Cryptocurrency activities for Estonian companies are exempt from value added tax, which allows the company not to become a VAT-obligated entity, but there are still cases that do not fall under this exception.
Exchange of cryptocurrencies to traditional currencies (fiat) or other cryptocurrencies
The exchange of cryptocurrencies, as well as the exchange to fiat, is exempt from value added tax in accordance with § 16 (21) 4) of the Turnover Tax Law.
However, not all services related to cryptocurrency are considered as an exchange service, and it is important to correctly determine whether the company is engaged in providing cryptocurrency exchange services or sells a service by using a third-party platform.
In the first case, the company has no obligation to register as taxable, since the company’s turnover is exempt from value added tax and the crypto-exchange company is not required to have a tax number.
Service for providing access to the platform
The service that provides access to the exchange platform is considered as an electronic service and is subject to value added tax in accordance with the Estonian Turnover Tax Law.
Thus, a company that provides a service for using a cryptocurrency exchange platform is not exempt from paying value added tax and must be registered as taxable and declare its monthly turnover – in a turnover tax return in a form of KMD.
Cryptocurrency Wallet Service
The cryptocurrency wallet service (storage only) is a software that allows you to store other user’s private keys. In this case, the wallet service is of a technological nature and represents technological assistance, which is an electronic service. According to the decision of the European Commission, the wallet service does not fall under the tax deduction, and wallet services provided for remuneration are subject to value added tax, and it is necessary to obtain a VAT number.
Wallet services can also be considered as financial services, if the wallet allows users to both store and make transactions with cryptocurrency. In this case, the wallet service will be subject to value added tax as a financial service in accordance with the Turnover Tax Law. Accordingly, the company that provides wallet services must become taxable and declare its monthly turnover in the Tax and Customs Department in the KMD declaration form.
According to the decision of the European Commission, the extraction of virtual currency as a service to another person falls under the exception provided for in Article 135 (1) (d) of the Directive of the Law on Turnover Tax, which means that mining is not subject to value added tax and is a non-taxable turnover of the company.
In this situation, it is important to point-out that if we are talking about non-taxable turnover, then value-added tax is not deductible for the purchased mining goods, such as the purchase of equipment, payment for electricity consumed and other costs associated with mining.
Due to the fact that mining has been recognized as a non-taxable turnover, the company does not need to obtain a tax number in Estonia.
Registration of a person as a turnover tax obligee in Estonia is mandatory or voluntary.
The obligation to register as a turnover tax obligee arises for a person from the date when the taxable turnover of transactions made by the entity exceeds 40,000 euros from the beginning of the calendar year. (In the case of elector services, when reaching the 10,000 euro mark).
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