Cryptocurrencies, such as the known Bitcoins are the order of the day and each year that passes gain more followers. Although it seems that they are surrounded by alleged anonymity, they are not exempt from fulfilling the financial obligations that are supposed to them and the tax office has long warned that there will be seriousness about the issue.
If you use Bitcoins as a payment currency or as an investment, this article will serve as a reference on how do taxes work on cryptocurrency. You will save yourself more than one dislike.
What Is Cryptocurrency?
Cryptocurrencies are digital currencies. They can be exchanged and traded like any traditional or paper currency, but are outside the control of financial institutions and governments. There are countless cryptocurrencies with unique characteristics and areas of application. Only a few of them have a correspondingly high market capitalisation so far, including Bitcoin, Bitcoin Cash, Ethereum, Litecoin, Ripple and Dash.
How do cryptocurrencies work?
Cryptocurrency trading is decentralised. This means that they are not circulated or supported by a central authority, such as a government, but are managed via a network of computers. However, cryptocurrencies can be bought and sold via exchanges and stored in wallets.
Unlike traditional currencies, cryptocurrencies are a shared digital record of ownership stored in a blockchain. When a user wants to transfer their units of a cryptocurrency to another user, they send them to their digital wallet. The transaction is only considered complete once it is verified and added to the blockchain in the so-called mining process. This is also how new crypto tokens are usually created.
How do crypto taxes work?
If you own cryptocurrencies but do not trade them, you are not obliged to declare anything. This is like keeping money in a safe or under your mattress. However, as soon as you decide to make a transaction with any type of cryptocurrency, things change and so do your obligations to the tax office, bearing in mind that the tax office does not accept the payment of taxes with cryptocurrencies.
When do you owe taxes on your crypto?
Every transaction made on the cryptocurrency market is taxed as an exchange of intangible assets. This means that if, for example, you buy Ethereum (ETH) directly with Bitcoins (BTC) without converting them into euros, you will have to declare the losses or capital gains that resulted from this transaction. The same happens if you decide to convert your cryptocurrencies into euros or another currency. These movements will be included in your income tax return under the heading “Other capital gains to be included in the saver’s base” (otras ganancias patrimoniales a integrar en la base imponible del ahorro).
How the Bitcoin investments are taxed in the income statement
If you buy and sell Bitcoins and you get a profit from it, it will be considered a capital gain in the rent. In this way, you will have to add it to the rest of the capital gains and losses as a result of trading on the stock market or buying an investment fund. The percentage of this taxation is:
- 19% if the profits are less than € 6,000
- 21% if the profits go from € 6,000 to € 50,000
- 23% if the profits are greater than € 50,000
To calculate this capital gain, the difference between the purchase price and the sale price must be taken into account, without taking into account the expenses. For example, if you buy Bitcoins for a value of € 5,000 and sell them for € 7,000, you must add € 2,000 to the rest of the capital gains.
It should be noted that if you change Bitcoins for other virtual currencies, it will be considered a sale, and you will have to pay for the benefit obtained even if you do not take the money from the virtual wallet and pass it to Euros.
If the taxpayer is obliged to file this tax, he must include the value of the cryptocurrencies until 31 December and pay it according to the applicable rate. Remember that individuals who are residents of Spain and also non-residents, but who are holders of assets or legal rights located in Spanish territory, are obliged to file the wealth tax.
What is taxed with this tax is the taxpayer’s assets as of 31 December, not what was earned in the corresponding financial year. The average minimum exemption amount is currently 700,000 euros. This means that if you have cryptocurrencies from this minimum exemption, you must declare them. However, this exemption amount can change from region to region. You should check if your region has set its own exemption amount and if it varies from the 700,000 euros of the state share.
Inheritance and gift tax
If a person receives cryptocurrencies as a gift or in the event of inheritance, he or she must declare them in the inheritance and gift tax return with the market value they had at the time of the inflow (gift or death). This also depends on the Autonomous Communities.
What happens if you have losses with the sale of Bitcoins?
If you have losses with the purchase of Bitcoins you can compensate them with the rest of the capital gains, exactly as with the shares. If in the declaration of that same year there were no profits with which to compensate, it can be done in the following 4 years.
VAT in Bitcoin as payment currency
Since 2015, the European Union considers Bitcoins as another payment method and in Spain, it is legal to use them since that same year. Therefore, VAT is applied to any purchase of goods and services, but not in the transmission of currency.
Therefore, as there is no VAT, there is also no obligation to pay the Bitcoins for the Transfer Tax.
Should we present the Form 720 for investing in Bitcoins?
If you invest in Bitcoins or other cryptocurrencies you may wonder if you should file the declaration of assets held abroad (720 Form). Technically they are not located in any specific geographic point, so, although the tax agency has not manifested itself in this regard, it should not be necessary to submit it.
To prepare the Personal Income Tax (IRPF) statement (including the taxation of your Bitcoins) without losing time and correctly, we recommend that you contact our tax advisors in Barcelona. We will treat your case in a professional and personalized way.