Cryptocurrencies and Form 720 Spain – 2021 Update

We are very close to the beginning of the year 2022, and it is important to remember that, if you have assets and rights abroad and meet the legal limit, you must submit, between January 1 and March 31, Form 720 Spain (declaration of assets and rights abroad) which corresponds to the year 2021. This year, in addition, with the anti-fraud law, it is necessary to consider cryptocurrencies. Today’s article will tell you how to declare cryptocurrencies in Form 720 Spain and who must do it.

In June, the law on measures to prevent and fight tax fraud was published, in which changes were introduced to have tax control over taxable events related to cryptocurrencies. Until then, the Treasury did not have a legal basis to control operations with virtual currencies, which reduced the collection.

New obligations about cryptocurrencies

The regulation of cryptocurrencies is evolving in Spain to control the transactions carried out with this type of asset. On the one hand, the transposition of a European directive on the use of cryptocurrencies has been carried out, which has meant that Spanish law regulates the creation of a registry of virtual currency providers that are located in the Bank of Spain, in a way that these providers must register in that registry and thus avoid anonymity.

On the other hand, the new regulations have established the following obligations:

• Exchanges (that is, the companies where transactions with cryptocurrencies are carried out) should provide data about the people who carry out operations with cryptocurrencies: address, tax identification, price and date on which the cryptocurrency purchase was made.
• In addition, people who have cryptocurrencies abroad must include them in Form 720 Spain. Until now, this obligation was not expressly established in the law, which regulated the duty to report ownership as of December 31, each year of finished goods abroad such as bank accounts, financial products or real estate, but did not expressly mention cryptocurrencies.

In which cases should cryptocurrencies be included in the Form 720 Spain?

For cryptocurrencies to be included in Form 720 Spain, it must be understood that they exceed a specific limit and are located abroad. The regulatory norm of Model 720 establishes that bank accounts located abroad must be declared when they exceed the joint limit of 50,000 euros; therefore, if the balance of the accounts is below that limit, there is no obligation to declare. Although concerning cryptocurrencies, a specific limit has not been established; for the moment, it is considered that this limit of 50,000 euros is the applicable one.

Another critical issue regarding cryptocurrencies and Form 720 Spain is establishing when cryptocurrencies are considered abroad. In the case of ordinary money and other financial products, it is easy to establish when they are abroad because they are deposited in specific financial entities that may be in Spain or outside of Spain. However, virtual currencies are stored in virtual purses or wallets that have two functions: to store the address where the virtual currency is located and to keep track of the encryption keys used for transactions. There are two types of wallets: cold wallets, which are hardware devices for storing cryptocurrencies, and hot wallets, which are those that allow you to store and operate virtual currencies. The type of purse and the place where they are located will determine the obligation or not include cryptocurrencies in Form 720 Spain. In the case of hot wallets, the obligation to present Form 720 is derived from the place where the server where cryptocurrencies are stored. That is, we must know the place where the Exchange is located from which we carry out operations with cryptocurrencies.

In the case of cold wallets, the issue is more complicated since they are devices that can be transported, and their location could change. In this case, the virtual currencies must be included in Form 720 Spain when the physical location of the wallet is abroad.

Currently, the regulations do not regulate when a virtual currency is considered to be abroad, so reform is expected to clarify this aspect through a regulation.

What happens if cryptocurrencies are not declared in Form 720 Spain?

Although Form 720 is an informative return, failure to present it, when required, can result in the imposition of relatively high penalties. The penalty for non-compliance with the obligation to report on the possession of virtual currencies found abroad consists of a fixed monetary fine of 5,000 euros for each piece of data or data set related to each virtual currency, according to its class, with a minimum of 10,000 euros. This sanction will be imposed if the virtual coins that should have been declared are not included in Form 720 or incomplete, inaccurate or false information is included.

On the other hand, a penalty of 100 euros will be imposed for each piece of data or set of data referring to each currency with a minimum of 1,500 euros, if the return is filed after the deadline and without prior request from the Tax Agency.

As a consequence of all of the above, if you have cryptocurrency located abroad, you must have the advice of an expert in the taxation of cryptocurrencies who analyses your case, guides you on the obligation to declare Form 720, prepare it correctly and present it on time, to avoid penalties from the Treasury.