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This article considers the tax implications of an employer making payments to its employees in cryptocurrencies such as bitcoin and Ethereum.
The German authorities have determined that cryptocurrency is not any of the following:
If cryptocurrencies are given to employees for nil, or under market, consideration in exchange for providing their services then this is likely to be taxable earnings.
This ‘remuneration’ could be:
First of all, payments of emuneration in cryptocurrencies is taxable This is the case regardless of whether it is a cash benefit and as a benefit in kind.
The tax is levied on employees as wage tax in accordance with Section 38 of the German Income Tax Act (EStG). The tax point is at the time of the ‘inflow’ of the cryptoassets.
The tax authority will only accept euros for the payment of payroll taxes.
As such, where remuneration is paid wholly (or the majority is paid) in cryptocurrency, then some of it will need to be sold or exchanged for immediately for fiat in order to pay the tax.
This must be the most asked question to tax advisers around the world!
However, the tax office learns about cryptocurrencies through various sources, including the reporting obligations that are imposed on employers.
In addition, many crypto intermediaries require identification in order to use their marketplaces so cryptocurrencies are not as anonymous as many might believe. Indeed, transactions on the blockchain are immutable and, by and large, fully traceable.
Further, the tax authorities can also make targeted inquiries in accordance with Section 93 of the German Fiscal Code (AO) in order to obtain information.
If you have any queries about cryptocurrency or the cryptoassets in Germany, or German tax more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.
Back in May we set out the reasons why Portugal had become a beacon for crypto investors. However, in that very article, we raised the prospect that a mooted change in the winds might potentially snuff out that beacon.
The ill wind stems from the publication of the 2023 State Budget document earlier in the week. It included a section in respect of the taxation of cryptocurrencies. Thus far, as can be gleaned from our previous article, profits have largely been untouched.
Instead, Portugal’s government is proposing a new 28% tax on capital gains from cryptocurrencies held for less than a year. This is consistent with the statements of the finance minister Mr Medina reported on this blog in May this year.
There is also a proposed income tax from other crypto activities such as mining or trading.
Other proposals include a 4% taxation fee on transfers of cryptocurrencies as a result of death plus stamp duties on commissions charged by crypto intermediaries.
Of course, Portugal’s parliament is still to have its say on whether these proposals are enacted.
Portugal will be aware that it is treading a fine line here. Portugal has become a magnet for crypto enthusiasts because of its benign tax position. Many such individuals are highly mobile and it might be that, if enacted, it causes a flight of crypto capital
If you have any queries about Portugal crypto tax changes, Portugal tax matters, or the matters discussed more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.
For further resource on crypto assets please see www.cryptotaxdegens.com.
In an eagerly anticipated announcement, the German Federal Ministry of Finance (BMF) has clarified its view on the taxation of cryptocurrencies.
In addition to the position on the buying and selling of crypto, the guidance also sets out the position on activities such as mining, staking, lending, and other transactions.
The German tax man has determined that units of cryptocurrencies are economic goods. These ‘goods’ are attributable to the owner as the holder of the private key.
In cases where the wallet and private key is managed by a third party provider (such as Coinbase or Binance) then the asset is attributable to the beneficial owner of the cryptoassets.
Like many jurisdictions, the key issue for determining the tax position on any profits generated is whether the transactions take place through personal activity or in the conduct of a commercial activity.
In this regard, the BMF has confirmed that investors who hold their cryptocurrency as personal assets can sell them free of tax as long as they hold the assets for at least one year.
This is welcome as, in previous missives, the BMF had stated that the holding period was ten years for private investors.
This one-year period does not apply if the cryptocurrency is held as business assets.
Again, as per other jurisdctions, in many cases the distinction between commercial and private activity might be a blurred one and is an area ripe for dispute.
It should be noted that if cryptocurrencies are held by a domestic corporation such as a GmbH then the income is always considered to be commercial.
The authorities have also set out the position for other blockchain activities including:
It seems to be the case that the German tax authorities will assume that such activity is commercial in nature.
The block creation leads to an acquisition (not to a production!) of the asset, which has to be recognized at the market price at the time of acquisition (profit-increasing). Only at the time of the realization of the proceeds from a future sale are any acquisition costs to be deducted from the profit.
Only the staking (without taking over the block creation), as well as, if applicable, the participation in mining and staking pools or a cloud mining service may again fall within the scope of private asset management. However, again, this depends on the individual case.
The authorities has also set out its view on the acquisition of cryptocurrencies received by private investors in the context of airdrops. Here, the receipt of the new tokens may be taxable where the recipient of the airdrop has dome something in return for the airdrop.
Perhaps surprisingly, the authority considers it sufficient for this purpose that the recipient is required to provide contact details on an online form.
Where nothing is done in return for the airdrop then there are no tax consequences (although German gift taxes might be in point on the receipt).
Of course, this additional clarity is helpful. Of course, the fact that an private investor can dispose of assets free of tax after 12 months is very welcome for relevant investors.
It remains to be seen whether there will be further missives from the German tax authorities that include their position regarding Non‑Fungible Tokens (NFTs) and other types of assets and activities.
If you have any queries about this article, German cryptocurrency tax, or the matters discussed more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article
For further resource on crypto assets please see www.cryptotaxdegens.com.
Spain has issued its first ruling in respect of VAT in relation to the sale of NFTS. Specifically, where the NFT involves the right to use an underlying digital artwork.
Here, the Spanish Tax Agency determined that the sale of NFTs is a supply of “electronically supplied services”. As such, if the place of supply is determined to be in Spain, then the sale will be subject to Spanish VAT. The prevailing rate is 21%.
However, there is an issue here in that a purchaser of an NFT is likely to be unknown due to the pseudonymous nature of the blockchain. As such, a seller of an NFT might encounter real difficulties in determining the location of the purchaser and, ultimately, whether or not they should charge Spanish VAT on the sale.
The Spanish Tax Agency now dictates that the sale of an NFT is not a supply of goods. This is on the basis that the underlying asset is digital in nature. As such, the analysis is that the NFT gives ownership rights over a digital asset rather than over a physical good.
The Spanish Tax Authority concludes that the sale of NFTs is therefore an “electronically supplied service” for VAT purposes. This definition can be found in Article 7(1) of Council Implementing Regulation (EU) No 282/2011.
As an “electronically supplied service” the applicable rate of VAT is 21% as opposed to the reduced rate (10%) that usually applies to art works.
In determining whether the seller must charge VAT at the general VAT rate of 21%, the place of supply rules are in point. These are based on the condition (business or consumer) and location of the purchaser.
If NFTs are sold to a company or to an individual acting in a business capacity, then the place of supply will generally be where the buyer has established its business. An exception might be where the business is located outside the EU.
Where the buyer is an individual not acting in a business capacity and the seller is established in Spain, then the place of supply will generally be where the buyer has his or her permanent home (or usually resides).
The position might be summarised as follows:
Of course, there is a fundamental issue in identifying the person acquiring the NFT and, therefore, their location. It is worth noting that EU Regulation No 282/2011 provides some guidance here and provides for a presumption that a customer in a ‘virtual transaction’ is based where their IP address, or any method of geolocation, is located. However, even this has its limitations.
If you have any queries about this article, Spanish tax, or the matters discussed more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article
For further resource on crypto assets please see www.cryptotaxdegens.com.
Portugal is often held up as an attractive place for crypto investors. More generally, it has an attractive regime for migrants moving to Portugal, who might be able to avail themselves of its Non-Habitual Residence (“NHR”) regime.
However, where the NHR regime is clear, the tax law around crypto-assets is more as a result of what the law does NOT say.
As stated above, Portugal has become a popular destination for those seeking a safe harbour for crypto gains.
It is estimated that between March and May 2020, the purchase and sale of cryptocurrencies in Portugal increased by 60% year on year. However, up until now, the Government has not acted to clarify or expand its legislation to cater for this relatively new asset.
In Portugal, there are three potential categories under which gains on the buying and selling of cryptocurrencies could be caught. These are as follows:
In respect of the first of these, the tax code specifies which cases will be subject to tax a as a capital gain. However, the class of items is an exhaustive list. In other words, the law only applies to something which is on the list. As crypto assets are not on the list they are not taxable.
In respect of Category E, this does not apply as the buying and selling of cryto-assets is not a yield on capital.
Category B is the one where we might fall into the tax trap. However, it is only likely to apply to certain cases. This category will apply where any crypto profits are as a resuly of a regular professional activity. Of course, this might be relatively easy to determine in extreme cases, but the lack of certainty for those in more marginal cases is a concern.
The current position means that Portugal is on a list of countries that still do not tax profits from this type of asset. Hence, why Portugal has become an attractive destination for crypto investors.
However, nothing lasts forever.
Indeed, on 13 May 2022, finance minister Fernando Medina confirmed that the Government is contemplating how it might tax crypto gains in the future. He did say there were no firm proposals to introduce any such legislation.
If profits from the buying and selling of crypto assets was brought into the tax net in Portugal, then it would seem likely they would be subject to tax at 28%.
However, Mr Medina did acknowledge that an imposition of high levels of tax might “bring revenue down to zero” so he is at least aware of the tight rope his Government might be treading.
If you have any queries about this article, Portugal crypto tax, or the matters discussed more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.
For further resource on crypto assets please see www.cryptotaxdegens.com.
Like most jurisdictions around the world, there are no specific tax rules that apply to the buying and selling crypto assets in Ireland.
Therefore, like those other jurisdictions, the tax position on the sale of crypto assets will be subject to general Irish tax law principles.
In addition, the Irish Revenue has also issued guidance in some particular areas.
This article will mainly discuss cryptocurrencies – such as bitcoin, Ethereum and Dogecoin. The position for non-fungible tokens (“NFTS”) and other digital assets might differ.
As one might surmise, the purchase of cryptocurrency is unlikely to give rise to any direct tax implications. For instance, there is no stamp duty on crypto assets (as there might be on the purchase of shares, for instance). Further, it is unlikely there will be any VAT implications where we are looking at an investor or trader buying and selling crypto-assets.
However, the purchase of the cryptocurrency will be relevant for determining the base cost of the crypto when the investor decides to sell the assets.
The Irish tax position will depend on the Irish residence position of our crypto-investor. Specifically, whether they are:
If an Irish resident individual sells such an asset at a gain then it will usually be subject to capital gains tax. This is currently 33%.
Where the disposal results in a loss, then this capital loss can generally be:
The position is slightly different if the person is carrying on a ‘trade’ of dealing in crypto. Here, any profit on the sale of crypto would be subject to income tax. Marginal income tax rates of up to 55% – where one includes social charges – might therefore be payable.
It is worth noting that a trading classification is only likely in exceptional cases with the trading needing to be carried out in a deliberate and commercial fashion.
A non-Irish resident individual (who is also non-ordinarily resident) is liable to Irish CGT on gains arising in Ireland from the disposal of Irish ‘specified’ assets only (e.g. land and buildings in Ireland). As such, crypto gains should not be taxable.
An Irish resident company that disposes of crypto at a gain will be subject to capital gains tax at 33%. Similarly, losses will also be treated in the same way as set out above for individuals.
Where such a company conducts a ‘trade’ of dealing in crypto, then it’s profits will generally be subject to corporation tax at 12.5%.
Again, the threshold at which activities might be considered a trade is a high one. However, it is generally thought that a company might satisfy this more easily than an individual.
The Irish Revenue has not provided any guidance on the position when it comes to the mining of cryptocurrencies.
If they follow the UK tax authorities position on the same activity, then the treatment will depend on whether:
Here, the person will be taxable on the trading profits generated from the mining activities.
A company will pay tax at 12.5% but an individual will be subject to tax at their marginal rates.
Where the activities fall short of a trade, then the income received by the person will be treated as ‘miscellaneous’ income.
Miscellaneous income tends to qualify for fewer reliefs than trading income.
A company will pay tax at 12.5% but an individual will be subject to tax at their marginal rates.
If you have any queries about this article, crypto tax in Ireland or the matters discussed more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article
For further resource on crypto assets please see www.cryptotaxdegens.com.