Treasury experts have put the magnifying glass on these digital assets and tax experts warn about the dangers of failing to comply with the obligations with the treasury
The cryptocurrency market is boiling. Interest in these digital assets has increased since the start of the pandemic. According to the Statista Global Consumer Survey, 10% of the Spanish population already uses or owns cryptocurrencies such as bitcoin, which means just over 4 million people. Spain, on the other hand, is not among the countries in which these virtual currencies circulate the most. Nigeria is the most attractive state for this market according to Statista: 32% of its population say they have these coins.
This interest in investing in digital assets is concentrated in the younger generations. According to a CNBC Millionaire survey, more than a third of millionaire millennials have at least half of their wealth in cryptocurrencies and close to 50% own NFTs. Cryptocurrencies have become in a few years the main source of wealth generation for many of these investors.
Given the boom, Treasury experts have already put the magnifying glass on these digital assets. The commission of experts for tax reform convened by the Minister of Finance, María Jesús Montero, is looking for a way to surface some profits that escape the treasury, as well as redesign taxes to better tax digital currencies.
But citizens still have many questions about how to manage these assets. Above all, because they still do not have a specific regulation. The European regulation MiCA (proposal for the Regulation of Cryptoactive Markets) is still in the process of being prepared and is not expected to begin to be applied until at least 2024.
In this sense, one of the issues that most worries investors is how cryptocurrencies are taxed. The doubts range from when they must be declared, going through what taxes must be paid to what sanctions the offenders can face for not complying with the Treasury.
We must start from the fact that the holders of these virtual currencies in Spain have to comply, like the rest of the taxpayers, with the obligations of personal income tax and wealth tax. The difference is that the high speculative component of the value of cryptocurrencies can give more than one a scare.
The expert Fernando Fuster-Fabra, partner at Fuster-Fabra Abogados, answers the most common questions about the taxes that investors in bitcoin, Ethereum, or any other cryptocurrency must pay.
What taxes do I have to pay for cryptocurrencies?
These assets are the virtual representation of a value, and, therefore, are accounted for as part of the owner’s equity. If he is a tax resident in Spain, he must declare his possession in the Wealth Tax (IP) in case of exceeding the legal threshold for it (as a general rule, when the value of his assets or rights, determined in accordance with the regulations of the tax, is greater than 2,000,000 euros). Also its transmission, both in the personal income tax (IRPF) and in the tax on inheritance and donations. In the case of wealth tax, simply for owning the cryptocurrencies and forming part of the taxpayer’s wealth and, in terms of income,
In this regard, it should be noted that the Tax Agency already has the taxpayer’s calendar for 2022 posted on its website. on June 30 for taxpayers who have to deposit their tax quota in the Treasury. For those for whom the declaration goes out to enter with direct debits in account, the deadline will be June 27.
Receiving cryptocurrencies in inheritance or as a gift is also taxed, in both cases in accordance with state and regional inheritance legislation. Thus, tax residents in Spain will have to declare the value of the digital currencies that they leave them, which according to the state regulatory framework, are taxed at rates ranging from 7.65% to 34%. But, here we must take into account, above all, the regional regulation. A resident of Madrid, for example, may apply a bonus of up to 99% depending on the degree of kinship with the deceased or donor.
So, if I buy cryptocurrencies, but I don’t sell them, do I have to declare them to the Treasury?
It depends on the tax in question. As Fernando Fuster-Fabra explains, in personal income tax it will only be necessary to declare the profits reported by the returns, transmissions or sales of cryptocurrencies. These amounts, he adds, “should be included in the tax base of the income tax savings.” A section that covers both the interest left by deposits and accounts in banks, as well as the positive balance resulting from calculating the capital gains and losses derived from the transfer of assets (property, shares, investment funds, etc.).
However, he warns, “there are two other moments in which the obligation to declare arises due to the mere possession of said assets.”
The first of these would be when the taxpayer is required to file the wealth tax. That is, those with assets above two million euros and whose declaration goes out to pay. In this case, in accordance with article 24 of Law 19/1991, on Wealth Tax, the taxpayer must write down the economic price of the cryptocurrencies that he possesses at that time. “In agreed cases, when the obligation to present the tax arises, said assets must be duly declared,” insists Fuster-Fabra.
Secondly, the lawyer points out, “when the cryptocurrencies are abroad and exceed a value of 50,000 euros, and, once declared, each subsequent year in which the variation in value is greater than 20,000 euros”.
Does the purchase of cryptocurrencies carry VAT?
No. The purchase of these virtual currencies is exempt from VAT for both the buyer and the seller. Pursuant to tax regulations, VAT is only applied to the purchase of goods or services.
This is established by the VAT regulatory law in its article 20 when exempting from payment “financial operations” such as the purchase, sale or exchange of analogous services whose purpose is foreign currency, bank notes and coins that are legal means of payment. Therefore, explains Fuster-Fabra, “the purchase itself of these assets considered as virtual currencies, is exempt from VAT”.
Is there a difference between taxing the sale of cryptocurrencies and that of shares?
Technically there is no difference between the sale of cryptocurrencies and the sale of shares. Regardless, Fuster-Fabra clarifies, “of the debate that may exist about the true nature of crypto assets.” Therefore, it deduces, the profit or difference between the acquisition and transmission value will be taxed on the tax base of the personal income tax savings.
What percentage of profits must be paid? Does it vary if you earn more or less?
Between 19% and 26% of what is obtained. The income tax is progressive, and, therefore, establishes different percentages on the capital increases recorded depending on the volume of the profit obtained. Therefore, yes, the amount of money that will be paid will depend on whether the operation with cryptocurrencies has been more or less profitable.
“Since it is a capital gain to be integrated into the savings base, taxation ranges between 19% and 26% depending on the amount of the gain obtained,” explains Fuster-Fabra. As she clarifies, 19% will be applied to the first tranche, which reaches up to 6,000 euros; 21% on the second tranche, which is between 6,000 and 50,000 euros; 23% for the range from 50,000 to 200,000 euros; and, finally, 26% for those capital gains that exceed 200,000 euros. Therefore, she indicates, “we can affirm that as capital gains increase, the tax rate increases in the four aforementioned segments.”
However, the final tax amount to be paid will depend on other variables (income, real estate operations, etc.) and on the financial situation of each taxpayer.
How should cryptocurrency staking earnings be taxed? Do they tax when you receive the cryptocurrencies, when you sell them, or another formula?
They are taxed when the return obtained by staking is received , conveniently declaring them in the personal income tax return. The staking process consists of acquiring cryptocurrencies and keeping them locked in a virtual wallet to receive profits or rewards. Being considered as a kind of dividend, explains Fuster-Fabra, the profits “would be included in the savings base, taxed at a progressive rate depending on the amount of the profit (19%, 21%, 23% or 26%). “.
It is also essential to point out that in a very recent binding consultation of the General Directorate of Taxes (DGT) it has been determined that cryptocurrency staking itself is taxed by VAT (but not the profitability that it can produce by those people who have the condition of entrepreneurs or professionals, which constitutes an operation subject to but exempt from VAT, in accordance with article 20. One. 18, since said profitability is the result of the transfer of the cryptocurrencies). Just as the purchase and sale of the same is equated to the transmission of classic currencies, staking is equated to the common bank deposit (service for which banks charge 21% VAT). Therefore, the profitability of depositing cryptocurrencies in asmart contract is subject to the tax, since the management, administrative or deposit services are not financial in nature and therefore do not benefit from the Tax exemption.
If I have more than 50,000 euros in bitcoin abroad, do I have to notify the Treasury at the beginning of the year using form 720? What are the penalties for not completing it?
If you have more than 50,000 euros in cryptocurrencies abroad, you have to declare your possession through the famous model 720 that has recently been knocked down by European justice. Despite this, says Fuster-Fabra, the obligation to notify these assets remains in force. “The future way of declaration will be through the 721 model currently under development by the Tax Agency,” says the expert. The “current” penalties for not reporting these assets have been annulled by the Court of Justice of the European Union, which could amount, upon prior request by the Tax Agency, to 5,000 euros per piece of data or set of data.
It must be remembered that the deadline for submitting the form is set between January 1 and March 31 of the year following that to which the information sent to the Treasury refers. That is, cryptocurrencies purchased on a Norwegian platform in 2021 must be declared from January 2022.
If on December 31 I transfer the cryptos to a physical device (cold wallet), do I no longer have to fill in the 720 form?
No, they will have to be declared. As Fuster-Fabra explains, “Form 720 declares the real ownership of the cryptocurrencies during a certain fiscal year, with December 31 being the last day of this, so, technically, any transaction carried out that day by the obligor taxpayer will have to declare in the model”.
If I have earnings in cryptocurrencies in the first quarter of 2022, but then I move to another country (Portugal, for example) the rest of the year, can the Treasury sanction me?
Only if the tax obligations with Spain are not fulfilled. As Fuster-Fabra clarifies, “The Treasury cannot sanction you for moving to another country, but it can do so if, when you change residence, the legal requirements regarding the declaration of the income obtained are not met, or it is done for a purely tax evasion, that is, the case of change of residence to avoid paying taxes”.
In this sense, the income obtained in Spain must be declared, through form 100 of the IRPF if you continue to be a tax resident (when you live for more than 183 days, that is, more than six months, in the country), or through model 210 for non-residents.
Thus, the Treasury could sanction the taxpayer “in the event that, due to malicious or negligent action, said returns have not been declared or, when it is proven that the change of residence was made for a reason of tax fraud, that is, to reduce or annul the taxation that would have resulted if the taxpayer had declared the income as a Spanish tax resident”.
If I move to another country (and live there for more than 6 months), can the Treasury put obstacles in my way to remove me from the treasury because I have a home or a company in Spain?
Not at the beginning. The fact of having a home or a company is not decisive in itself to link tax residence in Spain. For this, a series of requirements must be met: residing in a country for more than six months, obtaining a tax residence certificate and notifying the change in the Treasury. However, Fuster-Fabra points out, “it may be an indication that the taxpayer in question maintains his center of personal and professional interests in Spain.”
As the lawyer underlines, “the condition of residence of 183 days in the country is a necessary requirement, but not sufficient, to prove residence in another country outside of Spain in a given year or moment.” Thus, “in addition to the temporary requirement, it will be essential to have a tax residence certificate issued by the foreign country in which you resided outside of Spain, and you must also notify the change of residence abroad through the corresponding form 030”.
How do you apply for deregistration from the Spanish Treasury? Is it necessary to spend 6 months in another country or can it be done since you are registered abroad?
The withdrawal, or rather the change of address, is declared through form 030 within one month of the change or modification. “It will have to be accompanied by the supporting documentation that proves the change of residence,” says Fuster-Fabra. The registration, for these purposes, he clarifies, “is irrelevant since what is necessary to prove the change of residence abroad goes through the notification through the aforementioned model, as well as obtaining a tax residence certificate in the country to which it is transferred. has displaced the taxpayer”.
What are the penalties for not paying taxes correctly?
The General Tax Law establishes various sanctions for situations such as failing to enter the tax debt, failing to comply with the obligation to present it completely and correctly, improperly requesting tax refunds or benefits, improperly determining or accrediting positive or negative items or apparent tax credits, among others. .
As the lawyer Fuster-Fabra explains, “the amount improperly declared will be taken as the basis for the sanction, and may be classified as minor, serious or very serious based on different qualifying elements of the infraction, which can mean from 50% of the regularized tax quota if it is classified as minor, up to 150% in case of being classified as very serious”.