptocurrency transactions are subject to capital gains tax and the Czech Republic has a progressive income-based tax system. Therefore, individuals who receive income from cryptocurrency transactions will be subject to taxation and the government will need to develop a framework for its regulation.
In terms of regulation, the Czech Republic has a relatively open approach to cryptocurrencies, which are considered to be a legitimate form of payment and the Czech National Bank does not restrict their use in any way.

Pending changes in Czech legislation

MiCA and DORA

The Czech Republic is aligning its cryptocurrency regulations with the European Union’s Markets in Crypto-Assets Regulation (MiCA) and Digital Operational Resilience Act (DORA). These regulations introduce a new framework for cryptocurrencies, aiming to create a safer and more transparent environment for investors and businesses.

Although MiCA and DORA are automatically implemented in Czech legal system, please note that there are plenty of further laws to be adopted as a consequence of MiCA and DORA existence. It is important to note that the specific details of the new regulations may change as the implementation process progresses.

Main new regulation acts

Currently there are several main drafts of the regulations, which are subject to proceedings in the Czech Parliament

  • Financial Market Digitalisation Act; which is the main regulatory law and enables transmission and implementation of both MiCA and DORA.
  • Amendment Act; Which primarily transposes Directive (EU) 2022/2556 of the European Parliament and makes the necessary technical amendments following the draft law on the digitalisation of the financial market.
  • The Czech National Bank’s Decree; on information obligations of persons subject to directly applicable European Union legislation governing cryptoassets markets.

The Czech Republic offers a crypto license to cater to different cryptocurrency-related services, such as:

  • Cryptocurrency exchange for trading crypto assets against fiat currencies or other cryptocurrencies.
    Wallet service for the secure management and storage of cryptocurrencies.
  • Custodial crypto storage for safeguarding clients’ digital assets.
  • Crypto transfer service for facilitating cryptocurrency transfers.
  • Full-featured cryptocurrency exchange for comprehensive crypto trading platforms.

Key Changes and Requirements

  1. Issuers of Crypto-Assets:
    -Issuers of crypto-assets will need to register with the Czech National Bank (CNB) and comply with specific transparency and disclosure requirements.
    -They will be subject to market abuse rules, consumer protection measures, and anti-money laundering regulations.
  2. Crypto-Asset Service Providers (CASPs/VASPs):
    -CASPs, such as exchanges and wallets, will need to obtain a license from the CNB and comply with strict regulatory standards.
    -They will be subject to capital adequacy requirements, risk management measures, and consumer protection rules.
  3. Market Integrity:
    -The CNB will have supervisory powers over crypto-asset markets to ensure fair and orderly trading.
    -Market manipulation and insider trading will be prohibited.
  4. Consumer Protection:
    -Investors will be protected through measures such as information disclosure, investor education, and dispute resolution mechanisms.
  5. Digital Operational Resilience:
    -CASPs will be required to implement measures to ensure the resilience of their IT systems and operational processes.
    -This includes incident management, business continuity planning, and cybersecurity.

Timeline and Implementation

MiCA: The CNB has already adopted a draft Digital Finance Act, which aligns with MiCA. The act is expected to enter into force in stages, with some provisions taking effect in 2024 and others in 2025 (please note that assumed deadlines might be postponed).

DORA: The Czech Republic is also implementing DORA, which is expected to have a significant impact on the operational resilience of financial institutions, including those dealing with cryptocurrencies.

Regulatory Authorities

  • Czech National Bank (CNB): The CNB will be the primary regulator for crypto-assets in the Czech Republic.
  • Czech Financial Authority (CFA): The CFA may also have a role in regulating certain aspects of crypto-asset activities.
  • Financial Analysis Authority (FAU): supervision over AML requirements.

Registration Conditions

  • Issuers of crypto-assets: Issuers will need to meet specific financial and operational requirements, demonstrate their ability to comply with regulatory standards, and provide information about their business model and crypto-asset project.
  • CASPs: CASPs/VASPs will need to meet similar requirements, including capital adequacy, risk management measures, and compliance with anti-money laundering regulations.

Additional Considerations

  • Taxation: The Czech government is also considering changes to the tax treatment of cryptocurrencies.
  • Consumer protection: The CNB will be responsible for ensuring that investors are adequately protected and informed about the risks associated with crypto-assets.

Requirements for a Crypto License in Czech Republic

To obtain a crypto license in the Czech Republic, you must meet several specific and detailed requirements, the process includes several key stages:

Common requirements

  • Legal Entity Registration: Registering a company in the Czech Republic, including stages like choosing a unique company name, obtaining a legal address, preparing founding documents, opening a corporate bank account, and depositing share capital.
  • Share Registered Capital: CASPs must have sufficient equity capital to face potential losses. Prudential safeguards in terms of MiCA (Article 67) and the permanent minimum capital requirements set out in Annex IV of MiCA.
  • Clean Criminal Record: Obtaining recent (no older than 3 months) certificates of no criminal record for directors and shareholders.
  • AML/CFT Compliance: Internal documentation must comply with stringent laws against money laundering and terrorist financing, including customer identification, transaction monitoring, and staff training. Development of an AML/KYC policy, rules for control and risk monitoring, as well as maintaining financial operations records.

The amount of the share capital is entered in the Commercial Register and includes the contributions of all shareholders, which are divided into:

  • cash (cash in hand and in bank accounts),
  • non-monetary (movable and immovable assets are valued by expert opinion, e.g. a car, know-how, a building or production equipment, etc.).

Special requirements

  • Appointing an MLRO: Designating a Money Laundering Reporting Officer (MLRO) in the Czech Republic involves assigning an individual responsible for ensuring AML/CFT compliance within the company. This role includes overseeing the implementation of the company’s anti-money laundering policies, procedures, and controls, as well as reporting any suspicious activity to the relevant authorities.
  • Notification of Official Bodies: Mandatory reporting of the commencement of cryptocurrency-related activities to financial regulatory authorities. Notification to the FAU Regulator: Appointment of MLRO to submit notifications of suspicious and non-standard transactions to the regulator.
  • Crypto License Registration: CASPs must be registered with the Czech National Bank (CNB) and meet strict registration criteria. After the company registration, submission of an application to the Czech Trade Licensing Register and then submission of the application to the Czech National Bank. The CASP/VASP must prepare a comprehensive application that includes detailed information about its business plan, financial statements, management team, and risk management procedures, as well as IT solutions.
  • Initial assessment: The CNB will conduct an initial assessment of the application to determine if it meets the basic requirements for a CASP license. On-site inspections: The CNB may conduct on-site inspections of the CASP’s premises to verify the information provided in the application and assess the CASP’s compliance with regulatory requirements. Due diligence: The CNB may also conduct due diligence checks on the CASP’s management team and other key individuals. Decision: The CNB will make a decision on whether to grant or deny the license based on the information provided in the application and the results of the assessment and due diligence. The entire process can take several months, and there may be opportunities for back-and-forth communication with the CNB during the review process. It is important for CASPs to be patient and prepared for a lengthy application process. It’s also worth noting that the timeline may vary depending on the specific circumstances of the application and the workload of the CNB.

CASP obligations after licence registration:

  • Operational Setup: Establishing the necessary operational framework, which includes opening a bank account or integrating a payment system, VAT registration, and setting up an accounting system to ensure accurate financial tracking and compliance. This step is crucial for managing cryptocurrency transactions, facilitating clear financial reporting, and adhering to tax obligations.
  • Prevention of money laundering and terrorist financing (AML/CFT): CASPs must put in place effective systems to prevent and detect these crimes. Crypto companies in the Czech Republic must comply with AML laws, including reporting suspicious activities to the Financial Analytical Authority/Office (FAU). Crypto businesses must adhere to strict KYC (Know Your Customer) requirements.
  • Record keeping: CASPs must keep detailed records of all transactions and identification of their customers for a specified period of time.
  • Data and Customer Protection: Adherence to the General Data Protection Regulation (GDPR) is mandatory if the company processes personal data of EU residents. CASPs must inform customers about the risks associated with investing in cryptocurrencies and provide them with sufficient information about the services offered.
  • Risk management and Cybersecurity: CASPs/VASPs must put in place effective systems to manage operational, reputational and protect their information systems from cyber-attacks.
  • Crypto exchanges Cryptocurrency custody: Must ensure the proper functioning of the trading system, protect customer funds and prevent market manipulation, as well as ensure safe custody of customers’ cryptocurrencies and allow easy access.
  • Cryptocurrency issuance: Cryptocurrency issuers must provide investors with detailed documentation and information about the project.
  • Tax Obligations: The company must be registered with the Czech tax authorities and fulfil its tax obligations, which may include income tax, VAT, and other relevant taxes.

Special Notes

Specific CAPs responsibilities may vary depending on the type of service provided. These requirements can be subject to changes and updates, so it is important for companies operating in the crypto space to stay informed and to follow regulatory guidance from the Czech National Bank. If you provide or plan to provide cryptocurrency-related services, it is always obligatory to cooperate with the CNB actively in fulfilling your regulatory obligations.

Transitional provisions in Czech Legislation: it is assumed that anyone who, prior to 30 December 2024, was authorised to provide cryptocurrency-related services on the basis of a trade licence and who has applied for a cryptocurrency-related service provider authorisation pursuant to Article 63 of MiCA by 31 December 2024, shall be entitled to provide cryptocurrency-related services. July 2025, he/she may continue to carry out that activity on the basis of that authorisation until the date of entry into force of the decision on the application for authorisation as a cryptocurrency service provider pursuant to Article 63 of MiCA, but no later than 1 July 2026.

Adam Smith Law Office team, specializing in Czech legislation and cryptocurrency regulation, is ready to assist you at every stage of your business process. Whether it’s company registration, obtaining a crypto license, or ensuring compliance with regulatory requirements, we offer comprehensive guidance tailored to your needs.
Please feel free to contact us for more information or to discuss your specific requirements!