Bitcoin (and other cryptocurrency) payments and the potential risks involved

Need advice on this topic? Contact the ARROWS law firm by email office@arws.cz or phone +420 245 007 740. Your question will be answered by Mgr. Jan Pavlík, an expert on the subject.

A New Era for Crypto in Europe: What MiCA Means for Your Business in the Czech Republic

The European Union has moved decisively to end the era of fragmented national rules for digital assets. The Markets in Crypto-Assets Regulation (MiCA) represents a regulatory earthquake, replacing the previous, often inconsistent national approaches with a single, comprehensive, and significantly stricter legal framework for all 27 member states. This is not a minor update; it is a complete overhaul designed to protect consumers, ensure market integrity, and bring the operational standards of the crypto industry in line with traditional finance.

For businesses in the Czech Republic, this means the former, relatively simple registration as a Virtual Asset Service Provider (VASP) under the Trade Licensing Act is now obsolete. MiCA introduces a rigorous authorization regime, transforming VASPs into licensed Crypto-Asset Service Providers (CASPs) operating under the supervision of sophisticated financial regulators.

Czech Implementation and the Role of the CNB

The Czech Republic has implemented this EU-wide regulation through its national Digital Finance Act, which came into force in early 2025.1 This legislation designates the Czech National Bank (CNB) as the primary supervisory authority for the crypto-asset market.1 This is a critical change. The CNB is a robust financial regulator with extensive powers, meaning that CASP license applications and ongoing compliance will be subject to a much higher level of scrutiny than the previous administrative trade license process.

The new framework creates a significant strategic consideration for any foreign company. While MiCA grants a valuable "passport," allowing a CASP licensed in one EU country to operate across the entire bloc, the entry requirements are now formidable. The regime demands a level of operational maturity, governance, and financial stability that favors well-capitalized, serious market participants. It requires a physical office, at least one Czech-resident director, and minimum share capital ranging from €50,000 to over €150,000, depending on the services offered.

FAQ – Legal tips about MiCA's impact

• Does MiCA apply to my business if we are not based in the EU?
  Yes, if you provide crypto-asset services to clients within the European Union, you are generally required to be authorized as a CASP in an EU member state. MiCA is designed to regulate access to the EU market. To understand your specific obligations, contact our experts at office@arws.cz.
• What is the deadline for existing businesses to comply with MiCA?
  Businesses that were already providing crypto-asset services before December 30, 2024, must submit their application for a CASP license to the CNB by July 31, 2025, to continue operating under a transitional period. Missing this deadline will require you to cease operations. For immediate assistance with your application, write to us at office@arws.cz.
• Are NFTs (Non-Fungible Tokens) covered by MiCA?
  Generally, NFTs that are unique and not fungible are excluded from MiCA's scope. However, if an NFT is issued in a large series or is fractionalized, it may be considered a crypto-asset and fall under the regulation. A legal assessment is crucial to determine the status of your specific digital assets. Get a clear legal opinion by emailing us at office@arws.cz.

Are You a Crypto-Asset Service Provider? Identifying Activities That Trigger Licensing Obligations

Under MiCA, a wide range of activities now requires a formal CASP license from the Czech National Bank. It is crucial for foreign businesses to understand whether their operations, even if ancillary to their main business, fall within this new regulatory perimeter.

Regulated services explicitly include:

• Operating a trading platform for crypto-assets.
• Exchanging crypto-assets for fiat currency (like EUR or CZK) or other crypto-assets.
• Providing custody and administration of crypto-assets on behalf of clients (e.g., offering digital wallets).
• Execution of orders for crypto-assets on behalf of clients.
• Providing advice on crypto-assets.

The Accidental CASP and the Operational Minefield

A significant risk for foreign companies is becoming an "accidental CASP." A business that does not consider itself a "crypto company" could inadvertently trigger these licensing obligations. For instance, a software company that develops a platform allowing its users to transact with each other using a proprietary token could be seen as operating an exchange or providing custody services, thus requiring a license.

However, the most common and perilous trap for a standard business is not licensing, but the severe compliance obligations triggered by simply accepting a cryptocurrency payment. While accepting Bitcoin for a product or service does not automatically make you a CASP, it immediately classifies your business as an "obliged entity" under the stringent Czech AML Act (Act No. 253/2008 Coll.).

This means your company is legally responsible for implementing a robust Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) program. You must conduct due diligence on the source of the crypto funds you receive. Given the pseudo-anonymous nature of many crypto transactions, verifying that a payment does not originate from criminal activity or a sanctioned entity is a complex technical and legal challenge. Failure to do so exposes your legitimate business to the risk of facilitating money laundering, resulting in severe penalties and catastrophic reputational damage.

Licensing and Operational Risks for Foreign Companies

Risks and Penalties	How ARROWS Helps
Operating without a required CASP license: Leads to fines up to €14.1 million, business shutdown, and being blacklisted across the EU.	Regulatory Assessment: We analyze your business model to determine your exact licensing obligations under MiCA. Start your assessment by writing to office@arws.cz.
Insufficient Share Capital: Failure to meet MiCA's minimum capital requirements (€50,000-€150,000+) results in license rejection.	Corporate Structuring: Our team advises on the optimal legal structure and capitalization for your Czech entity (s.r.o.). Get tailored legal solutions by writing to office@arws.cz.
Lack of Local Substance: Not having a physical office or a Czech-resident director can block your license application.	Full-Service Company Formation: We manage the entire process of establishing your Czech presence, including office registration and director appointments. For immediate assistance, write to us at office@arws.cz.
Rejected "Fit and Proper" Test: Management's background check fails, halting the entire licensing process.	Documentation Preparation: We prepare and vet all "fit-and-proper" declarations for your management team to ensure a smooth application process with the CNB. Our lawyers are ready to assist you – email us at office@arws.cz.

 

The High Cost of Getting It Wrong: Penalties for MiCA and AML Non-Compliance

The new regulatory framework is backed by significant enforcement powers. Both the EU and Czech legislators have made it clear that non-compliance will have severe consequences, moving far beyond administrative fines to include measures that can cripple a business.

Financial Penalties

The financial penalties for violating MiCA are substantial and designed to be a powerful deterrent. For legal entities, the Czech National Bank can impose fines of up to CZK 355,425,000 (approximately €14.1 million) or 15% of your total annual turnover, whichever is higher.1 These penalties can be applied for a range of violations, from operating without a license to failing to meet market conduct rules.

Separately, breaches of the AML Act carry their own set of severe fines. These can be imposed for failures such as not having a proper internal AML policy, failing to conduct customer due diligence, or not reporting a suspicious transaction to the Financial Analysis Office (FAO).

Operational Consequences

Beyond financial penalties, the CNB has the authority to take direct operational action against non-compliant firms. This includes the power to issue an order for the immediate cessation of all business activities, effectively shutting down your operations in the Czech Republic and, by extension, the EU. The CNB can also freeze company assets to prevent their dissipation during an investigation.

Furthermore, non-compliant firms can be publicly named on a register maintained by the European Securities and Markets Authority (ESMA), creating lasting reputational damage and acting as a warning to potential partners and customers across the Union.

Recent enforcement actions across Europe demonstrate that regulators are not hesitant to use these powers. In 2024, the Dutch Central Bank imposed a €2.85 million fine on Crypto.com for operating without registration. Similarly, Lithuania's Financial Crime Investigation Service fined payment provider Payeer €9.3 million for severe breaches of AML regulations and facilitating sanctions evasion. These cases underscore the real and present danger of regulatory action in the EU.

The Taxman Cometh: Navigating Corporate Tax and VAT on Cryptocurrency Transactions

Accepting cryptocurrency payments introduces significant tax and accounting complexities that foreign businesses must navigate carefully. A fundamental challenge arises from the mismatch between how crypto functions technologically—as a medium of exchange—and how it is classified by Czech tax authorities.

Czech law does not recognize cryptocurrencies as legal tender or currency. Instead, for tax and accounting purposes, they are treated as an intangible asset, akin to inventory or goods. This classification has profound implications. Every time your business receives a crypto payment, it is not legally receiving money; it is engaging in a barter transaction—exchanging your goods or services for an intangible asset.

This creates several critical challenges:

• Valuation: You must determine the fair market value of the cryptocurrency in Czech Koruna (CZK) at the exact moment of the transaction for revenue recognition. Given crypto’s high volatility, this requires a robust and consistent valuation methodology.
• Accounting: The crypto received must be recorded on your balance sheet as an asset.
• Realization: A second potential taxable event occurs when you later sell the cryptocurrency for fiat currency or exchange it for another asset. Any appreciation in value between the time you received it and the time you dispose of it is subject to corporate income tax.

Corporate Income Tax (CIT)

Any profit your company realizes from transactions involving cryptocurrencies is subject to the standard Czech corporate income tax rate of 21%. This includes the profit margin on the goods or services sold as well as any capital gains from holding and later selling the cryptocurrency at a higher value. Meticulous record-keeping is essential to accurately calculate these gains.

Value Added Tax (VAT)

The VAT treatment of cryptocurrency is nuanced. Based on a key ruling by the Court of Justice of the European Union (CJEU), the act of exchanging cryptocurrency for a traditional fiat currency (or vice versa) is considered a financial service and is therefore exempt from VAT.

However, this exemption does not apply when you accept crypto as payment for your products or services. In that case, your transaction is subject to the standard VAT rules. You must calculate and remit VAT based on the market value of the goods or services supplied at the time of the transaction, denominated in CZK.

Critical Tax and Financial Reporting Risks

Risks and Penalties	How ARROWS Helps
Incorrect VAT Calculation: Applying VAT incorrectly on crypto-paid services, leading to penalties from the Financial Administration.	Tax Structuring Advice: We provide clear legal opinions on the correct VAT treatment for your specific transactions. Need legal help? Contact us at office@arws.cz.
Improper Income Recognition: Failing to correctly value crypto payments at the time of receipt, causing inaccurate CIT filings and potential audits.	Legal & Financial Coordination: We work with your finance team to establish compliant valuation and reporting procedures. Get tailored legal solutions by writing to office@arws.cz.
Audit by Financial Administration: Czech tax authorities are actively inspecting crypto-related income, and poor record-keeping can lead to significant fines.	Drafting Legally Required Documentation: We help prepare the necessary documentation to defend your tax position during an inspection. Do not hesitate to contact our firm – office@arws.cz.
Failure to Report: Forgetting to declare profits from crypto holdings on your corporate tax return.	Comprehensive Legal Consultation: Our lawyers ensure you understand all your tax obligations related to digital assets. For immediate assistance, write to us at office@arws.cz.

 

A Global View from Prague: How Czech/EU Crypto Rules Compare to the US, UK, and Switzerland

For a multinational company, understanding the global regulatory landscape is key to making strategic decisions. The EU's approach with MiCA is comprehensive and harmonized, but it differs significantly from other major financial centers.

A common misconception among foreign businesses is that they can engage in regulatory arbitrage—choosing a jurisdiction with lighter rules to serve clients in a stricter one. This is a dangerous illusion. MiCA and associated EU AML laws have an extraterritorial effect. If your business provides crypto-asset services to clients in the EU, you are subject to EU rules, regardless of where your company is incorporated. Attempting to circumvent MiCA by operating from offshore without an EU license is a direct route to being blacklisted and facing enforcement actions.

Here is a brief comparison of the regulatory approaches:

• European Union: MiCA creates a harmonized, bespoke framework. It provides a single license and passport for all 27 member states, offering unparalleled market access but demanding high compliance standards.
• United States: The US has a fragmented, enforcement-led system. A persistent jurisdictional conflict between the Securities and Exchange Commission (SEC), which often views crypto as securities, and the Commodity Futures Trading Commission (CFTC), which sees them as commodities, creates significant legal uncertainty for businesses.
• United Kingdom: The UK is taking a phased approach, choosing to integrate crypto-asset activities into its existing, world-class financial services framework (the Financial Services and Markets Act) rather than creating a separate regime like MiCA.
• Switzerland: Switzerland applies a "technologically neutral," principles-based approach. It regulates crypto activities based on their economic function under existing financial market laws, overseen by the Swiss Financial Market Supervisory Authority (FINMA).

Our international law firm operating from Prague, European Union, is uniquely positioned to navigate these differences. Through the ARROWS International network, built over 10 years of cross-border collaboration, we provide clients with coordinated legal advice that covers the intricacies of each of these key jurisdictions, ensuring a coherent global compliance strategy.

FAQ – Legal tips about cross-border compliance

• Can my US-based company provide crypto services to Czech clients without a MiCA license?
  No. To legally offer regulated crypto-asset services to clients in the Czech Republic or anywhere else in the EU, your company must obtain a CASP license from a competent authority in an EU member state, such as the Czech National Bank. Need to structure your EU market entry? Contact us at office@arws.cz.
• How does the EU's "Travel Rule" for crypto transfers affect my business?
  The EU has implemented the Financial Action Task Force's (FATF) "Travel Rule" via the Transfer of Funds Regulation (TFR). This requires crypto-asset service providers to collect and transmit information on the originator and beneficiary of every crypto transaction, regardless of the amount, to prevent illicit flows. Our lawyers can help you implement compliant procedures. Get tailored legal solutions by writing to office@arws.cz.
  

Your Strategic Compliance Plan: How ARROWS Secures Your Crypto Operations

Navigating this new regulatory environment requires a proactive and strategic approach. At ARROWS, we view compliance not as a burden, but as a critical foundation for sustainable growth and a competitive advantage in the European market. We partner with our clients to implement a clear, three-step plan to secure their crypto operations.

Step 1: Comprehensive Regulatory Assessment

Our engagement begins with a deep analysis of your business model. We determine your precise obligations under MiCA, the Czech AML Act, and relevant tax laws. This initial assessment is crucial for identifying hidden risks. For example, businesses dealing with stablecoins (e-money tokens) can fall into a "dual licensing trap," potentially requiring authorization under both MiCA and the EU's revised Payment Services Directive (PSD2), a complex and costly scenario many overlook.

Step 2: Drafting and Implementation of Internal Policies

Based on the assessment, we draft the robust, legally required documentation necessary for compliant operations. This includes tailor-made AML/KYC policies, a written risk assessment, and clear procedures for identifying and reporting suspicious transactions to the Czech Financial Analysis Office (FAO). These documents are not templates; they are customized to your specific business activities and risk profile.

Step 3: Corporate, Licensing, and Tax Structuring

We provide comprehensive legal advice on establishing your presence in the Czech Republic, managing the entire CASP licensing process with the CNB, and structuring your operations for maximum tax efficiency. Our services in this area include preparing all corporate documentation, advising on capital requirements, and representing your firm before all relevant public authorities. We also offer professional training for your employees and management, ensuring your team understands its AML/CFT obligations and can implement your internal policies effectively.

Hidden Dangers in Crypto Payments

Risks and Penalties	How ARROWS Helps
"Hidden" PSD2 Licensing Trap: Your stablecoin operations are unexpectedly classified as a payment service, requiring a second, costly license.	Legal Analysis: We conduct an in-depth analysis to determine your exposure to dual MiCA/PSD2 obligations. Want to understand your legal options? Email us at office@arws.cz.
Receiving Sanctioned Funds: Unknowingly accepting crypto from a sanctioned wallet, exposing your company to severe international penalties.	AML/CFT Policy Drafting: We design robust internal policies, including sanctions screening procedures, to protect your business. Do you need a policy prepared? Contact us at office@arws.cz.
Violation of the "Travel Rule": Failing to collect and transmit required sender/beneficiary data for crypto transfers, a breach of the Transfer of Funds Regulation (TFR).	Compliance Training: We offer professional training for your management and staff on TFR and other critical AML rules. Our lawyers are ready to assist you – email us at office@arws.cz.
Disputes Over Volatile Payments: A client pays with crypto whose value drops significantly before settlement, leading to commercial disputes or litigation.	Contract Drafting & Review: We draft clear, enforceable terms and conditions for crypto payments to mitigate dispute risk. Need legal representation? Write to office@arws.cz.

 

Conclusion: Your Expert Legal Partner in the European Union

The new crypto landscape in Europe is defined by a complex web of licensing, AML, and tax regulations. For any foreign business engaging with digital assets, expert legal guidance is not an option—it is essential for survival and success. The risks of non-compliance are severe, ranging from multi-million-euro fines to the complete shutdown of your European operations.

ARROWS is the premier leading Czech law firm in Prague, EU, combining deep knowledge of local law with the global perspective required to manage these complex, cross-border matters. Through our dedicated experts and the reach of the ARROWS International network, we provide the high-quality, speedy, and practical legal solutions necessary to protect your business and ensure compliance from day one.

The new regulations are challenging, but they also create a more stable and transparent market for legitimate businesses to thrive. Let us be your trusted partner in navigating this opportunity. To discuss your specific situation, do not hesitate to contact our expert team at office@arws.cz.

FAQ – Most common legal questions about cryptocurrency payments in the Czech Republic

• If my company only accepts a few Bitcoin payments per year for our products, do we really need to worry about all these regulations?
  Yes, absolutely. Even a single crypto transaction makes your company an "obliged entity" under the Czech AML Act. You are legally required to have an internal AML policy, conduct due diligence on the transaction, and be prepared to report it if it appears suspicious. The penalties for failing to do so are severe, regardless of volume. For a tailored risk assessment, please write to us at office@arws.cz.
• What is the difference between a "crypto-asset" under MiCA and a "virtual asset" under the Czech AML Act?
  This is a key point of potential confusion. The terms are used in different laws and have slightly different scopes. "Crypto-asset" is the term used in the EU's MiCA regulation for licensing purposes, while "virtual asset" is used in the Czech AML Act for anti-money laundering obligations. Our legal team can provide a clear analysis to ensure you comply with both frameworks correctly. To clarify your specific situation, contact us at office@arws.cz.
• How are profits from crypto-to-crypto trades taxed for a corporation in the Czech Republic?
  A crypto-to-crypto trade (e.g., exchanging Bitcoin for Ethereum) is considered a disposal of one asset and the acquisition of another. This is a taxable event. Your company must calculate the profit or loss on the disposal of the first crypto-asset based on its market value at the time of the trade. This profit is subject to corporate income tax. Need help with your tax structuring? Email us at office@arws.cz.
• Can ARROWS help my company obtain the necessary CASP license from the Czech National Bank?
  Yes. ARROWS provides a full-service solution for CASP licensing. We manage the entire process, from initial corporate structuring and drafting the extensive application documentation to liaising directly with the Czech National Bank on your behalf to ensure a smooth and successful authorization. For immediate assistance with your licensing needs, write to us at office@arws.cz.
• My business deals with e-money tokens (stablecoins). What are the specific risks I should be aware of?
  Stablecoins carry unique risks. Under MiCA, they are deemed to be "electronic money," which can trigger obligations under the EU's Payment Services Directive (PSD2). This could require your business to obtain a second, separate license as a Payment Institution, a complex and costly undertaking. This "dual licensing" trap is a significant hidden risk. Get a definitive legal analysis of your stablecoin operations by contacting us at office@arws.cz.
• Besides legal advice, how else can ARROWS support my business's entry into the Czech market?
  As a leading law firm with deep roots in the Czech business community, we do more than provide legal services. We often connect our international clients with potential local business or investment partners, helping to facilitate growth and integration into the market. We welcome innovative business ideas and are committed to our clients' long-term success. To discuss how we can support your venture, do not hesitate to contact our firm – office@arws.cz.

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