Crypto Taxes In Spain

1. What are cryptocurrencies?

In simple terms, cryptocurrencies are digital money. They are also known as virtual currencies. Their key characteristics are as follows:

1. Any bank does not control such currencies, and so they are decentralised.
2. They are controlled through what is known as a blockchain, which is a database of the financial transactions performed.
3. They are highly secure currencies, precisely because of the blockchain technology.
4. They cut the cost of transactions, as there are no intermediaries such as banks.
5. They make payments quicker, allowing them to be performed in just a few minutes.
6. The value of cryptocurrencies depends on the sale and purchase operations programmed by those wishing to buy or sell these virtual currencies.

2. What types exist?

The first cryptocurrency to be created was Bitcoin, followed by the emergence of Ethereum, Ripple, Litecoin and Dash, among others.

3. How are cryptocurrencies used?

Cryptocurrencies can be used in various ways, above all the following two:

• They can be purchased as an investment, waiting for their price to rise before selling them, just as one would do with shares in a company.
• They can be used as a means of payment, just like a bank card, cash or transfers. The aim is that over time, the number of establishments accepting cryptocurrency payments will increase.

4. How do cryptocurrencies have to be declared in Spain?

The use of cryptocurrencies as a means of payment or investment is still not widespread in Spain. So there is also little understanding of the tax status of cryptocurrencies.

Depending on how individuals use these virtual currencies, there may be various circumstances for the taxation of cryptocurrencies:

• Trader. A person who purchases cryptocurrencies and pays for them with their own money. The acquisition is performed via an Internet platform known as an Exchange. The mere acquisition does not generate any return in itself that could be taxed. The investor simply waits for their value to increase, before selling them and making a profit. The difference between the value for which the cryptocurrencies were purchased and the value they are sold gives rise to a monetary gain or loss that must be declared. The financial gain will be included within the savings base under Personal Income Tax, with the applicable percentage ranging from 19% to 26%. If, meanwhile, a loss has been made, this can be offset against gains, and if there are none during that year, it will be compensated in tax returns over the following four years. Cryptocurrencies will therefore need to be included in a Personal Income Tax return.
• Returns through interest paid by online platforms. It may be that some online platforms (such as Nimbus, Kualian, Yielding Capital, etc.) where cryptocurrencies which have been purchased are then deposited pay interest to the purchaser. This interest will for Personal Income Tax purposes be considered as capital gains included within the taxable base for savings. In this case, the percentages indicated above will likewise apply.
• Returns from cryptocurrency mining. Cryptocurrency mining occurs when a specific computer is used to validate and process blockchain transactions in exchange for payment in cryptocurrencies. In terms of Personal Income Tax, cryptocurrency mining is considered an economic activity and the earnings made will be included within the broad taxable base. In this case, as it is regarded as an economic activity, the person performing the cryptocurrency mining will deduct the movement’s expenses. To be able to perform such an action, the following requirements must be fulfilled:
  • Registration for Economic Activities Tax (‘IAE’) using Form 036 or 037.
  • Registration under the Self-employment Social Security System (‘RETA’).
  • Filing of Form 130 (interim Personal Income Tax payments) and the annual summary employing Form 190.
  • Registration on the Intra-EU Operators Register (‘ROI’).
  • Filing of Form 347 (third-party transaction information declaration).
• Earnings from referrals. In some cases, online platforms dealing with cryptocurrencies make payments to clients when they recommend other clients. No regulations govern the taxation of this circumstance. However, there are various decisions on binding consultations from the Directorate-General for Taxation, issuing pronouncements on similar events, the conclusions of which would likewise apply in this case. Various cases may be distinguished here:

• • If there is an employment-type relationship between the client and the platform, the earnings obtained are employment earnings.
  • If it is a commercial relationship, it is deemed that the party in question performs an economic activity (organising material and human resources to complete the activity). The earnings obtained will be included within the broad taxable base, and the associated expenses may be deducted. As for VAT, three different cases may be distinguished here:
    • If the service recipient is a business or professional (the online platform) and is based in the EU, then the rule of taxation at the destination will apply. So, if the platform is located in Spain, then taxes will need to be paid in Spain.
    • If the platform is located in another EU country, the recipient must apply VAT to itself.
    • If the platform is based outside the EU, then the principle of effective use of the services will apply, which means that services considered to be used or exploited in Spain will be deemed subject to taxation.

In this case, as it is held to be an economic activity, then the requirements indicated above must be fulfilled (IAE, RETA and ROI registration, filing of Forms 130, 190, 303, 390 and 347).

• If none of the above cases applies, the earnings will be classified as capital gains included within the broad taxable base.

• Earnings from acting as a broker or investment fund. In this case, an individual receives money from others to be invested and receives a commission. No specific regulations are governing this circumstance, and so similar topics must be analysed, with the following observations:
  • This is an economic activity, and the earnings are therefore subject to Personal Income Tax as professional earnings.
  • Concerning VAT, the exemption established for financial service brokerage could be deemed to apply. For this exemption to be applicable, the following requirements established by the Directorate-General for Taxation must be fulfilled:
    • The broker must put the investors in contact with the entity to sign the contracts.
    • The broker will have the capacity to negotiate and advise on behalf of the investor.
    • The broker must make active efforts to attract clients.

For such activities, the broker will need to fulfil the following list of requirements:

• Registration for IAE with Form 036 or 037.
• Registration under the RETA.
• Filing of Personal Income Tax Forms 130 and 190.
• Registration on the ROI.
• Filing of Form 347.
• Filing of VAT Forms 303 and 390.

5. Application of Assets Tax to cryptocurrencie

If an individual holds cryptocurrency, they will need to be considered when determining their assets’ value. If the minimum level exempt from the declaration in each Spanish region is surpassed (in Catalonia, for example, the exempt minimum for 2020 is 500,000 euros), an Assets Tax return must be filed.

To establish the value of cryptocurrencies with a view to declaration for Assets Tax, consideration must be given to their value on 31 December in the financial year to which the tax return applies.

6. Other tax returns, Form 720 and cryptocurrencies

Given the need to control the activities detailed above which are performed with cryptocurrencies, the Measures to Prevent and Combat Tax Fraud Bill was passed in October 2020 (and will presumably take effect during the first quarter of 2021). These new regulations serve to establish the following legal changes:

• Exchange platforms that hold cryptocurrencies for clients must report the balances held by the cryptocurrencies owners and the operations performed with them (acquisition, transmission, exchange, transfer, collections and payments).
• Individual taxpayers will need to include cryptocurrencies on their declaration of assets abroad using Form 720 and cryptocurrencies. Form 720, it is essential to emphasise that the obligation to declare Cryptocurrencies will arise wherever they are worth more than 50,000 euros. There may be substantial penalties for failing to file this form, or filing it beyond the deadline, amounting to as much as 10,000 euros in addition to the Personal Income Tax penalty, which may be as high as 150% of the amount not declared. In this regard, it should be recalled that this penalty regime is subject to a legal dispute before the Court of Justice of the European Union.

7. Conclusions

As may be seen, the taxation of cryptocurrencies is a complex issue, since not all the applicable regulations have been fully developed, hence the need at all times to receive assistance from a tax adviser who will study the case and determine the best taxation strategy to follow, according to the circumstances. This will serve to avoid penalties or mistakes that could affect the taxpayer’s assets.