Cryptocurrency Taxes:
Frequently Asked Questions
We solve all the doubts you may have about Taxation of Cryptocurrencies.
Definition, origin, types and characteristics of cryptocurrencies
Cryptocurrencies are digital currencies that serve as exchange currencies for conducting transactions on the Internet.
The origin of cryptocurrencies dates back to 2009. Satoshi Nakamoto created Bitcoin with software, but it is still unknown who is behind the creator’s name.
- They are decentralised since any bank does not control them.
- They work through a chain of blocks (Blockchain).
- They are safe.
- They make transactions cheaper because there are no intermediaries.
- Payments are very fast.
The best known is the Bitcoin, but other cryptocurrencies are Etherum, Ripple, Litecoin or Dash.
Bitcoin is a type of cryptocurrency, a completely digital currency. It was the first cryptocurrency to be launched without the control from a bank, state, or other intermediaries.
Use of cryptocurrencies
Cryptocurrencies can be used in several ways:
- Trader. A trader is a person who acquires cryptocurrencies and pays for them with his money. The acquisition is made through an Internet platform called an exchange. The investor buys and waits for the value to rise to sell again.
- Mining. In this case, a person uses a computer to validate and process transactions with cryptocurrencies and receives remuneration also in cryptocurrencies for that work.
- Bróker. In this case, a person receives money from another to invest in cryptocurrencies in exchange for a commission.
- Purchase of products or services. Cryptocurrencies can also be used as a standard currency to buy products and services.
There are several secure platforms to buy, sell, transfer and store digital currencies. It is important to analyse the commissions that each one charges and the platform’s security before choosing.
The process is simple:
- An account is created.
- You provide your data (ID, telephone, photo, address and tax).
- You deposit the amount you want with a credit or debit card, PayPal or transfer.
- With that amount, you buy the cryptocurrencies you want.
Taxation of cryptocurrencies
The taxation of cryptocurrencies in Spain by individuals depends on how they are used:
- Trader.
- When you sell the cryptocurrencies in your possession, a capital gain or loss may arise that must be declared in personal income tax. The capital gain will be integrated into the IRPA savings base, and the percentage to be applied will vary between 19% and 26%. On the other hand, the capital loss may be offset with the gains, and if there are none in that year, it will be compensated in the returns for the following four years.
- Suppose the platform on which the cryptocurrencies are purchased pays interest. In that case, these are considered income from movable capital in personal income tax and must be included in the savings tax base.
- In the case that the platform rewards the client when it recommends another client, two issues may occur:
- There is a working relationship between the client and the platform: performance is work performance.
- There is a commercial relationship: the performance is considered to derive from economic activity.
- Mining. Cryptocurrency mining is an economic activity, and the returns obtained must be added to the general tax base. The miner may deduct the expenses associated with his action. To perform cryptocurrency mining, a series of requirements must be met:
- Registration with the IAE with Form 036 or 037.
- Registration with the RETA.
- Presentation of Form 130 (payments on account of personal income tax) and the annual summary through form 190.
- Registration in the Register of Intra-Community Operators (ROI)
- Presentation of Form 347 (informative declaration of operations with third parties).
- Bróker. In this case, it is an economic activity, and it is taxed in that way in personal income tax. Regarding VAT, the exemption provided for the mediation of financial services is applied if it meets specific requirements:
- The mediator or need to contact investors with the entity to sign contracts.
- The mediator will have the ability to negotiate and advise on behalf of the investor.
- The recruitment of clients by the mediator must be active.
On the other hand, cryptocurrencies can have an impact on other taxes:
- Tax on wealth. If a natural person has cryptocurrencies, and the total value of their assets exceeds the exempt minimums established in each autonomous community for Wealth Tax, it must be declared. To set the value of cryptocurrencies for the tax, their value as of December 31 of the year to be declared must be considered.
- Form 720. If the valuation of the cryptocurrencies exceeds 50,000 euros, this Informative Form must be presented.
Cryptocurrency value
The value of cryptocurrencies depends on the purchase and sale operations programmed by the people who want to buy or sell these virtual currencies; that is, the value depends on the supply and demand of cryptocurrencies.
- The purchase and sale operations that are carried out.
- The agreements that the miners may reach regarding the price.
- The trust of users in its value.
The cryptocurrencies are highly volatile, and maybe an investment today is worth thousands of dollars’ worth only a few hundred tomorrow. For example, Bitcoin has gone from being worth a few cents at the beginning to $1,000 in 2013 or $230 in 2015.
Cryptocurrency security
Cryptocurrencies are not backed by a bank or by a State; the support is obtained from the supply and demand in the market and acceptance as a means of payment in shops and platforms.
The Blockchain or chain of blocks is the technology that sustains cryptocurrencies. This technology allows controlling all the cryptocurrencies that circulate and the operations that are carried out.
Each cryptocurrency has its Blockchain and its registry, which has a ledger function, among others.
This is one of the most critical questions that investors in digital currencies often ask themselves. Cryptocurrencies are relatively safe thanks to blockchain technology, but hackers can attack them. For this reason, it is essential to choose secure platforms to buy or store digital currencies.