On November 3rd, Binance and Sorainen organized a webinar about the application of taxes to cryptocurrencies in Latvia. It is available in the Binance account on YouTube or Facebook.
We have received countless questions from our community and therefore couldn’t provide answers to each and every one of them. We chose the most common questions, and Sorainen tax experts provided answers during the webinar. In this article, you will find frequently asked questions and their answers. We hope that you will find this information useful.
Binance would like to thank Aina Oksenuka and Aija Lasmane for their time and for sharing their expertise.
You can always contact Sorainen if you need tax or legal advice.
This presentation should not be considered tax and/or financial advice. We have not evaluated the conditions of your particular case.
Legal acts and their interpretation can change rather quickly. There may also be situations when legal acts are equivocal and/or their impact and consequences are unclear.
To explore procedures for the application of taxes in your specific situation, please contact a tax advisor.
Capital gains – income (profit) from the sales of crypto. Subject to 20% personal income tax. Social contributions are not applied.
Sales of virtual currencies (appropriation) is an exchange transaction resulting in obtaining an official currency, asset (payment in kind) or other services (explanation provided by the SRS).
Price for the appropriation of a capital active - initial purchase value
The sales/purchase price of a virtual currency is considered payment in kind or a fiat payment.
If it is impossible to determine the initial purchase value of a capital active, its purchase value is considered 0.
Calculation of purchase value: FIFO or weighted average price method can be used. This method has been used for at least 10 years. Expenses related to the acquisition of cryptocurrency (fees, state duties) can be included in the purchase value.
Example:
A purchased Bitcoin for USD 1260 (converted from USD to EUR at the established conversion rate at the moment of purchase - EUR 828.95) on 15 December 2015;
A sold for EUR 1260 on 2 May 20XX.
→The taxable income is EUR 431.05 (1260 – 828.95).
- Gift. If virtual currency has been obtained based on a gift agreement, its purchase value is considered to be equal to the respective value of the specific virtual currency stated in the gift agreement, and it doesn’t exceed the appropriation price of the virtual currency.
- Inheritance. If virtual currency has been obtained as a result of inheritance, its purchase value is equal to the value of the specific virtual currency included in the estate.
On what day is the income considered obtained?
The day of the income is the day when the payer receives money or other assets.
If, as a result of an exchange of virtual currencies, one virtual currency is exchanged with another and the value of both the currencies has increased since the purchase of the first virtual currency, the tax payment obligation is postponed until the virtual currency which was obtained as a result of the exchange is converted into Euro or other currency.
Example: in January 20XX Atis exchanged Bitcoin, that had been previously purchased for EUR 850, with Ethereum, hence obtaining an increase in value, but in September 20XX he sold it for EUR 1,000 and at the end of the same month purchased Bitcoin again for EUR 1,000. The taxable income is EUR 150 (1000 – 850). Atis has to submit his declaration on capital gains income by January 15 of the following year.
Quarterly declarations. By the 15th date of the month following the quarter, provided the total income from transactions with capital assets in the quarter exceeds EUR 1,000 (April 15, July 15, October 15, January 15).
Annual declaration of capital gains. By January 15 of the year following the taxation year, provided the total income from transactions with capital assets in the quarter doesn’t exceed EUR 1,000.
The calculated tax amount is to be paid by the 23rd date of the month in which the declaration of capital gains income is to be submitted.
Losses can be covered by positive capital gains from the appropriation of cryptocurrencies (adjusted declaration of annual capital gains income is submitted starting from March 1 of the post-taxation year).
Example:
On 5 January 20XX Brigita sold Cardano for EUR 1,500, which had been purchased for EUR 1,550.→Losses of EUR 50 occured.
In March of the same year she purchased Bitcoin for EUR 800 and sold it in September for EUR 1,810. By October 15 of the same year Brigita submits her declaration of capital gains income declaring EUR 1,010 (1810-800) and pays EUR 202 in tax (20% of 1,010) by October 23.
As of March 1 of the following year, she submits an adjusted declaration of annual capital gains income in order to recover the overpaid tax for losses in the January transaction.
Income from business activities – if virtual currency is sold in the course of the business – is generated and received as remuneration.
The income is subject to personal income tax (20%/23%/31%) and social contributions for the self-employed.
Expenses related to an economic activity might be considered banking fees, internet domain fees, as well as registration, software maintenance, internet and advertising expenses.
Expense limitation – 80% of annual revenue, excluding labour costs, real estate tax and depreciation of fixed assets. (In 2020 and 2021, the limitation of 80% is not valid)
An alternative – micro-enterprise tax. 25% for annual revenue up to EUR 25,000 and 40% for the amount of revenue that surpasses EUR 25,000 in the respective year.
Cryptocurrency transactions are to be reflected in a company’s accounting records just like any other transaction that changes the property status of the company.
In accounting, cryptocurrency is not considered a financial instrument or a financial asset, however, it needs to be recorded as stock in current assets. It is comparable to goods that can be used as a means of exchange upon the decision of parties.
As set out in the Law on corporate income tax, 20% corporate income tax is paid at the moment of distributing profit.
The Law on corporate income tax does not stipulate any special rules pertaining to the application of the tax to crypto transactions.
For the purpose of the application of the corporate income tax, cryptocurrency is in fact comparable to any goods.
VAT is not applied to purchase and sales transactions (Decision of the Court of Justice of the European Union of 22 October 2015 on the case C-264/14, pertaining to proceedings of Skatteverket against David Hedqvist).
Cryptocurrency trading itself does not create the obligation to enroll in the SRS register of VAT payers.
Cryptocurrency exchange fee is subject to 21% VAT.
The tax is applied at the moment of acquisition of income. The moment of acquisition of income is when crypto is sold and you receive EUR or goods/services in return, regardless of the account where the money is held. While you’re only holding crypto and do not sell it, no income is generated and no reports need to be submitted.
If there are only losses in the quarter, no declaration is submitted and no tax is paid.
2 - Is staking treated as crypto mining?
1. Profit is calculated each time one sells crypto and receives money in return (EUR, USD, etc.).2. If you receive crypto as a result of providing a service, the taxation order of business activities is applied.
The tax is applied when income has been generated. The moment of acquisition of income is when crypto is sold and EUR or goods/services is received in return.
Do you have to pay tax on crypto donations?
If you donate your cryptocurrency, the price of appropriation in this case is 0 and no capital gains are generated.
Yes, we are referring to 20% personal income tax for capital gains. There can also be taxes that are applied to performers of economic activities.
If no capital gains (profit) is generated, no tax is paid.
Do I have to calculate profit and pay the tax if the asset is held in a cryptocurrency account, or do I have to calculate only the part that is held in fiat in relation to investments?
The tax is applied only when income is generated. The moment of acquisition of income is when crypto is sold and EUR or goods/services is received in return. No income is generated while you hold crypto and do not sell it.
The tax is applied at the moment of acquisition of income. The moment of acquisition of income is when crypto is sold and EUR or goods/services is received in return, regardless of the account where the money is held.
The bank statement shows that € 1,000 was transferred to Binance, but the amount received came from another exchange.
In order to deduct the purchase value, you need to have documents confirming the transactions - printouts, payment orders, etc. If the value of the purchase can be proved, you have the right to deduct it.
And how can the State know about my transactions on Binance? Can Binance keep my business secret?
Losses can be used to cover profit gained from selling crypto in the respective year ( adjusted declaration of capital gains income) within one taxation year.
The SRS explains that taxes on crypto mining are paid in line with the taxation order of business activities.
No taxes are applied if losses occur.
Of the examples provided, only the latter is considered the moment of acquisition of income.
The following sentence in the SRS homepage is also unclear.
'Documents supporting transactions (bills of sale/purchase) do not need to be added to declaration DK but they need to be maintained for at least five years so that they could be presented to the State Revenue Service upon request.'
From this sentence, I understand that if I buy and sell cryptos I need to present bills to SRS officers upon their request. For example, when buying crypto on the Binance exchange I didn’t receive any bills or any other documents (except for emails that I receive when buying or selling a specific cryptocurrency) but is it sufficient evidence for the SRS? If not, what is? Cryptocurrency exchanges also offer the option to view all buy/sell transactions for the last 3 months, but what happens when the transactions took place earlier and cannot be accessed any more?
Any printouts, screenshots, and payment confirmations should be stored separately to be able to prove transaction volumes and prices in the future.
Capital gains income (profit, if purchase documents are available) is subject to 20% personal income tax. Each taxpayer is responsible for the settlement of tax payments, and there is administrative and criminal liability for the failure to comply with tax legislation.
No, it isn’t included. It doesn’t affect pensions.
The SRS explains that the tax is to be paid at the moment of exchanging a crypto for an official currency.
It is not crucial whether money is in Binance or any other bank account. Taxes are calculated even when income is acquired in accounts on Binance or similar platforms.
Any supporting documents that you can obtain - printouts, payment orders, etc.
Yes, if income is acquired.
In order to deduct the purchase value, you need to provide its justification. If it is not possible to justify the purchase value, it will be considered 0.
If you sell a part of the cryptocurrency for an official currency, the purchase value should be calculated proportionally to the sold part. Hence the purchase value won’t be EUR 500 and there will be capital gains.
It can be taxable if the loan is paid back in an official currency.
Yes, you evaluate quarterly if the limit of EUR 1,000 has been reached.
Salary income is subject to payroll taxes (progressive rates of personal income tax are applied). Capital gains income from cryptocurrency trading is subject to a 20% tax rate, paid separately.
