How to pay taxes on cryptocurrency?

Cryptographic money trading is gaining more and more popularity, and buyers may wonder if and when they need to pay taxes on cryptocurrency. In short, a tax liability arises in three cases: by converting cryptocurrency into a common currency, exchanging cryptocurrency for another cryptocurrency, or using cryptocurrency to pay for goods or services.

In the case of cryptocurrency, only those transactions from which income is earned are taxed, and each transaction must be assessed separately. For example, if a person bought one Bitcoin for 18,000 euros and sold it for 10,000 euros, he or she does not have to declare the transaction because the person did not earn any income from it. However, if the situation is the opposite, ie a person bought one Bitcoin for 10,000 euros and sold it for 18,000 euros, then the 8,000 euros earned must be declared on the income tax return of a natural person and 20% income tax must be paid on it.

Thus, the income earned is the difference between the acquisition cost and the sale price of cryptocurrency. The purchase price or income received must be converted into euros, taking into account the cryptocurrency exchange rate valid on the date of receipt of income or expense. If the transaction is made on market terms, it is possible to use the exchange rate of the environment in which the transaction took place, and if the transaction environment does not use the euro, the income must be recalculated.

When exchanging one cryptocurrency for another, the market price and earned income must also be monitored. Take, for example, a situation where a person bought two Litecoin for 260 euros, which he exchanged for 0.2 Etherum a few months later. At the time of the swap, the market price of the two Litecoin had risen to € 500. Thus, the person benefited from the exchange transaction in the amount of EUR 240 (ie EUR 500-260), which must be declared and subject to income tax.

Kaupade ja teenuste eest tasumine

Tasudes krüptorahaga kaupade või teenuste eest, tuleb arvutada välja teenitud tulu ehk saadud kauba või teenuse ja kasutatud krüptoraha ostuhinna vahe. Näiteks olukorras, kus isikul oli üks Bitcoin, mille ta soetas 2017. aasta juunis 2500 euro eest ning kasutas seda 2020. aasta detsembris uue auto ostmiseks, mil Bitcoini turuhind oli 30 000 eurot, sai isik auto soetamistehinguga 27 500 eurot (30 000 – 2500 eurot) tulu. Saadud tulu peab isik deklareerima ja tasuma sellelt tulumaksu. Sama arvestusmeetod kehtib ka muude kaupade ja teenuste (nt toidukaubad, tehnika, iluteenus jne) soetamisel.

It is important to note that the conversion of income already received in previously taxed cryptocurrencies (eg salary, dividend, remuneration of a member of the management board) into a common currency or its use to purchase various goods or services no longer entails additional tax liability. For example, if a person’s cryptocurrency in an electronic wallet receives OÜ’s February X salary of 0.05 Bitcoin, which has been declared by the company and for which labor taxes have already been paid on the basis of the market price. If a person used the remuneration received in his wallet in the amount of 0.05 to purchase various goods and services of Bitcoin, he has no further obligation to declare.

Mining of cryptocurrencies

If a private individual mines cryptocurrency, the income must be declared as business income. The mining of cryptocurrencies is a business and is treated equally with the production of goods for tax purposes. The tax liability arises from the gain received at the time of the transfer or sale or exchange of cryptocurrency. A person permanently engaged in the extraction of virtual currency must register in the commercial register and operate through a self-employed person or a company. A registered self-employed person can also deduct from the business income and declare the expenses incurred to obtain the business income, such as equipment, electricity costs, etc. Expenses incurred by a private individual to obtain mining income cannot be deducted. The self-employed person must note that it is not possible to transfer cryptocurrency to the special account used for tax deferral. In addition, it is possible to invest in cryptocurrencies from under the company, in which case the company’s tax rules must be observed.

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John Doe

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