Questions and answers about cryptocurrency transactions

How to declare profits from selling, exchanging or paying for goods and services in cryptocurrency?

Profits from cryptocurrency transactions are declared in table 6.3 or 8.3 “Transfer of other property” of the income tax return.

• If the platform through which crypto transactions were made is registered in Estonia, then the transactions are noted in table 6.3.
• If the platform is registered abroad, the transactions are noted in table 8.3.

The tax liability does not change depending on which table it is declared in.

In the table, select “Cryptocurrency” as the asset type, enter the acquisition cost and disposal costs and the sale/market price.

• The acquisition cost is the value of the purchased cryptocurrency in euros at the time of purchase.
• The sale/market price is the value of the cryptocurrency in euros at the time of sale or exchange.

When submitting declarations, reports from the platform or environment used for the crypto transaction are valuable. These reports detail the acquisition cost of the crypto-assets and the sale price, both provided in euros. If the transaction occurred under market conditions, the exchange rate of the platform where the transaction took place can also serve as the market price.

At what point is the income from cryptocurrency transactions taxed?

There are no specific regulations for taxing cryptocurrency transactions in Estonia. This implies that transactions involving the purchase and sale of cryptocurrencies are treated as gains from the disposal of property under Section 15(1) of the Income Tax Act. Consequently, profits derived from the sale or exchange of cryptocurrencies, whether in euros or other cryptocurrencies (such as Bitcoin, Ethereum, Litecoin, etc.), are subject to income tax. Losses cannot be offset, unlike in the taxation of securities, for example.

How to declare earnings received in cryptocurrency?

When an individual receives a salary in cryptocurrency, the employer is responsible for declaring and remitting all labor taxes monthly to the Tax and Customs Board. The employer calculates the cryptocurrency’s market value in euros as of the payment date and reports the salary in euros

The information provided by the employer is automatically filled into Part I of Table 5.1 in the individual’s income declaration.

If an individual receives a salary in cryptocurrency but the employer has not declared it, the individual must report it in Part II of Table 5.1 “Salary and other income from which income tax has not been withheld” in their income declaration. The received salary should be declared in euros.

How to declare a large volume of transactions, the reporting of which is time-consuming?

If there is a large volume of transactions to be declared, it is allowed to report the acquisition cost of profitable transactions, transfer-related costs and the sale price as a combined amount in tables 6.3 and 8.3 of the declaration. The transaction-based calculation, demonstrating how the declared amount was determined, must be available for submission to the tax authority in a readable form.

In the case of cryptocurrency transactions, do you only have to declare the income that is actually received in the bank account?

No, all profitable transactions made in cryptocurrency must be reported, irrespective of whether withdrawals have been made from the platform to a regular currency bank account or not. If cryptocurrency has been exchanged for regular currency and is still held within a cryptocurrency environment or on a platform like Coinbase, any profit from the sale must still be declared.

If a profit of 1-2 cents has been obtained from the sale of cryptocurrency, must the transaction be declared on the income tax return?

Yes, all profitable transactions must be declared on the income tax return. A single transaction with a profit of a couple of cents may not affect the tax liability, but if there are many such transactions, the total profit to be declared is greater.

If a natural person has purchased cryptocurrency, does the purchase of cryptocurrency have to be declared on the income tax return?

Buying cryptocurrency for regular currency is not a taxable transaction and does not need to be declared on the income tax return.

Are crypto transactions visible on the investment account statement?

An investment account is a money account opened in a bank, which provides a statement detailing all transactions. The investment account statement includes deposits made into the account, withdrawals made from the account, as well as amounts paid for financial assets purchased from the account and proceeds received into the account from the sale of financial assets.

When purchasing cryptocurrency through an investment account, the transaction will be recorded in the account statement. Cryptocurrency does not qualify as a financial asset under the Income Tax Act, therefore the income tax liability cannot be deferred from the profit. If cryptocurrency was purchased using funds from the investment account, the purchase amount and transaction-related expenses must be declared as a withdrawal from the investment account in table 6.5 “Income from financial assets” of the income tax return.

If you have already sold cryptocurrency and received the sale proceeds in euros into the same investment account, then the received amount must be declared as a contribution to the investment account in table 6.5 of the income declaration.

In tables 6.3 or 8.3, the profits obtained from cryptocurrency transactions must be declared.

Is it possible to correct an already submitted income tax return if crypto transactions were not declared?

Yes, you can. Declarations can be submitted retroactively and amended within a three-year period. For electronic corrections, please contact the customer support of the Tax and Customs Board at 880 0811 or via email at eraklient@emta.ee.

To amend a declaration, log in to the e-services environment e-MTA and choose the declaration you wish to correct. Click on “Modify declaration” on the declaration form, and then select “Correct the submitted declaration” from the options provided.

If an individual lends 2 Bitcoins to a company and the company also returns 2 Bitcoins, does the individual incur income tax liability?

If a natural person lends 2 Bitcoins to a company based on a loan agreement and the company returns 2 Bitcoins to the natural person, the natural person does not incur a tax liability.

Lending 1 Bitcoin to a friend who returns 1.06 Bitcoins, what and where to declare?

If a natural person lends 1 Bitcoin to another natural person and gets back 0.06 Bitcoin more, then the interest received from the loan (0.06) must be declared in table 5.6 of the income declaration. Interest income is declared on the income declaration of a natural person corresponding to the year of its receipt. Interest income is declared in euros by calculating the value of 0.06 Bitcoin in euros at the moment of receiving interest.

A natural person has 1 Ether, the acquisition cost of which is 2,000 euros. An individual lends 1 Ether to a company. At the moment of granting the loan, the value of Ether is 3500 euros. Does a natural person have to declare a loan transaction and pay income tax on 1,500 euros, i.e. on the increase in value? If the company returns a loan in the amount of 3,500 euros to a natural person in the future, does the natural person have to declare it?

Since lending does not involve the transfer of property, there is no income tax liability associated with lending, regardless of whether the value of the lent cryptocurrency is higher than its purchase price at the time of lending.

Under a loan agreement, one person (the lender) agrees to provide another person (the borrower) with a sum of money or a replaceable item (the loan), while the borrower agrees to repay the same amount of money or return the same type of item in the same quantity and quality (Section 396 (1) of the Law of Obligations Act). Generally, the borrower must return the exact amount of money borrowed. For example, if 1 Ether was borrowed, then 1 Ether must be returned, or if 1000 euros were borrowed, then 1000 euros must be returned.

If the loan is repaid to a natural person in the same type and quantity of cryptocurrency, no transfer of property has occurred and thus no income tax liability arises. However, if the loan is repaid with a different asset or in euros, it constitutes a transfer of the asset. If the amount repaid to a natural person in euros exceeds the purchase price of the borrowed cryptocurrency, it qualifies as a profitable cryptocurrency transfer transaction. In this case, the moment of taxation is the repayment of the loan, and the profit from the disposition must be declared in table 6.3 or 8.3 of the income declaration of a natural person.

How are loans and refinancing of loans secured by cryptocurrency collateral on the platform of a decentralized loan provider (for example, Compound and Aave) taxed?

The Income Tax Act does not provide for special provisions for the taxation of transactions on decentralized crypto platforms. It must be based on the content of the transactions made on the decentralized crypto platform.

Borrowing is not a taxable transaction. If a natural person receives interest from borrowing cryptocurrency (in the same or another cryptocurrency), the interest must be declared and taxed with income tax. The same principle applies to refinancing.

Should and how should the income from staking be declared?

The tax authority treats staking as borrowing cryptocurrency. If a natural person borrows cryptocurrency to stake, it is not subject to taxation. When as a result of staking, a natural person receives income or essentially interest, from borrowing cryptocurrency, the received interest must be declared in part II of table 5.1 of the income declaration or in table 8.1. Interest income is declared on the income declaration of a natural person corresponding to the year of its receipt.

A natural person buys cryptocurrency for 100 euros and sells it for 120 euros. In such a case, has the natural person received a benefit of 20 euros and must declare the received benefit?

Yes, since the purchase price of the transferred cryptocurrency was 100 euros and the selling price was 120 euros, the profit from the transaction was 20 (120 – 100) euros, which must be declared on the income tax return.

If I invest/trade in an exchange environment, can I use the euro exchange rate of the exchange environment as a basis?

Yes, in the case of a transaction under market conditions, the exchange rate of the environment where the transaction took place can also be used as the market price.

Is the transaction fee a cost related to the transfer? Can a natural person deduct the transaction fee from the taxable profit?

If the transaction fee is directly tied to the transfer of cryptocurrency, meaning the transfer cannot be executed without paying the fee, then the documented expense can be deducted from the taxable profit. These transfer-related costs are reported under column A “Acquisition cost and costs related to the transfer” in table 6.3 or 8.3 of a natural person’s tax return.

Using a robot that constantly makes transactions with small amounts, it is not possible to determine the profit of individual transactions only by withdrawing money from the portal. When buying 2 and 2 units of some cryptocurrency and selling 3 and 1 unit of cryptocurrency, how to define the profit of individual sales if not in total?

Cryptocurrency is not treated as a security and losses from cryptocurrency exchanges cannot be considered for tax purposes. If a robot or broker conducts only profitable transactions on behalf of an individual, the total daily profit can be calculated. However, when declaring cryptocurrency transactions, it is essential to base the reported acquisition cost and sale price on the property transferred. In addition to the acquisition cost, documented expenses directly associated with the sale or exchange of the asset, such as transaction fees, are deductible from the sale price. This necessitates maintaining records of these assets throughout the year.

Since the Income Tax Act does not offer simplified methods for determining the acquisition cost of currency exchange transactions, tracking the acquisition cost of each individual cryptocurrency in cases of numerous transactions is challenging. Therefore, we recognize the use of the FIFO (First In, First Out) or weighted average method to compute the acquisition cost. Under the FIFO method, assets are transferred in the order of their purchase. With the weighted average method, the acquisition cost of a single transferred cryptocurrency is derived by dividing the total acquisition cost of existing assets of the same type at the time of transfer by their quantity.

Is there software to keep track of transactions on the platform?

You can choose the most suitable software for keeping track of your transactions. You only need to keep in mind that the calculation process is traceable and complies with Estonian taxation rules.

The person processes the information received from the platform in Excel (removing unprofitable transactions), is this table sufficient proof of the purchase and sale prices?

In addition to the accounting prepared by yourself, you must keep the original documents that are the basis of the accounting, such as reports, warrants, bank account statements, etc.

By paying taxes to another country and receiving salary income from another country, does the profit from cryptocurrency transactions affect the calculation of tax-free income?

If a natural person is a tax resident of Estonia, he is obliged to declare his worldwide income in Estonia, including profits from cryptocurrency transactions. Profits from cryptocurrency transactions are included in the annual income, therefore it affects the calculation of tax-free income.

Can an investment account be used for cryptocurrency transactions?

Cryptocurrency does not qualify as a financial asset within the meaning of 17¹ paragraph 2 of the Income Tax Act , therefore deferring the tax liability of a natural person through an investment account is excluded.

On what date did cryptocurrency taxation become transactional?

The Tax and Customs Board has had one position on the issue of transaction-based taxation of cryptocurrency. The guidelines on the taxation of cryptocurrency transactions have been made more detailed over time.

How is a transaction where a cryptocurrency is exchanged directly for another cryptocurrency and the value of these cryptocurrencies is not determined in euros taxed?

Every asset has value. If the value is in another cryptocurrency, then the price can be identified in euros. In an exchange transaction, the benefit is calculated using the following formula:
profit = sale price of the cryptocurrency to be transferred – acquisition cost of the cryptocurrency to be transferred .

If I get paid in cryptocurrency, do I have to pay income tax when I exchange it to regular currency? If I leave the cryptocurrency I received as a salary and exchange it to euros after 2 years, when the value of the cryptocurrency has increased, do I have to pay income tax?

A person is not required to declare cryptocurrency received as wages and taxed with labor taxes if it is transferred (exchanged for regular currency or used to purchase goods and services). However, if a person invests cryptocurrency that has been taxed with labor taxes and earns profits from these investments, the gains from profitable transactions must be reported as income from the transfer of other property in tables 6.3 or 8.3 of the income tax return.

The Income Tax Act does not specify a threshold for when depositing cryptocurrency qualifies as an investment. Therefore, taxation is based on the nature of the transactions. For instance, if a person receives 1 Bitcoin as salary, spends 0.5 Bitcoin, and retains the remaining Bitcoin without further action, the tax authority does not consider it an investment. However, if the person invests these 0.5 Bitcoins, any subsequent profitable transactions will be subject to income tax.

If a person receives remuneration in other types of virtual assets, the rules governing the transfer of property apply when these assets are further sold or exchanged. This means the recipient of the wage can use the value of the wage, as taxed at the corporate level, as the acquisition cost and deduct it from the income received from the sale or exchange of these assets. Profits derived from the sale or exchange of property are taxable.

How are NFTs ( non-fungible tokens ) taxed?

The taxation of NFTs should consider the specifics of transactions from both the creator’s and the buyer’s perspectives. If the creator of NFTs earns income from their resale, it constitutes a royalty that must be declared as a license fee in the income tax return of an individual.

Similarly, if an individual buys and sells NFTs with the intention of generating income, the profits earned from these activities are taxable.

Having purchased cryptocurrency as a natural person, the value of which has increased compared to the purchase price, and gifting it to a company, does this result in a natural person’s tax liability?

If an individual chooses to donate cryptocurrency to a company, the gift contract must specify the property being donated to the company. The donated cryptocurrency should be transferred from the individual’s account to the company’s account, and the company must record the received asset in its accounting at the value at the time of transfer. Giving a gift requires that the recipient (company) receives the gifted property free of charge, meaning the donor (natural person) does not receive any benefit in return for the gift.

 

Therefore, if it is a gift resulting in the free transfer of cryptocurrency from a natural person to a company, it is not subject to taxation.

A natural person made profitable transactions, but a little later, the value of cryptocurrency has fallen by 90%, and they are at a loss for the year and unable to pay income tax. What will happen?

The increase and decrease in the value of cryptocurrency is not taxed. Cryptocurrency trading comes with risk that must be taken into account.

Every natural person has a prepaid account in the e-MTA environment, where it is possible to transfer money to fulfill future tax obligations. We note that the final income tax liability is formed when the income tax return is submitted. If there have been difficulties in fulfilling the tax obligation, it is possible to postpone the tax obligation.

Is it necessary to create a separate new blockchain address/wallet when making a non-monetary contribution of cryptocurrency to the company, or can the keys be simply given on paper under the control of the company?

We are of the opinion that when making a non-monetary contribution, cryptocurrency must be put to use by the company, including transferring it to the company’s wallet.

Does the company have the right to consider both profitable and unprofitable transactions?

A company can take into account all costs related to the economic activity of the company. The company’s investment transactions are not separately declared or taxed. A company incurs a tax liability when it makes taxable payments, such as salary, special benefits, dividends or non-business-related payments, etc.

How should cryptocurrency be accounted for in a company’s accounting?

The tax authority does not have the competency and authority to provide guidance on accounting matters. Accounting and financial reporting should be conducted in accordance with the Accounting Act and the guidelines issued by the Accounting Standards Board. On 10.09.2018, the interpretation of the Accounting Committee on the reporting of instruments based on RTT 1 blockchain technology was published.

The company is mining cryptocurrency. They buy equipment from the company and provides the power to natural persons and companies. Does it require a license?

Issuing activity licenses is not within the competence of the Tax and Customs Board. More information about licenses can be found on the Financial Inteligence Unit page HERE.