TRANSACTION TAX ON CRYPTOCURRENCIES
Turnover tax does not apply to cryptocurrency transactions. Article 135 (1), par. 2 of the Constitution is enforceable. The European Court held (case C-264/14) that it is enforceable. In accordance with Article 1 of the Directive, Turnover Tax is interpreted to apply to the exchange of a virtual currency for a conventional currency and vice versa, as well as to services related to currency exchanges (fiat currencies).
INCOME TAXATION ON CRYPTOCURRENCIES
The following situations may trigger taxation of virtual currency income:
- Purchasing and selling virtual currencies/exchanging virtual currencies can affect the price of the currencies
- The mining of virtual currencies
- Payment for performed work in virtual currency
In the same way that conventional currency income is taxable, virtual currency income is taxable as well. Taxation will be based on the exchange rate (market price) on the date of the transaction or income receipt when the virtual currency purchase price or income is converted to euros.
Transactions involving cryptocurrencies are taxed
- In accordance with Article 15, par. 2, virtual currencies are considered property. The Income Tax Law (ITL) is governed by section 1.
- There is an income tax only on income received from alienating virtual currency, including exchanges, according to Article 37 of the ITL; in other words, only profits from the sale or exchange of alienated property items are taxable.
- The difference between the purchase price and the sale price of a property is the profit or loss from the sale. A property exchange generates profit or loss based on the difference between the purchase price of the property being exchanged and the market price of the property acquired through the exchange (Art. 37, par. 1).
The following formula shall be used when calculating taxable profit when buying and selling cryptocurrency:
Profit subject to income tax if distributed is the difference between the sale price and the purchase price.
The following formula shall be used when exchanging cryptocurrency to determine taxable profit:
In the case of profit distribution, market price of the asset being exchanged minus purchase price of the asset being exchanged equals profit subject to income tax.
Mining taxation
Taxes are not imposed on mining (activity) as such, and individuals liable for taxes do not need to register. The individual must declare one’s income as a business income and pay taxes based on their tax statement if the individual mines virtual currencies or processes data independently and receives tax-free income.
The person mining virtual currency must be registered as either a limited liability company (OÜ) or as an individual entrepreneur. Registered entrepreneurs or OÜs can deduct expenditures incurred to obtain business income from the business income by claiming such expenses (for example, farm costs, rental costs for mining facilities, electricity costs, etc.).
Obtaining a cryptocurrency license in Estonia and providing accounting services in Estonia can be arranged by the specialists at LKS Consult OÜ.