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VAT Implications for NFT Transactions – Introduction
The French tax authorities have recently clarified the Value Added Tax (VAT) treatment of Non-Fungible Tokens (NFTs).
This is helpful guidance for businesses involved in this nascent industry.
VAT Treatment of NFTs
According to the public ruling, NFTs are subject to the same VAT rules that apply to the broader spectrum of goods and services.
Specifically, when NFTs serve as certificates of ownership for tangible or intangible assets, VAT is applicable in line with the supply of the underlying asset.
This clarification is pivotal, affirming that the unique characteristics of NFTs do not exempt them from existing tax frameworks.
Furthermore, the tax authorities explicitly state that transactions involving NFTs cannot be classified as exempt banking or financial transactions.
This distinction is drawn based on the non-fungible nature of NFTs, setting them apart from payment, utility, usage, or investment tokens, which might enjoy VAT exemptions under certain conditions.
Examples of NFT Transactions and VAT Implications
General
The French tax authorities have provided concrete examples to illustrate the VAT treatment of various NFT-related transactions:
Digital Trading Cards as NFTs
The creation and sale of digital trading cards represented as NFTs are treated as a provision of service.
When these cards are issued with minimal human intervention, such transactions are deemed electronically supplied services, highlighting the digital and automated nature of the service.
Digital Artwork and NFTs
The sale of digital graphic artwork associated with an NFT, especially when exchanged for digital assets or currencies on an IT platform, is categorized as a supply of service.
However, if the creation of the artwork involves significant human intervention, it is not considered an electronically supplied service, emphasizing the role of human creativity over automation.
In-Game Items as NFTs
The initial sale of in-game items represented by NFTs, intended to fund video game development, is subject to VAT upon the effective transfer of these digital items.
Post-release, any marketing or sales of game components as NFTs also attract VAT, underscoring the continuous tax obligations throughout the lifecycle of a game’s development and its commercial exploitation.
Key Takeaways
This guidance from the French tax authorities highlights the importance of understanding the specific nature and nuances of transactions involving NFTs to accurately determine their VAT treatment.
Businesses engaging in the NFT space must carefully analyze the underlying transactions to ensure compliance with VAT regulations, recognising that the digital and non-fungible characteristics of NFTs do not exempt them from traditional tax obligations.
Conclusion
As the NFT market continues to evolve, this French ruling provides a crucial framework in line with which businesses might operate.
Final thoughts
If you have any queries about this article on VAT Implications for NFT Transactions in France, or French tax matters in general, then please get in touch.
In a bold move to enhance financial inclusivity and innovation, South Africa’s 2024 budget has highlighted a strategic emphasis on integrating stablecoins and blockchain technology into the nation’s digital payments landscape.
This initiative aims to leverage cryptocurrencies, particularly stablecoins, to facilitate broader adoption of digital transactions across South Africa.
Strategic Shifts and Regulatory Adjustments
The Treasury’s 2024 budget outlines an ambitious plan to revise existing financial regulations to accommodate global financial innovations, positioning South Africa as a pioneering force in digital finance within Africa.
Key policy adaptations will include stringent reporting requirements for cryptocurrency transactions exceeding 49,999 South African Rands, a measure designed to curb illicit financial activities.
Exploring Blockchain’s Potential
The Intergovernmental Fintech Working Group is actively exploring viable applications for stablecoins and decentralized technologies, with a commitment to release a comprehensive discussion paper on tokenization and its regulatory implications by December.
This initiative underscores South Africa’s recognition of blockchain’s transformative potential for enhancing the efficiency and security of financial markets.
Pilot Projects for Economic Empowerment
Reflecting the nation’s vision for digital innovation as a catalyst for financial inclusion and economic resilience, South Africa is set to launch pilot projects in collaboration with Switzerland’s State Secretariat for Economic Affairs and the FinMark Trust.
These projects will explore the use of cryptocurrencies and stablecoins to empower small businesses, facilitating easier and more accessible digital transactions.
Maintaining Momentum Amid Political Milestones
Despite the upcoming election in May, South Africa’s dedication to advancing progressive cryptocurrency policies is expected to remain steadfast.
The country’s efforts to classify stablecoins as crypto assets and the registration of providers in the previous year have already established South Africa as a frontrunner in the regulation of this nascent sector.
A Vision for Africa’s Digital Future
South Africa’s comprehensive approach to embracing crypto and blockchain technologies within its 2024 budget illustrates the nation’s ambition to lead digital adoption across the African continent.
While facing regulatory and societal challenges, these initiatives are widely regarded as pivotal steps towards improving financial access, enhancing transactional efficiency, and bolstering economic resilience through cutting-edge technologies.
Conclusion
With its progressive and inclusive strategy towards cryptocurrencies and blockchain, South Africa is setting a precedent for how technological advancements can foster opportunities and growth across diverse communities.
A scenario presented to the CRA involved a taxpayer holding bitcoins in a cryptocurrency wallet, transferring these bitcoins to a centralized platform for exchanging and lending crypto assets.
The platform offered a variable return of approximately 4% per year in bitcoin in exchange for the deposit.
The platform’s terms included rights to pledge, sell, or lend the bitcoins, with profits from these actions belonging to the platform.
The depositor had withdrawal rights, and withdrawals were paid from a pooled wallet containing bitcoins from various clients.
The crucial query posed was whether this transfer constituted a “disposition” for tax purposes, potentially leading to the realization of a gain, loss, capital gain, or capital loss upon the transfer.
The CRA’s opinion leaned towards considering the taxpayer’s deposit as a disposition, as the platform effectively acquired rights to use, profit from, and dispose of the assets, transferring ownership away from the taxpayer.
This stance by the CRA highlights the necessity for tax advisors to scrutinize the terms and conditions of platforms for both the platform operators and their customers.
The determination of whether a disposition has occurred relies on assessing possession and economic risk linked to the property, rather than accepting a platform’s terms stating otherwise.
The discussion also shed light on the changing landscape of crypto asset lending platforms. Over the past 24 months, these platforms offering returns on cryptocurrency deposits have seen a decline.
Regulatory bodies such as the U.S. SEC and the Autorité des marchés financiers du Quebec clarified that crypto asset deposit accounts fall under securities, requiring compliance with securities laws. Notably, prominent U.S.-based lending platforms faced insolvency protection in 2022.
In Canada, custodial crypto asset trading platforms (CTPs) are regulated as dealers under applicable securities law.
They must explicitly state in their terms that crypto assets are held separately for clients. Unlike the terms of crypto asset lending platforms, transfers to CTPs might not generally constitute a disposition, subject to specific circumstances.
Other scenarios discussed
Moreover, the CRA addressed two other cryptocurrency taxation scenarios during the roundtable:
Loss due to exchange fraud or theft: The CRA suggested that losses due to centralized exchange fraud or theft should be eligible for tax realization.
Proving business loss upon platform bankruptcy: The CRA outlined evidence, including documentation of fraud/bankruptcy, account activation, contracts, claims filed, recovery proceedings, and evidence of unsold cryptocurrency.
Canada Crypto Tax – Conclusion
The insights from the CRA’s discussion offer valuable guidance, emphasizing the need for a nuanced understanding of terms and conditions within crypto platforms.
Further, it highlights the need to maintain meticulous records for taxation purposes in the evolving cryptocurrency landscape.
If you have any queries on Canada Crypto Tax, or other Canadian tax matters, then please get in touch.
Blockchain technology and the intersection with traditional financial systems has given revenue authorities around the world a digital puzzle to solve.
Tax compliance in this context involves correctly determining taxable amounts, adhering to disclosure requirements, and ensuring timely tax payments.
So, how do we approach this crypto Rubik’s cube?
The approach of SARS
The South African Revenue Service (SARS) has been treating gains and losses from crypto-investments as ordinary transactions under existing tax rules.
In 2018, cryptocurrencies were included in the definition of ‘financial instrument’ in the Income Tax Act.
In 2020, this definition was expanded to ‘crypto asset,’ broadening the range of applicable provisions.
Despite this, applying these tax rules in the crypto-investment space can be complex and requires professional expertise.
Penalties for non-compliance
SARS has the authority to impose understatement penalties ranging from 0% to 200% for incorrect tax determinations.
To enforce tax compliance, SARS relies on taxpayers to disclose crypto-related gains and losses.
If a taxpayer refuses to disclose voluntarily, SARS can use its information-gathering powers to compel disclosure from taxpayers, advisors, and third-party service providers.
Transparency and tracking
Clearly, for revenue authorities around the world to apply relevant tax laws, they must first be aware of the transactions.
This can be challenging as blockchain addresses and wallet IDs are necessary to assess on-chain digital trails.
Off-chain audits involve leveraging information from digital currency exchanges and peer-to-peer facilitators.
Revenue authorities are also using information from other authorities through data exchange agreements.
Conclusion
Tax compliance in the crypto space carries significant risks, and tax professionals play a crucial role in safeguarding returns from unnecessary tax costs.
If you have any queries around South Africa Crypto Tax, or South African tax matters in general, then please do get in touch.
Blockchain technology and the intersection with traditional financial systems has given revenue authorities a digital puzzle to solve.
Tax compliance in this context involves correctly determining taxable amounts, adhering to disclosure requirements, and ensuring timely tax payments.
So, how do we approach this crypto Rubik’s cube?
The approach of SARS
The South African Revenue Service (SARS) has been treating gains and losses from crypto-investments as ordinary transactions under existing tax rules.
In 2018, cryptocurrencies were included in the definition of ‘financial instrument’ in the Income Tax Act.
In 2020, this definition was expanded to ‘crypto asset,’ broadening the range of applicable provisions.
Despite this, applying these tax rules in the crypto-investment space can be complex and requires professional expertise.
Penalties for non-compliance
SARS has the authority to impose understatement penalties ranging from 0% to 200% for incorrect tax determinations.
To enforce tax compliance, SARS relies on taxpayers to disclose crypto-related gains and losses.
If a taxpayer refuses to disclose voluntarily, SARS can use its information-gathering powers to compel disclosure from taxpayers, advisors, and third-party service providers.
Transparency and tracking
Clearly, for revenue authorities around the world to apply relevant tax laws, they must first be aware of the transactions.
This can be challenging as blockchain addresses and wallet IDs are necessary to assess on-chain digital trails.
Off-chain audits involve leveraging information from digital currency exchanges and peer-to-peer facilitators.
Revenue authorities are also using information from other authorities through data exchange agreements.
South Africa Crypto Tax – Conclusion
Tax compliance in the crypto space carries significant risks, and external tax professionals play a crucial role in safeguarding returns from unnecessary tax costs.
If you have any queries about South Africa Crypto Tax, South Africa taxes, or tax matters in general then please get in touch.
Taxation of cryptoassets and Web 3.0– Introduction
Introduction
The Web 3.0 industry has been expanding in Japan in recent years.
However, uncertainty around the tax treatment of Web 3.0 transactions and cryptoassets in Japan have been problematic for the businesses in this nascent space.
What is Web 3.0?
Web 3.0 refers to the next generation of the World Wide Web, which is characterized by a more decentralized, interconnected, and user-centric internet.
It is also known as the decentralized web or the semantic web.
Unlike Web 2.0, which was mainly focused on user-generated content and social networking, Web 3.0 aims to create a more open and decentralized internet using blockchain technology and other distributed systems.
This would allow for more peer-to-peer transactions and communication, reducing the need for centralized intermediaries and creating more privacy and security for users.
Web 3.0 also seeks to provide a more intelligent and personalized web experience, by using artificial intelligence, machine learning, and other technologies to make sense of the vast amounts of data available online. This could lead to more intelligent search engines, personalized content recommendations, and more efficient data processing.
Overall, Web 3.0 represents a significant shift in how we use and interact with the internet, with a greater focus on user control, privacy, and decentralization, as well as more intelligent and personalized web experiences.
MTM Rules and tax uncertainty
One example of the difficulties is for those businesses who would like to issue tokens in Japan.
An illustration of this is that several blockchain companies have avoided issuing tokens in Japan, due to the tax burden derived from the application of the Year-End Mark to Market (MTM) Rules under the Corporation Tax Act (CTA) in Japan.
According to the Payment Services Act, corporations that hold cryptocurrencies that are traded in “active markets” must adhere to certain rules.
These rules require the corporations to update the acquisition price/booked price of their cryptocurrencies to reflect their current fair market values, a practice commonly referred to as “Mark to market (MTM).”
Additionally, any gains or losses resulting from these price updates must be realized at the end of each business year.
Further, there is also uncertainty more generally over the tax treatment of Web 3.0 related transactions.
The 2023 reforms
Starting in 2023, there will be some changes to the tax rules for cryptocurrencies. If a cryptocurrency has been issued but not yet distributed to third parties, it will not be subject to certain tax rules at the end of the year, as long as certain conditions are met. These conditions include technical restrictions on transfer or entrusting the cryptocurrencies to a trustee under specific conditions.
Additionally, if a corporation borrows cryptocurrencies from a third party and sells them but does not buy back the same amount by the end of the year, they will have to recognize any gains or losses as if they had bought back the same amount.
These tax reforms will apply to corporations whose business year starts on or after April 1st, 2023. The specific details of the requirements for the first condition mentioned above will be disclosed in April 2023 or later.
NTA guidelines re NFTs
General
In addition, the NTA (National Tax Agency) in Japan has released the first official guidelines on how NFTs (non-fungible tokens) are taxed.
Scope of guidelines
These guidelines cover:
individual income taxes,
corporate taxes,
Sales / consumption taxes,
inheritance/gift taxes, and
statutory reporting obligations.
The guidelines use examples of art NFTs, which are backed by copyrights for digital designs, that have been distributed.
Foreign business operator distributing in Japan
For a foreign business operator distributing NFTs in Japan, the tax treatment will vary depending on the legal characteristics of the NFTs. Therefore, it is recommended to consult with tax experts to determine the tax treatment for each NFT.
Income tax and corporate taxes
Regarding individual income taxes and corporate taxes, the NFT FAQs explain that an person who is UK resident for tax purposes who creates digital art and sells art NFTs related to such digital art through a marketplace in Japan is not subject to Japanese income or corporate taxation.
This is because a person who is not a tax resident in Japan and has no permanent establishment in Japan is generally not subject to Japanese taxation on the income derived from the issuance (first-sale) of NFTs, unless the NFTs are backed by real assets which trigger Japan-sourced income separately.
Sales / consumption taxes
With regard to consumption taxes (Japanese value added taxes), the NTA deems the issuance of art NFTs as “cross-border provisions of electronic services.”
Therefore, the consideration for the issuance of art NFTs is taxable if the buyer of the art NFTs is an individual located in Japan or a Japanese corporation. A foreign issuer of art NFTs would be subject to consumption taxes in Japan in respect of the primary sale of the issued art NFTs to Japanese purchasers.
For withholding obligations, payment of the consideration for the issuance of art NFTs would generally be subject to Japanese withholding tax levied on royalties.
However, withholding obligations would not be triggered if it is difficult for the purchaser of the art NFTs to distinguish the consideration for the grant of copyrights from the total amount of NFT sales.
Inheritance / gift taxes
Under Japanese tax laws, an individual recipient of assets located in Japan by way of an inheritance/gift from another individual would be subject to inheritance/gift taxes even if the recipient is located outside of Japan.
In the NFT FAQs, NFTs are included in the scope of taxable assets so long as they have an economic value.
Conclusion
Like most jurisdictions around the globe, relevant authorities have been playing catch up in ensuring regulation and tax rules are fit for purpose in the new world of Web 3.0.
If you have any queries about Taxation of cryptoassets and Web 3.0 in Japan or Japanese tax matters in general, then please do 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.
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 nature of cryptocurrencies
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.
Key issue: Private activity v commercial activity
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.
Mining and Forging activities
The authorities have also set out the position for other blockchain activities including:
Mining in a proof of work consensus mechanism; and
Forging in a proof of stake consensus mechanism
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.
Airdrops
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).
Conclusion – Germany Cryptocurrency tax
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
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 nature of NFTs for VAT purposes
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.
VAT implications
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).
In summary
The position might be summarised as follows:
The buyer resides in Spain: the sale would be subject to Spanish VAT:
The buyer resides in another EU Member Sate: the sale is subject to VAT in the EU Member State of consumption, unless below the €10k threshold in the year: and
The buyer resides outside the EU: he sale would fall out of the scope of Spanish VAT (unless the use and enjoyment rules are applicable)
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
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.
Portugal as a growing hub for crypto
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.
Current position
In Portugal, there are three potential categories under which gains on the buying and selling of cryptocurrencies could be caught. These are as follows:
Capital Gains (Category G) – such as sale of an apartment or shares
Capital Yields (Category E) – such as property rental or dividends
Professional Income (Category B) – Consultancy fees etc
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.
A change in the winds?
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.
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.
Buying cryptocurrency
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.
Sale of crypto-assets by individuals
General
The Irish tax position will depend on the Irish residence position of our crypto-investor. Specifically, whether they are:
Resident for tax purposes in Ireland; or
They are not resident for tax purposes in Ireland
Irish resident individuals selling cryptocurrency
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:
Used in the current year against other gains; or
Carried forward to future years
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.
Non-resident individual
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.
Sale of crypto-assets by Companies
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.
Mining cryptocurrencies
General
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:
The person is conducting a trade of mining crypto; or
The person’s activities fall short of a trade
Trade
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.
No trade
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