CRYPTOCURRENCY TURNOVER TAX
Cryptocurrency transactions are not subject to turnover tax. On October 22, 2015, the European Court determined (case C-264/14) that Article 135 (1), par. 1, Turnover Tax, of the Directive should be interpreted in such a way that the exchange of a virtual currency for a conventional currency and vice versa and (fiat) currency exchange services are tax free.
CRYPTOCURRENCY INCOME TAXATION
In case of virtual currency, the income may be taxable in the following cases:
- virtual currency price changes when buying and selling/exchanging virtual currency
- virtual currency mining
- receipt of payment in virtual currency for performed works
Income in virtual currency is taxable similarly to income in conventional currency. For the purpose of taxation, the virtual currency purchase price or the income shall be converted to euros based on the current exchange rate (market price) on the transaction date or on the income receipt date.
Taxation of cryptocurrence transactions
- Virtual currency is considered as property within the meaning of Art. 15, par. 1 of the Income Tax Law (ITL).
- Only profit (Art. 37) from the sale or exchange of alienated property items (Art. 15. par. 1 of the ITL) is subject to income tax – that is the income tax is imposed on the income received from alienation of virtual currency, including exchange.
- Profit or loss from the sale of property is the difference between the purchase price of the property being sold and its sale price. Profit or loss from the exchange of property is the difference between the purchase price of the property being exchanged and the market price of the property acquired by exchange (Art. 37, par. 1).
1) When buying/selling cryptocurrency, taxable profit shall be calculated using the following formula:
sale price – purchase price – costs directly related to the sale = profit subject to income tax in case of profit distribution.
2) When exchanging cryptocurrency, taxable profit shall be calculated using the following formula:
market price of the property acquired by exchange – purchase price of the asset being exchanged – costs directly related to the exchange = profit subject to income tax in case of profit distribution.
Mining as such (activity) is not subject to taxation, and the registration of a person liable to taxation is not required. If an individual is carrying out virtual currency mining or data processing independently and the received income is tax free, the individual shall declare one’s income as a business income and pay taxes on the basis of the tax statement.
An individual carrying out virtual currency mining shall be registered as an individual entrepreneur or as a limited liability company (OÜ). The registered individual entrepreneur or OÜ can deduct the expenses incurred to obtain business income (for example, the cost of farms, the cost of renting premises for mining, the electricity costs, etc.) from the business income and declare such expenses.
The specialists of Company in Estonia OÜ will be happy to assist you in obtaining a cryptocurrency license in Estonia.