27 Abr How are taxes calculated in crypto?
Cryptocurrencies have gained popularity as a decentralized digital currency, leading to significant debates about their legal status in Spain. In this article, we discuss potential ways for profitability, such as mining and trading, and how are those earnings taxed.
As long as the legal status of cryptocurrencies in Spain remains ambiguous –with no legislation of its own, growing between the loopholes of existing regulations– and paying taxes on the profits one makes with them is an obligation, it is logical that there are concerns about how tax obligations are calculated. In this article, we’ll discuss this issue.
There are two different activities regarding cryptocurrencies that are subject to taxation: trading and mining.
Regarding trading, first of all, it’s important to review quickly how a person obtains, and operates with crypto. An individual who considers buying and selling cryptocurrencies in order to make a profit from savings, transfers euros from his bank account in Spain to another foreign currency account held abroad. With the foreign currency obtained in the exchange he acquires cryptocurrencies through a platform (a crypto wallet, for example); subsequently, through the same platform, he transmits in exchange for euros that are deposited in his bank account in Spain. With the euros obtained, he repeats this operation several times. In this dynamic, the gain or loss obtained from the sale of cryptocurrencies is calculated as described above, being allocated to the IRPF period in which such transfers are made.
In addition, in the tax period in which the transfers are made, the results derived from the differences in the exchange rate that may exist between the price in euros at which the currencies used in the purchase of the cryptocurrencies being transferred were acquired, and the equivalent value in euros of such currencies on the date of acquisition of the aforementioned cryptocurrencies, must also be booked as a gain or loss. Such gains or losses constitute savings income.
Finally, depending on the balances of the monetary accounts abroad or the conditions of holding the cryptocurrencies, the taxpayer could be obliged to comply with the reporting obligations relating to the declaration of assets and rights located abroad (LGT disp.adic.18ª.a) and d).
As for mining, there are some differences. To legally mine cryptocurrencies in Spain, the miner or owner of the machines that will be incorporated into the network must present himself before the Ministry of Finance and describe, in a series of documentation, all the activity he performs.
In more detail, the miner will have to register or appear as active in the Census of Entrepreneurs and Professionals of the Spanish Tax Agency. To do so, he will have to inform that he will exercise the activity under heading 831.9 of Section One (Business Activities) of the Economic Activities Tax (IAE) tariff, called «Other financial services not included in other points». All this declaration will be made through forms 036 and 037 before the Tax Authorities. The first model is essential to be able to work in Spain as a self-employed or as a Limited Company. And the second one is to register as a self-employed worker.
Miners of Bitcoin and other cryptocurrencies in Spain, represented in natural or legal persons, have a main tax liability. This has to do with the tax on the yield obtained, that’s to say, the profits or rewards for mining.
If it is a natural person who declares, the Spanish State will pay IRPF. On the other hand, if it is a legal entity, it will be subject to Corporate Income Tax (IS).
On the other hand, regarding VAT on mining activities, it should be noted that the amounts paid are not subject to this tax. In other words, there is no need to pay VAT on the profit obtained by mining bitcoin, for example. This is due to the fact that there is no direct relationship between the service provided and the consideration received, in addition to the lack of a legal relationship between the service provider and the recipient of the service.
As it was said before, although Spain lacks clear legislation for the crypto ecosystem, being a member of the European Union it must adapt to the proposals set out in the draft Markets in Cryptoassets Act (MiCA). The new regulation was finally agreed by the European Parliament in mid-2022 and is expected to come into force this year.