Obligations derived from cryptocurrency

Obligations derived from cryptocurrency

Cryptocurrencies are booming and have begun to gain relevance within the investing options. They also have the support of large investors and the commitment of entities such as MasterCard, PayPal and BBVA, which allows them to operate with Bitcoin. Investors who sold this type of token or exchanged it by other assets by 2020, had great profits, since it revalued more than 300% during this period.

Despite its popularity, there is still no specific tax regulation for cryptocurrencies in Spain.

DGT (General Directorate of Taxes), in the CV V0999-18, defines virtual currencies such as: “Immaterial goods, computable by units or fractions of units, which are not legal currency, which can be exchanged for other assets, including other virtual currencies, rights or services, if accepted by the person or entity that transmits the good or right or provides the service, and that can be acquired or transmitted generally in exchange for legal currency”

They can be operated and exchanged by other traditional currencies and perform all kinds of commercial transactions, as you would with any other currency. In fact, in Spain, they have been authorized as means of legal payment since 2015.

The following chart exposes the different tax obligations that derive from the respective operations with cryptocurrencies:

How to include cruptocurrencies in income tax return

According to the description of the DGT, exchanges between cryptocurrencies should be considered as permutation of goods. Therefore, it is necessary to include in the income tax return, the benefits or lost derived from the transmission of the cryptocurrencies. So, it will be taxed in the Personal Income Tax as any capital gain.

Cryptocurrencies, that “appear” in the wallet, and it does not come from having transmitted another asset but appears for other reasons (for having a certain asset, by recommending a software, etc.), will also be considered capital gain.

To calculate the capital variation, it will be necessary to consider, on the one hand, the transmission value, which will be the largest between the market value of the virtual currency transmitted or the market value of the currency received, and on the other hand the acquisition value, formed by the actual amount of such acquisition plus the expenses in which it would have incurred, regardless of where the operation is carried out. The difference between both will lead to the capital gain or loss.

Losses can be compensated without limit with yields from other assets included within the earnings and capital losses of the taxable base of savings. They may be compensated with yields of furniture capital up to a limit of 25% of this type of profit.

Interest or automatic returns, generated on cryptocurrencies in those platforms such as Binance, will have the consideration of capital returns.

These capital gains and losses and capital returns are included in the taxable base of savings. The amounts included in this base are taxed as follows: the first 6,000 euros by 19%, the following 44,000 euros by 21%, and the rest by 23%. For income of 2021 a fourth stretch of 26% from 200,000 euros will be added.

Cryptocurrencies in the wealth tax

DGT considers that cryptocurrencies should be declared for the purposes of Wealth Tax due to their equivalent value in euros on December 31 of each year. So, in order to determinate the tax base, they must be assessed by their market price on the date of the tax accrual.

The Wealth Tax is a tribute assigned to the Autonomous Communities, so the tax rate charged varies depending on the residence of the taxpayer.

Crypto mining

Mining consists of verifying the transactions carried out with a virtual currency. Crypto miners receive a consideration in those virtual currencies.

Mining must be treated as an economic activity, with the corresponding registration in the Treasury and will have to be included in the income statement. Specifically, the consideration received, and the expenses related to this activity.

Am I required to submit the Form 720?

Law 11/2021, of July 9, on measures to prevent and fight tax fraud expressly includes the obligation of taxpayers to provide information on virtual currencies that are in their name and are located abroad, by submitting the form 720.

That is, starting from 2021 cryptocurrencies or virtual currencies are part of the assets and rights located abroad (balances in bank accounts, stocks, real estate and insurance) that could be declared.

The type of wallet, as well as its location, will determine if there is an obligation to present and include our cryptocurrencies in the form 720.

The regulation approved in RD 1065/2007, of July 27, establishes that if the assets abroad are 50,000€ or below, there is no obligation to present the form 720. However, in the case of cryptocurrencies, no limit has been established yet.
We are continually checking the new regulations, any change that has been published in the next few months, will be updated as soon as possible.