How do You Pay Taxes on a Cryptocurrency in Estonia?
The trade of cryptocurrency is gaining in popularity, and buyers may wonder: do cryptocurrency taxes have to be paid, and if so, when? The Tax and Customs Department of Estonia clarifies this issue as follows:
In summary, the tax obligation arises in three cases:
- When converting cryptocurrency to ordinary currency;
- The exchange of a cryptocurrency for another cryptocurrency;
- Using cryptocurrency to pay for goods and services.
In the case of cryptocurrency, only transactions with income are taxed, and each transaction should be evaluated separately.
Earned income is the difference between the acquisition value and the sale price of the cryptocurrency. In this case, the purchase price or the income generated should be converted to euros, taking into account the exchange rate of the cryptocurrency in effect on the date of receipt of the income or expenditure. If the transaction was made on market terms, the exchange rate in the transaction environment may be used. If, however, the euro is not used in the transaction environment, the income should be converted.
Exchange of one cryptocurrency for another should also be based on market price and earned income, that is, profit.
When paying for goods or services by cryptocurrency, you should calculate the earned income, that is, the difference between the price of the received good or service and the cryptocurrency used.
It is important to note that the conversion of cryptocurrency and previously taxable income (e.g., wages, dividends, members of the board) in the ordinary currency, or the use of such income to purchase various goods and services, does not entail additional tax liability: for example, if the electronic wallet containing the cryptocurrency person receives from the mutual partnership X a wage of 0 for February,05 bitcoin, declared by the enterprise and with which labour taxes have already been paid on the basis of the market price. If a person has used a salary in his electronic wallet of 0.05 bitcoin to purchase various goods and services, he is not obliged to declare it.
If an individual is engaged in the development of a cryptocurrency, the proceeds should be declared as business income. The development of a cryptocurrency is an entrepreneurial activity and is taxed on the same basis as the production of a commodity. The tax obligation arises from the benefit derived from the alienation of the cryptocurrency at the time of its sale or exchange. A person who continuously develops a virtual currency must register with the Business Register and act as an individual entrepreneur (FIE) or through a business partnership. A registered FIE may deduct from business income and also declare expenses incurred in generating business income (for example, equipment, electricity, etc.). An individual may not deduct from income expenses incurred to generate income from the development of a cryptocurrency. FIE should point out that cryptocurrency cannot be credited to a special account used to defer tax duties. In addition, it is possible to invest in cryptocurrency through a commercial partnership, in which case the taxation rules applicable to a commercial partnership should be taken into account.