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.
Mining
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.
Conclusion
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).
[vc_row][vc_column][vc_column_text]The obligation to pay income tax may arise in the case of a person/natural person exchanging a cryptocurrency for an ordinary currency or for some other cryptocurrency, as well as in the case of the use of a cryptocurrency to pay for goods and services, if the person earns an income, informs the Estonian Tax and Customs Department in anticipation of the tax declaration period.
It is important to bear in mind, however, that in the case of cryptocurrency, each transaction should be valued separately, since only transactions that generate income are taxed, i.e. profits. The loss incurred in the exchange or sale of cryptocurrency is not included in the tax, so that the loss-making transactions are not declared and do not affect the taxable income of the individual.
Profit on the sale or exchange of a cryptocurrency is defined as the difference between the value of the sale of the cryptocurrency and the value of its acquisition. For example, if a person buys one Bitcoin at a price of 18,000 Euros and sells it at a price of 10,000 Euros, they should not declare the transaction because the transaction is unprofitable (10,000-18,000). When a person buys one Bitcoin for 10,000 Euros and sells it for 18,000 Euros, he earns 8,000 Euros (18,000-10,000). This means that a profit transaction should be declared in the income declaration in Table 6.3 or 8.3 as income derived from the disposition of other property, and income tax at the rate of 20 per cent should be paid on that income.
The cost of acquisition and the price of sale of the cryptocurrency must be converted to euros, taking into account the exchange rate of the cryptocurrency in effect on the date of receipt of income or expenditure. If the transaction was made on market terms, the exchange rate of the medium in which the sale took place may be used.
When exchanging one cryptocurrency for another, it is necessary to control the market price of the transaction and to determine the income received. For example, a person acquires two litecoins worth 260 euros, which a few months later exchange for 0.2 ethers. At the time of the exchange transaction, the market price of the two litecoins rose to 500 euros. As a result of the transaction to exchange the cryptocurrency of a person, a profit of 240 euros (500-260 euros) was made, which has to be declared and with which to pay income tax.
When paying the cryptocurrency for a good or service, the income received is calculated as the difference between the price of purchasing the good or service and the cost of acquiring the cryptocurrency used. For example, in June 2017, people purchased Bitcoin for 2,500 euros. In December 2020, the market price of Bitcoin was already 30,000 euros, and a man used this Bitcoin to buy a new car. Thus, the income from the car purchase transaction was 27,500 euros (30,000-2,500). The income generated should be declared and paid as income tax. The same method of determining taxable income applies to the purchase of other goods and services (for example, food, machinery, beauty services, etc.).
It is important to note that if the income derived from the cryptocurrency and previously taxed by income (e.g., wages, dividends, and the salary of a member of the board) is exchanged for an ordinary currency, and is also used for the purchase of various goods and services, This no longer entails an additional duty to pay taxes. For example, the Estonian employer paid the employee a salary of 0.05 bitcoin for February, the employer declared the salary on the basis of the market price of bitcoin and paid labor taxes. If the salary received by the electronic wallet of 0.05 bitcoin is used to pay for various goods and services, then there will be no obligation to declare income. But if a person decides to invest in the cryptocurrency, each subsequent profitable transaction with the cryptocurrency will entail an obligation to declare and pay income tax.
If a natural person engages in the mining (mining) of cryptocurrencies, the resulting income must be declared as business income. In taxation, a cryptocurrency is equivalent to the production of a commodity. The duty to pay taxes arises from the profits earned at the time of the disposition of the cryptocurrency, i.e. at the time of its sale or exchange. A person who engages in the routinely mainstreamed cryptocurrency must register with the Business Register and act either as an individual entrepreneur (MNP) or through a business association. A registered entrepreneur may deduct from business income expenses incurred to generate business income (e.g., equipment, electricity, etc.). A person who is not registered in the Business Register as an entrepreneur cannot deduct the expenses incurred to earn income from the Cryptocurrency mining.
Cryptocurrency is also used to generate income from steaking (bet). By investing cryptocurrency in a chain of blocks in a blockchain, they essentially block their assets and pay a price for it. The Tax and Customs Department (NTD) views this process as the borrowing of a cryptocurrency. If a person earns income from a steak, that income is actually interest on borrowing a cryptocurrency. It is up to the person to declare the interest earned in the income statement (in part II of table 5.1 in part II or in table 8.1). The interest earned is declared in the income statement, which corresponds to the year in which interest is received.
It is important to note such cryptactin as NFT ( in translation from English language «non-reciprocal token», which is often associated with digital art. The NFT should be taxed on the basis of the content of the transaction from the perspective of both the originator and the buyer. If a person buys and sells NFT for the purpose of generating income, the profits derived from the NFT disposition are subject to declaration as disposition. If the creator of NFT is a natural person, each time receives a fee from the resale, this fee is a royalty. Royalties must be declared as royalties in the income declaration.
Since most transactions with cryptocurrency are cross-border, it is international cooperation that is an essential part of risk information exchange, explained NTBs. To date, STD considers the exchange of information with foreign countries to be effective. States are aware that successful cooperation contributes to the better and early identification of those who have taken their activities abroad and whose tax behavior does not conform to the norm.
The practice of NTD in cryptocurrency tax cases is increasing, with NTD handling an increasing number of cryptocurrency tax cases. Moreover, in addition to NTD’s own practice, there is also jurisprudence on the mine of cryptocurrency, where the commercial association has obtained a tax advantage in the form of an unjustified deduction of the entry tax on turnover. NTD has also dealt with cases in which data obtained from foreign cryptocurrency exchange platforms, as well as data from settlement accounts opened in credit institutions of foreign countries, have been the subject of verification.
The NTD can retroactively impose a tax payable for up to three years and, in case of willful non-payment, up to five years. In addition to the amount of taxes not paid on time, the rate of interest is 0.06 per cent per day.
LKS Consult OÜ provides accounting services and legal advice on taxation. If you have any questions about taxation in the cryptocurrency area, please contact our specialist, and we will answer all your questions.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text]The trade in cryptocurrency is a growing trend that is gaining in popularity. Although cryptocurrency has been used worldwide for more than a decade, trading virtual money can still be considered a new way of earning income.
At the same time, many traders may not know how the income thus generated is taxed. This article explains how a natural person is required to declare income received in cryptocurrency or earned from trade in cryptocurrency.
Cryptocurrency can generate income in a variety of ways – for example, by buying, exchanging, mining, and then selling or trading, accepting as payment the goods or services sold. Although the virtual currency is developing rapidly and is increasingly used as a means of payment, there are no specific rules for the taxation of transactions involving cryptocurrency. Consequently, all transactions involving crypto assets must be treated in accordance with the law in force.
Cryptocurrency trade
The most popular trade was in cryptocurrency. In trading, it must be borne in mind that the virtual currency is treated as property within the meaning of Article 15, Part 1 of the Income Tax Act, which means that the income tax must be paid with the benefit derived from the sale and exchange (alienation) of the currency. The benefit is equal to the difference between the price of purchase and sale of the cryptocurrency (article 37, part 1, of the Income Tax Act), for which the value of the virtual money should be converted into euros at the exchange rate in effect on the date of receipt of the income or expenditure. Conversion uses either the common exchange rate of cryptocurrencies or, in the case of a market-based transaction, the exchange rate of the medium in which the transaction was made.
The benefit derived from the disposition of the cryptocurrency should be reflected on lines 6.3 or 8.3 of the income declaration table as the benefit of disposition of other property separately for each transaction.
Only sales or exchange transactions from which a benefit has been obtained should be declared. From the taxable benefit, that is, the difference between the price of buying and selling in euros, it is possible to deduct the transaction payments, but unlike securities, in the case of cryptograms, the loss from the foreclosure cannot be deducted. In addition, in the case of cryptocurrency, it is not possible to use an investment account system that would allow the deferral of the income tax obligation.
Mining
Mining a cryptocurrency is considered an entrepreneurial activity in which taxable income arises when the cryptocurrency acquired by mining is alienated, that is, exchanged for an ordinary or some other cryptocurrency, or if it is used to pay for certain goods or services. In the case of private individuals, the taxable income is the value of the currency received in exchange in euros. Payment for goods or services in cryptocurrency is based on the euro exchange rate in effect on the day of the transaction.
Since mining cryptocurrency usually involves significant costs, it is important to note that an individual is unable to deduct them from his taxable income.
If a natural person wishes to engage in the business on a permanent basis, he or she must register as an individual entrepreneur in the Business Register or register a business partnership. This gives the right to declare the costs incurred in obtaining business income and deduct them from taxable income. At the same time, tax liabilities associated with relevant forms of business need to be taken into account. The income generated by the commercial mining of cryptocurrency should be declared as business income in form E of the income declaration.
Earnings in virtual currency
Employers already often want to pay workers in virtual currency. In this case, the tax is based on the same principle as in the payment of ordinary wages, i.e., the employer must deduct all taxes on labour from wages. The payment must be converted to euros on the basis of the market price on the day the salary is paid, and the amount is declared in the appropriate annex of the declaration on the form TSD. The taxable income already paid to the employee does not create an additional tax burden, even if the market price of the virtual currency increases after the payday.
If an individual receives remuneration for work from which taxes have not been withheld, the income is converted to euros on the basis of the exchange rate in effect on the date of receipt and the income is declared as business income.
[vc_row][vc_column][vc_column_text]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.
Many enterprises fail to obtain licenses from the financial regulator of the city-state.
Crypto entrepreneurs lured into Singapore by a clear openness to the growing industry are beginning to realize how difficult it is to work legally in a city-state.
Singapore strictens its regulations towards crypto licenses
The regulation of cryptocurrency in Singapore is primarily concerned with the introduction of improved standards for service providers associated with crypto assets. Views have been expressed around the world that a vibrant digital asset market is a potential haven for money-laundering and the financing of terrorism. Blockchain security studies conducted in 2020 show that 56% of digital currency services have weaknesses in KYC and AML controls. Therefore, regulators need to pay more attention to decentralized finance. Hence, the new FATF recommendations on Anti-Money Laundering/Combating the Financing of Terrorism (POD/FT) for digital assets.
Given that the regulation of cryptocurrency in Singapore is relatively high compared to many other jurisdictions, the government responded immediately to the new recommendations and drafted amendments to the PSA Payment Services Act, enacted in 2019. (entered into force in January 2020).
Key changes:
Introduction of improved standards for virtual asset service providers
The right of MAS to regulate market crypto participants who do not have their own cryptocurrencies
Tighter control of proper implementation of AML/CTF rules with careful monitoring of transactions
Improved consumer protection with risk notification
Separation of clients’ assets from those of the service provider itself
In the government’s view, such regulation of cryptocurrency in Singapore would allow MAS to respond quickly and in a timely manner to all changes in the cryptocurrency industry, maintaining the stability of the state’s financial system. The monetary authority of a country is being extended to ensure effective fiscal policy and a high level of consumer protection.
Together with tighter enforcement of AML/CTF, the new legislation will allow MAS to exercise oversight not only over Singaporean crypto companies, but also globally over organizations that are based outside the jurisdiction and conduct cryptocurrency business. In addition, technology risk management requirements for financial institutions have been developed, as well as a dispute resolution procedure that provides crypto clients with an accessible way to resolve disputes.
Hence, here are the main disadvantages of starting crypto business in Singapore:
In the light of recent legislative developments, Singapore is only suitable for certain platforms whose tokens are not securities.
Expensive legal services.
Strict AML-legislation. It is a set of measures to ensure the fight against illegal money trafficking and the financing of extremist organizations.
The need to obtain a MAS license. This takes time and effort, registration implies a number of essential requirements.
Estonian jurisdiction has something to offer
Only one cryptocurrency license is required to legalize any crypto-activity in Estonia. This strengthens its position among the most preferred jurisdictions to launch a crypto-project.
Estonia is 99% digitalised, thereby offering unlimited opportunities to entrepreneurs. The favorable tax system, innovative e-Residency programme, fintech opportunities, advanced business ecosystem, rich talent pool— that’s just the beginning of what to expect from the Estonian business environment.
More and more people are entering the Estonian business market by investing in cryptocurrency, and it is undoubtedly worthwhile: the country welcomes every aspiring entrepreneur.
In less than 3 years, Estonia has issued more than 2,000 cryptocurrency licenses (400 active as of now), thereby strengthening its position among the most preferred jurisdictions for launching a blockchain project.
Globally, Estonia has been selected as a favorable ecosystem for building startups, offering a 0% income tax rate. In addition, it is necessary to take into account the following favorable characteristics of doing business in Estonia: minimal bureaucracy, digitisation of doing business, online company registration, and low administrative costs. Let us remind you that for a completely remote management of your company from anywhere in the world, you can use an electronic resident card.
The IT jurisdiction of Estonia is considered one of the most crypto-lenient of its kind (read our comparative analysis here) with facilitated conditions for obtaining a license for the exchange of cryptocurrency in the blockchain technology industry. In other words, the so-called single cryptocurrency license is an official permission to conduct a regulated cryptocurrency business in Estonia.
Many new cryptocurrency and trading platforms are created every day, and a significant part of them have received their license in Estonia, since the local order presupposes an easier process of obtaining a crypto-license, compared to the similar process in other countries.
Required documents for applying for a crypto-license in Estonia:
A Member of the company’s Board can apply for a cryptocurrency license in Estonia. An application for a license can be submitted electronically with an e-resident card, when visiting a notary in Tallinn, or by issuing a power of attorney to a representative of LKS Consult OÜ , so that our lawyer can submit the application for you.
The state fee for an application for a license is 3,300 EUR. The fee must be paid to the Estonian Ministry of Finance(FIU). The issue of a license is decided by the Rahapesu andmebüroo (RAB) within 60 working days after the application is submitted.
Taking into account the needs of customers from all over the world, LKS Consult OÜ has developed an all-in-one offer “Company & Crypto-License in Estonia”, which includes registration of an Estonian company plus all the necessary services for obtaining a single crypto-license.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text]The topic of cryptocurrency and taxes is relatively new from the point of view of taxation in Estonia and despite the fact that crypto assets are not specifically mentioned anywhere in Estonian tax legislation, they are regulated by ordinary tax rules, because the company’s turnover is taxed. This means that it is legal to trade, own and store crypto assets in Estonia.
NFT is the same asset as other cryptocurrencies. The only difference is that it is not necessary to use the FIFO method or the weighted average method, because NFT is distinguishable, and the value of the acquisition and the cost of selling each particular crypto of the asset is known. According to the Estonian Tax Department, The tax exemption on movable property does not currently apply to the NFT because the Estonian Tax and Customs Department considers that the NFT cannot be used for personal purposes, but this may change in the future.
The sale of NFT tokens is an electronic service subject to a value-added tax. The VAT rate is 20 per cent or 0 per cent, depending on the specific situation. It is important to bear in mind that taxation arises only when a company is registered as having a sales tax obligation. Obligation to register as a sales tax liability arises when the company is liable for a turnover of 40,000 euros from the beginning of the calendar year. Please note that sales tax payers can register before reaching a turnover of €40,000.
In order to find out at what rate the sale of NFT tokens will be charged, we recommend you to contact our specialist for individual advice.
However, if NFT is sold to persons of another EU state who are not registered as liable for sales tax, and if the total turnover of all EU countries by such legal persons has reached 10,000 euros, it is either necessary to register as a sales tax liability in each of the states where the partner is operating, or to register in Estonia as a sales tax liability and join the OSS system.
How do companies declare taxes on cryptocurrency?
VAT tax returns are filed every month up to the 20th day with the Estonian Customs Department.
The profit from the sale of NFT to the Estonian Company is taxed only if it is distributed. As long as these funds are not withdrawn from the company through dividends or any other means of distributing profits, the transaction is tax-exempt.
Also, if in the case of the business of the Estonian Company, some transactions are profitable and some are unprofitable, when filing the declaration the company can account for losses, thereby reducing the tax burden. As long as the company does not distribute dividends, no tax is levied. Income and social tax returns are filed before the 10th of each month.
In addition, income tax may be levied, for example, on special benefits or on payments and expenses not related to the business of the company, as well as in case of expenses for gifts and donations and for reception of guests and business partners.
How do individuals declare taxes in cryptocurrency?
Individuals in Estonia file their tax returns once a year. No other interim declaration is required by tax legislation. The annual declaration should state:
Transaction date
Purchase price
Sale price
Only transactions that make a profit are declared, and the tax rate is always 20 per cent. Loss-making transactions are not counted. It is also important to note that crypto assets are not equities, which means that an investment account cannot be used to delay any tax claims, as crypto assets do not fall within the legal definition of shares/securities.
For detailed advice on the taxation of NFT tokens in Estonia and other accounting services in Estonia, we recommend contacting the accountant or tax consultant of LKS Consult OÜ .[/vc_column_text][/vc_column][/vc_row]
Since December is the most magical time of the year, our team has prepared a special offer for all of our clients. Due to the upcoming holidays, during this month we are providing several discounts for the services you order.
(This offer is available until 31st of December of 2021)
[vc_row][vc_column][vc_column_text]When applying for a single cryptocurrency license, a KYC/AML Officer is required for an Estonian company.
As part of the fight against financial crime, governments around the globe require financial institutions to implement Anti Money Laundering (AML) programs to combat money laundering. In order to monitor internal anti-money laundering policies and comply with important regulations, banks and other financial institutions will designate an AML Compliance Officer.
Role
A Compliance Officer is responsible for implementing the prescribed regulations at the institutional level. The specialist’s professional focus is set on the internal systems and controls that an institution uses to detect, monitor, and report money laundering activities to authorities. The main task of a KYC/AML Officer is to ensure that an organisation is not exposed to criminal risk and does not inadvertently contribute to financial crime.
The KYC/AML procedures is a necessary document to apply for a single crypto-licence in Estonia. The following documents must be included in KYC/AML procedures:
Identification of clients – requirements for the provision of documents, source of wealth, proof of address of residence.
Means of verification of documents provided by clients.
Verification of the validity of documents of natural persons.
Requirements for the storage of documents provided by clients.
Duties
Assist in the development, implementation, and maintenance of an anti-money laundering program of the respective institution.
Organisation of collection and analysis of information on suspicious transactions or transactions where there is a risk of money laundering or terrorist financing.
Submission of written statements on compliance with the requirements of the law to the management of the virtual currency exchange service provider or the virtual currency wallet service provider entered into the Estonian Commercial Register.
Maintenance of High-Risk customer records and reporting suspicious activity to authorities.
Reporting to the Financial Intelligence Unit (Rahapesu andmebüroo) in case of suspicion of money laundering or terrorist financing.
Development and maintenance of a risk assessment system for products and service and customers, as well as for other issues related to money laundering.
Monitoring and implementation of an ongoing AML training program for other employees.
Briefing and reporting to senior management on internal AML policies and procedures.
Organisation of third-party inspections and audits, and development of compliance guidelines.
Requirements for a candidate
The board appoints a person to act as the regulator’s contact point (hereinafter AML officer). The AML officer is directly responsible to the board and has the competence, means and access to relevant information in all structural units of the crypto company;
Only a person with the education, professional aptitude, abilities, personal qualities, experience and impeccable reputation necessary for the performance of AML duties may be appointed as such;
The appointment of an AML officer is coordinated with the regulator, who is entitled to receive a variety of information from different sources in order to test the suitability of the AML officer candidate for compliance;
LKS Consult OÜ offers the services of an experienced KYC/AML Officer (an Estonian citizen) with knowledge of all relevant Estonian requirements and laws for your cryptocurrency project.
If your company has a contact person, LKS Consult OÜ can offer the training course on Money Laundering and Terrorist Financing Prevention Act. We offer full support on all stages of developing your business, and offer a variety of services, including accounting services in Estonia.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text]Estonian Tax and Customs Board maintains transparency in the cryptocurrency user environment and identifies individuals and businesses that do not conduct their business in an honest manner. Since most cryptocurrency transactions are cross-border, it is international cooperation that is becoming an essential part of information-sharing in the area of cryptocurrency risk.
Customs Board can determine a tax amount with a retroactive effect for a period of three years and, in the case of a deliberate non-payment of the tax amount, up to five years. In addition, it should be borne in mind that an intranet would be added to the unpaid taxes. It should also be noted that the presentation of false data in the tax return is a misdemeanour for which an individual can be punished with a fine of up to 1,200 euros and a commercial association – up to 32,000 euros.
If the false data is presented with the purpose of reducing the tax obligation and there is a concealment of a tax obligation of 40,000 EUR or more, it is a tax crime, for which a monetary penalty or a prison sentence of up to five years is prescribed. The penalty for concealing a tax obligation of more than 400,000 EUR is one to seven years’ imprisonment.
Cryptocurrency taxation for individuals in Estonia
Virtual currency is treated as property within the meaning of Clause 1 of Article 15 of the Income Tax Act. Income tax shall only be charged on gains (Article 37) from the sale or exchange of transferable and monetarily appraisable objects (Clause 1 of Article 15 of the Income Tax Act). In other words, profits received from the disposal of virtual currency, including exchange, is subject to income tax. The gain or loss on the sale of property is the difference between the purchase cost of the property sold and its sale price. The gain or loss on the exchange of property is the difference between the purchase cost of the property transferred in exchange and the market price of the property acquired through exchange (Clause 1 of Article 37).
It is necessary to record the amount of fiat money received and the amount of cryptocurrency assets acquired during each month. All the company’s cryptocurrency assets shall also be recorded in terms of euros on a monthly basis.
Cryptocurrency taxation for legal entity’s in Estonia
There is no specific tax on cryptocurrency for the Estonian companies. Crypto businesses follow the same rules as other types of companies in Estonia.
Taxation of Estonian companies is the most profitable in the European Union.
There is 0% corporate tax in Estonia. The tax on dividends or tax on profit distribution is 20/80. The tax rate for paying dividends is 25%. To pay dividends, a member of the company’s Management Board will need to make a profit statement for the current period.
The Estonian VAT rate is 20%. Companies are obliged to register a VAT number in a case when sales in Estonia exceed 40,000 EUR from the beginning of the calendar year. A company can also apply for VAT registration before this threshold value is reached.
LKS Consult OÜ offers accounting services for companies engaged in crypto-activities. It is important to bear in mind that cryptocurrency transactions are not subject to VAT.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text]Ready-made companies are inactive corporate organisations that have passed the state registration and have all the necessary details for the implementation of their activities. Purchasing of a ready-made/shelf company should be a balanced decision in order to protect you from unreasonable risks.
LKS Consult OÜ offers ready-made companies for sale. It is important to mention that all listed Estonian shelf companies have submitted annual reports and have a transparent history.
Purchase of an Estonian shelf company can be an excellent solution to optimise your business in the European Single Market. LKS Consult OÜ highlights the following advantages of Estonian jurisdiction when purchasing a ready-made/shelf company:
Choosing a suitable way of transferring the company
By visit
By power of attorney
With an e-Residency card
Providing us with all the necessary information for document preparation
Once documents are ready, the transfer of the company will be set by the notary
The company will be transferred within 5 business days
More information
It is possible to change a company name.
Companies do not have any debts.
All companies have filed annual reports for the previous year.
In order to buy a company as soon as possible and reduce your stay in Estonia to one day, we will need to have all the necessary information and prepare the documents in advance.
Before coming to Estonia to buy a company, please send the following information:
Intended date of your visit
Owners/Beneficiaries of a Company
Name of a Company Director
After receiving the necessary information, we will make an appointment with a notary and will prepare all necessary documents.
Risks of obtaining a ready-made company with a crypto-licence
Under certain circumstances, the licence is issued for a specific project with a particular owner/director/KYC/AML officer. The identities, risk assessments and KYC/AML documents are carefully checked while obtaining the licence.
In that way, if a company with a crypto-licence changes an owner/director/KYC/AML officer, a regulator will study the project again. There is a risk that the permit will be revoked since it was issued for a different company with a specific activity.
The exact amount of time is usually spent on checking and verifying documents of new owners as it is spent on obtaining a new crypto-licence, which is about two months.
Cryptocurrency licence
The IT jurisdiction of Estonia is considered as the mildest of its kind with facilitated conditions for obtaining a cryptocurrency exchange licence for start-ups in the blockchain technology industry. In other words, a so-called crypto-licence is an official permission to conduct a regulated cryptocurrency business. Several new cryptocurrency and trading platforms are created every week, and a significant part of them had been licensed in Estonia, since the local order presupposes a quicker process of obtaining a crypto-licence than, for example, in the jurisdictions of other countries.
A team of experts from LKS Consult OÜ will accompany your project through all the necessary procedures in the preparation of documents and obtaining the legal permission from the authorities to launch your crypto-business. We also provide full support when registering Estonian companies.[/vc_column_text][/vc_column][/vc_row]
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.
The obligation to pay income tax may arise in the case of a person/natural person exchanging a cryptocurrency for an ordinary currency or for some other cryptocurrency, as well as in the case of the use of a cryptocurrency to pay for goods and services, if the person earns an income, informs the Estonian Tax and Customs Department in anticipation of the tax declaration period.
The trade in cryptocurrency is a growing trend that is gaining in popularity. Although cryptocurrency has been used worldwide for more than a decade, trading virtual money can still be considered a new way of earning income.
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:
The regulation of cryptocurrency in Singapore is primarily concerned with the introduction of improved standards for service providers associated with crypto assets. Views have been expressed around the world that a vibrant digital asset market is a potential haven for money-laundering and the financing of terrorism. Blockchain security studies conducted in 2020 show that 56% of digital currency services have weaknesses in KYC and AML controls. Therefore, regulators need to pay more attention to decentralized finance. Hence, the new FATF recommendations on Anti-Money Laundering/Combating the Financing of Terrorism (POD/FT) for digital assets.
The topic of cryptocurrency and taxes is relatively new from the point of view of taxation in Estonia and despite the fact that crypto assets are not specifically mentioned anywhere in Estonian tax legislation, they are regulated by ordinary tax rules, because the company’s turnover is taxed. This means that it is legal to trade, own and store crypto assets in Estonia.
When applying for 
Estonian Tax and Customs Board maintains transparency in the cryptocurrency user environment and identifies individuals and businesses that do not conduct their business in an honest manner. Since most cryptocurrency transactions are cross-border, it is international cooperation that is becoming an essential part of information-sharing in the area of cryptocurrency risk.
Ready-made companies are inactive corporate organisations that have passed the state registration and have all the necessary details for the implementation of their activities. Purchasing of a ready-made/shelf company should be a balanced decision in order to protect you from unreasonable risks.