Tax authorities and cryptocurrencies in Spain

Hacienda y bitcoin en España
9 min read

If you are one of the lucky ones who bought Bitcoin or other cryptocurrencies a couple of years ago and have now managed to sell them taking advantage of the incredible rally that Bitcoin has had in recent months, then CONGRATULATIONS!

But, when this spring/summer comes to an end, you will be dealing with your tax return and your brother-in-law or your lifelong friend who ‘knows everything’, will feed your doubts about the need to declare them, so don’t panic! 

In this article we will clarify all your doubts about the Tax Authorities and cryptocurrencies in Spain, so that you will be prepared.

Cryptocurrencies today

Government policies to increase the money supply, especially with the advent of the pandemic that has brought the entire world to its knees, has caused cryptocurrencies to gain more and more ground every day, becoming the trend of 2021.

Today we can say that anyone, even those who had no idea what cryptocurrencies were, know what a bitcoin is and are interested in buying it and ‘trying’ to invest in this asset.

The growing interest in cryptocurrencies, together with the increasing number of people who wish to invest in them or who simply want to try out this novel and revolutionary refuge of value, has meant that tax agencies around the world have begun to monitor them, in order to regulate their use and circulation and control their fraudulent use.

Today there are almost 7,000 cryptocurrencies on the market and most central banks around the world are busy creating their own digital currency (CBDC), among them the European Central Bank has already announced the future launch of the digital Euro.

Uses of cryptocurrencies

Well, before getting to the point and explaining whether cryptocurrencies need to be declared in the next income tax return, it is important to know how they are used.

Cryptocurrencies can be used as: 

  • Means of payment: on October 22, 2015, a famous judgment of the High Court of Justice of the European Union considered bitcoin a means of payment and not a mere financial security.
  • Investment tool: since many users, due to their high volatility, buy these assets with the sole purpose of investing and obtaining future profits.

Paying taxes on cryptocurrencies
What do the regulations say?

So you are a cryptocurrency holder and you don’t know what taxes you have to pay? Here’s what you need to do.

Until today there has been a regulatory gap that has given rise to many doubts on the subject of taxation where, for other types of transactions, very precise, and specific rules are provided for.  In fact in the Spanish tax legislation there is no mention of how to declare bitcoins and other cryptocurrencies and there is no specific regulation.

However, there are several binding consultations from taxpayers, resolved by the General Directorate of Taxes, regarding the taxation of gains obtained with cryptocurrencies. 

  • For example, when exchanging one virtual currency for another, a gain or loss is produced that gives rise to an alteration of assets and, therefore, must be included in the personal income tax return (Binding Consultations V808-18 and V0999-18 ).
  • The tax authorities may even initiate an investigation in case they detect anomalous inflows of capital in bank deposits and may trace the exchange of cryptoassets to euros on exchange platforms linked to their bank accounts. 
  • There is already a Draft Bill for the Reform of the Tax Fraud Prevention Law (which has not yet been approved) in which the platforms that operate with cryptocurrencies will be obliged to inform the Treasury of the data of the users who carry out transactions with cryptocurrencies and the amount of such transactions. 
  • Another Draft Bill on the Reform of the Money Laundering Law will oblige platforms that operate with cryptocurrencies to register in a public registry to report customer transactions that may be suspicious of money laundering.
  • Finally, the 2021 Annual Tax and Customs Control Plan (BOE/1 February 2021) , requires “obtaining information from various sources on transactions carried out with cryptocurrencies. Its incorporation to the model of goods and rights abroad is foreseen, as well as the establishment of an autonomous informative obligation on cryptocurrencies”. This means that crypto-assets will be obliged to be included in the Model 720.

Do cryptocurrencies have to be declared to the tax authorities?

Hay que declarar las criptomonedas

So, do you have to declare your cryptocurrencies to the tax authorities?

There are 3 possible scenarios to consider when declaring or under-declaring your crypto assets to the IRS.

Let’s see what they are: 

CRYPTOCURRENCY TRANSACTIONS

  • I bought €1,000 worth of Bitcoin, do I have to pay taxes on it? 

If you have purchased Bitcoin or any other type of cryptocurrency, you do not have to pay any tax. In fact cryptocurrencies should be understood as included in the concept of “other commercial effects” since they will be considered as currencies for all purposes and as a means of payment. Therefore, like all currencies, they are exempt from taxes.

  • I bought a mining rig to mine bitcoin and paid 0.012 BTC. Do I have to pay taxes?

In the case of a product that is already subject to taxes, you will have to pay this tax (either in euros or in the corresponding cryptocurrency). 

  • I am a miner and I have earned rewards for my mining activity. Do I have to pay tax?

In this case you also do not have to invoice with tax since the rewards do not have a defined customer.

CRYPTOCURRENCY INVESTMENTS

  • 2 years ago I bought BTC for 2,000 euros and now I have sold the same amount earning 16,000 euros. Do I have to declare them to the tax authorities?

In this scenario, being a gain, you will have to declare to the Treasury what you have earned by selling your Bitcoins. All profits or losses obtained from the sale and purchase of cryptocurrency must be declared to the tax authorities and the corresponding income tax must be paid. 

If the total of your assets, added to the amount of cryptocurrency money you own, exceeds a certain amount (the exempt minimum depends on each autonomous community), the taxpayer will have to declare such value in the Wealth Tax

When declaring the cryptocurrencies held, you must include the value of the cryptocurrencies at the exact moment you make the tax declaration, as they are very volatile assets. 

On the other hand, in case of investment losses, you will be able to offset these losses against gains from other invested products of the same category.

As I already advanced you previously, once the 2021 Annual Tax and Customs Control Plan is approved, it will be mandatory to include investments in cryptocurrencies in the Model 720 (declaration of assets and rights abroad).

CRYPTOCURRENCY INHERITANCE

  • My grandfather was very avant-garde and had invested a lot of money in Bitcoin. Then, after his death, he left me Bitcoin for a current value of 80,000 euros. Do I have to declare them to the tax authorities?

In this situation, being an inheritance, you will have to include it in the declaration of the ISD: Inheritance and Donations Tax. 

As you have seen, the Tax Agency has various means to obtain information on bank accounts, purchases made on Exchanges and purchases of goods or services made with payments in cryptocurrencies. Therefore, when declaring your assets, if you do not want to incur a fine, it is important that you have the help of an expert in taxation and cryptocurrencies.

If you need experts in tax matters, do not hesitate to contact Bitnovo. Our team of experts will help you clarify all your doubts in tax matters so you can enjoy your cryptocurrencies in total freedom and peace of mind.

Finally, if you want to keep up to date with the latest news on tax matters, follow us on the blog and on Social Networks.

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