The taxation of sales of crypto assets, including virtual currencies (i.e. cryptocurrencies), remains for individuals after 1. 1. 2024 in principle the same as it has been so far. As the abolition of the “crypto amendment” has caused a great wave of resentment among investors in crypto assets, in this article we will look at some options how this tax burden can be reduced or eliminated in practice, even in the absence of the changes envisaged by the “crypto amendment”.
Find out at more about cryptocurrency taxation 2024 in a new updated article.
How are Bitcoins and cryptocurrencies taxed in Slovakia (virtual currencies)? See the full article on Bitcoins and taxes.
If the article wasn’t enough for you and you wanted to learn more about how to tax cryptocurrencies, check out Peter Varga’s training.
Taxation of bitcoins and other cryptocurrencies [TRAINING]
The training presents a comprehensive legal-tax-practical basic insight into the tax optimization options for taxation of cryptocurrency income. The training covers not only the individual options under Slovak tax law.
The aim of the training is also to present the relevant legal, tax and practical contexts related to the use of foreign so-called “cryptocurrencies”.
The training will also focus on the practical aspects of the tax and tax implications of foreign jurisdictions that are “crypto-friendly”. In cross-border solutions, not only various “crypto-friendly” jurisdictions are taken into account, but also the ways of transferring the crypto-assets in question to such a company, both factually and tax-wise, legally and accounting-wise.
In this context, it is important to remember that, also from a legal and technical point of view, it is necessary to distinguish between the concepts of virtual currency and cryptoassets.
While a virtual currency by default only includes crypto-assets that serve as an equivalent to cash, a crypto-asset is a broader concept and covers, for example, various other types of tokens and coins that serve (also) purposes other than the execution of payment transactions. This distinction has relatively significant legal relevance (e.g. in the context of the regulation of money laundering, payment services, investment services, etc.) and in some cases extends to the tax level (in particular VAT).
The taxation of cryptocurrencies, especially at the level of legal entities, should thus be seen in its full legal-tax-regulatory-accounting complexity. It should be noted that the accounting method alone (e.g. revaluation to fair value) has, not only in Slovakia, a significant impact on tax implications.
Moreover, especially for more complex projects and platforms where taxpayers acquire crypto-assets on the basis of so-called “crypto-assets”, the impact of the accounting treatment of crypto-assets on the taxpayer’s financial statements is significant.
In more complex cases, such as those involving airdrop or staking, it is also necessary to know the legal and regulatory nature of the underlying crypto-asset in order to be able to attribute the relevant tax regime to it. Without a comprehensive approach, the taxpayer may, especially in the future, be exposed to the risk of arbitrariness of the tax administrator.
In principle, it is easy to find a country that taxes the sale of cryptoassets at an attractive tax rate.
However, there are several other contexts to keep in mind.
For example, the possibility of repatriation of profits back to Slovakia (for example, dividends from the UAE are taxed at a 35% rate), the application of CFC rules (more about CFC rules in the training by Peter Varga CFC rules 2022), the application of local VAT rules (because it is not true that every transaction with cryptoassets is exempt from VAT – more information here), factual challenges (crypto exchange changes, bank account, reporting and reporting), foreign company security requirements and costs, the practice of tax authorities in relation to anti-aggressive tax optimisation activities, obligations to account for every crypto asset transaction or theprotection element of European Union law.
In addition, the tax implications of transferring crypto-assets to a foreign company should also be borne in mind. In fact, some countries may revalue acquired cryptoassets to fair value in their books with adverse tax implications. It is also important to check what the tax value of the cryptoasset is when it is sold, as in Slovakia, for example, in a number of cases the tax value of the cryptoasset when it is sold/deposited is technically 0, which may escape the attention of advisers with more instantaneous solutions.
Moreover, a flagrantly set-up structure may have criminal connotations in the practice of the OCCT. In some of the more aggressive forms, the elements of the offence of tax and insurance evasion may be fulfilled.
Equally important is the form and manner of depositing cryptocurrencies into a foreign company, which is sometimes problematic in practice.
However, you can find out more generally about the use of offshore companies in 2021 in this training Peter Varga: Is it even worth having an offshore company today? Ak áno, komu a kedy?
In our current practice, we also record real moves of individuals abroad in order to change their tax residency. Thus, the training is devoted to the aspects of changing tax residence from Slovakia to another country and the individual conditions of “defensibility” of such a change.
When tax optimisation may constitute a criminal offence you can read in Peter Varga’s tax analysis of the case of Andrej Kiska and KTAG or in an article partly taken over and supplemented by the Trend portal.
Peter Varga is part of a working group of the Ministry of Finance of the Slovak Republic, which also aims to improve and streamline the taxation of cryptocurrencies in Slovakia.
The current regime, which in the worst case scenarios represents an effective tax-taxation of about 35% (FOs do not necessarily have to pay 25% + 14%), on the one hand forces the transfer of capital abroad and on the other hand creates an underbelly for tax and insurance tax evasion (i.e. concealment of income, etc.).
Moreover, in Slovakia, we register a certain absence of legal certainty and practical guidance from the financial administration in reporting relevant data for determining the tax base. In other words, especially for active participants in cryptocurrency trades, the overall administrative agenda associated with calculating the tax base is complicated, even impossible.
This creates room for arbitrariness, not only on the part of taxpayers, but also potentially on the part of the state, which may apply its own approach to the calculation of the tax base in the context of tax audits.
The current effort of Peter Varga as a member of the relevant working group within the Ministry of Finance of the Slovak Republic is topotentially create a framework for a special view of income in cryptocurrencies.
Although the philosophy around the definition of income is well established (i.e. the exchange of cryptocurrency for cryptocurrency is income) and our Income Tax Act is based on the standard definitional frameworks of the concept of income, it is possible to see some room for defining some exception just for cryptocurrencies within this initiative . This could, in its simpler and less generous version, mean providing practical clarification by the tax administration.
This clarification should mainly relate to the question of whether and when income arises from cryptocurrency trading and how to report it.
In addition, one could potentially legislate for a similar income tax exemption as we know for income from the sale of traded securities.
However, this more generous option works with the idea of postponing the generation of income from cryptocurrency trading(e.g. active trading within the crypto exchange platform) on a similar philosophical basis to the taxation of more standard income (e.g. business income) for individuals, where taxation is postponed until the funds arrive in the account. This would therefore be an exception to the generally accepted perception of the generation of income.
At first glance, it may seem that the main difference between the taxation (including levies) of cryptocurrency income between individuals and corporations lies in the absence of an obligation to pay health insurance premiums on cryptocurrency income for corporations. However, this is not quite the case.
In the case of legal entities, accounting also comes into play.
In addition to the examples mentioned above, when, for example, you acquire virtual currency in exchange for services or goods for accounting purposes, you have to value that virtual currency at fair value.
Subsequently, if there is a difference between the fair value and the receivable (the amount for the goods or services provided), this is not only part of the company’s income/expenses, but also part of the tax base of the legal entity , according to the tax administration .
On the other hand, in a very similar case where a legal entity acquires virtual currency for funds, it also measures the virtual currency so acquired at fair value for accounting purposes. However, if the cost differs from the fair value, the tax base of the legal entity is not affected (although it will be reflected as a loss or gain in the accounts).
In addition to the accounting aspects, the nature of the income from the sale of cryptocurrencies to individuals must also be taken into account, where there are several possibilities for their tax and tax treatment.
In addition, for legal entities, dividend tax, the preferential 15% tax rate, administrative costs as well as the issue of aggressive tax optimisation must also be taken into account.
The whole subject takes on a whole new dimension if it is extended to include foreign options.
The taxation of cryptocurrencies for individuals is different from the taxation of income from mutual funds, derivatives, securities or commodities. In principle, each of these incomes has a different tax and, to some extent, levy burden and, especially for actively investing individuals, it is an administratively interesting job when completing the tax return.
As mentioned above, the fundamental difference between the taxation of cryptocurrencies and securities is the absence of an income tax exemption for cryptocurrencies as we know it for traded securities.
In some cases, therefore, it is more worthwhile to establish a so-called
It is more profitable to set up a token company (in Slovakia or abroad) that pays dividends out of taxed profits.
Yes and no.
Again, in certain cases, the use of an offshore company for these purposes may fulfil the elements of the offence of tax and insurance evasion.
On the other hand, in a number of cases it is still possible to use such offshore companies today.
However, it is important to consult an expert who can tell you not only about the tax rates in a given country, but also about the legal context (i.e. “defensibility” in Slovakia, exclusion of criminal liability, etc.) as well as the practical aspects.
It is the practical aspects that may be key in the decision-making process for offshore companies today (e.g. bank account, maintenance costs, possible travel, etc.). More about this topic in the training: “Is it even worth having an offshore company today? Ak áno, komu a kedy?“
In general, cryptoassets can be divided into three basic groups:
In several cases, the function of a particular crypto-asset overlaps.
For example, in token issuance, it is possible that the token in question has a utility function (e.g., entry into an ecosystem) but also a financial-investment function.
The investor wants to acquire the token because he believes that it will increase in value.
The classification of a particular cryptoasset into one of the groups helps especially with the VAT treatment of cryptoassets (it is not true that every transaction with cryptoassets is exempt from VAT – more information hereIt is also important from an income tax perspective, especially in jurisdictions that recognise the different types of these assets in more detail and attribute different tax (accounting) regimes to them.
At Highgate Group, we also handle a number of complex crypto-related projects. For example (only publicly known information is given):
We are one of the few (if not the only one) in the Slovak Republic providing clients with comprehensive tax, legal and accounting advice for companies, services and products using blockchain technology. We provide comprehensive advisory services in the field of regulation and taxation of cryptocurrencies, setting up and establishing fund structures investing in virtual currencies, as well as in the field of regulatory analysis, design and implementation of financing structures for companies using the tokenization of services, tangible and intangible assets (ICO, UTO, STO).
Bitcoin is the first and most widely used cryptocurrency or digital, virtual currency.
Bitcoin first appeared in the public domain 3.
1.
2009.
The person or group behind its creation is a person who goes by the pseudonym Satoshi Nakamoto.
Bitcoin allows you to make payments anywhere in the world, no bank account or bank registration is required.
Global payments operate on a peer-to-peer technology that is not subject to any institution controlling and influencing Bitcoin and other cryptocurrencies.
Transactions are written to a decentralized blockchain database.
The key features of bitcoins and cryptocurrencies are different from the functioning of traditional currencies:
Cryptocurrencies are a type of electronic digital currency or electronic money (Bitcoin is also a cryptocurrency).
It is a modern payment medium that was created for the purpose of:
In the general muster of cryptoasset types, cryptocurrencies are by default classified as so-called. Cryptocurrencies are generally classified as virtual currencies. T This concept is also recognised by the Slovak legal system in several regulations. These include, for example, the Act on the Legalisation of the Proceeds of Crime, accounting regulations or the Income Tax Act. Therefore, it is not legally settled whether all existing cryptoassets can be subsumed under the currently recognisable legal concept of ‘virtual currency’.
Bitcoin has been around since 3. 1. 2009 (date of launch). For example. On 20.11.2015 you could buy 1 Bitcoin (1 BTC) for 307.02 EUR. The whole system was based on a peer-to-peer open source network. The latter provides a decentralised network of users. It is believed that Satoshi Nakamoto is behind everything. Name or pseudonym. A person or persons who to this day conceal their identity. Believed to have originated in India. Even if the identity is hidden the fact remains that Satoshi Nakamoto owns a fortune of over 1,000,000 BTC.
Law & Tax
Tomas Demo
tomas.demo@highgate.sk
Accounting
Peter Šopinec
peter.sopinec@highgate.sk
Crypto
Peter Varga
peter.varga@highgate.sk
Highgate Law & Tax
Nivy Tower, Mlynské Nivy 5,
821 09 Bratislava
Slovak Republic
Highgate Accounting
Nivy Tower, Mlynské Nivy 5,
821 09 Bratislava
Slovak Republic
E-mail
info@highgate.sk
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