Are cryptocurrencies legal in Spain?
There is currently no specific regulation for cryptocurrencies in Spain. With the growing popularity and adoption of Bitcoin, Ethereum and other crypto assets in the country, and the evident wealth variations that this market is producing between individuals and companies, the tax authorities have made an effort to insert the commercial operations with these new financial instruments in the existing regulations, in order to grant them legal status.
Cryptocurrencies have been defined by the European Central Bank (ECB) as a type of unregulated, digital money that is issued, and generally controlled by its developers, used and accepted among the members of a specific virtual community. The Spanish State, while adhering to European definitions, considers cryptocurrencies as intangible assets that have the characteristics of a means of payment. From this, certain taxes apply depending on the operations carried out with them.
What taxes should I declare for my cryptocurrencies?
Depending on the activities you perform, whether you are trading, mining, staking or simply holding a long-term investment, the tax conditions will vary.
For natural persons, the first tax in which cryptocurrencies classify is the Income Tax (PIT). However, the Wealth Tax also stands out among the taxable events linked to digital assets, after exceeding a certain amount.
Personal Income Tax (PIT)
By functioning as a commodity, when you invest in cryptocurrencies, they become an equity income. It is important to note that by acquiring cryptocurrencies and holding them, no taxable act is generated in Personal Income Tax. The exchanges between assets are the ones that generate modifications in capital that must be declared.
Both the gains and losses that result from your operations, whether due to market speculation and exchange for other assets, or for providing a good or service in exchange for cryptocurrencies, must be reported in your annual Income Tax return.
For capital returns, regarding PIT, three scenarios are considered: capital gains or losses derived from the transfer of assets; gains or losses from movable capital; and capital gains not derived from the transfer of assets.
The most common scenario for cryptocurrency traders will be the first one, capital changes due to transfer of assets. Any exchange made, be it from crypto to fiat or from crypto to crypto, will be a taxable event under current legislation. Performance will depend on the difference between the asset’s acquisition cost and its market value by the time of sale.
In the event that the exchange is between two cryptos, the capital gain or loss originated will be calculated by the difference between the original acquisition cost of the asset being delivered and the greater of the following two values: the market value of the asset delivered and the market value of the asset received in exchange.
The gains derived from the transfer of assets are taxed by tranches. The first tranche goes from € 0 to € 6,000 and is taxed at 19%. The second ranges from € 6,000 to € 50,000 is taxed at 21%. And the third, for amounts over € 50,000, is taxed at 23%.
Meanwhile, the changes in equity due to movable capital correspond to those income that result from having transferred capital to a third party with the expectation of a future return. This would include staking, lending, masternodes and any operations that involve security tokens. The profit would correspond to any remuneration received by the taxpayer as a reward for the transfer of capital.
Finally, there are capital gains or losses not derived from the transfer of assets. Generally, this category includes gifts and prizes, that is, those capital gains for which no cost has been incurred. That is why the tokens received from airdrops or bountys, would fall into this category. Gains or losses of this type must be included in the general Income Tax base, along with the rest of the income that makes up the tax base.
The earnings will be determined under Inheritance and Gift Tax laws, if applicable. In general terms, the taxable rate will vary on a scale that can range from 19% to 52%, depending on the Autonomous Community in which the investor resides. Therefore, it will be necessary to follow the local laws that apply to the particular case.
Accounting method for cryptocurrencies
Cryptocurrencies are considered by the Spanish state as a homogeneous good, therefore, the accounting method that is applied is the FIFO (first in, first out). This method is based on settling the oldest assets first at the time of sale. This means that the price at which the cryptocurrency was quoted will be taken as a reference.
The second tax in which cryptocurrencies classify is the Wealth Tax, since it is the one that forces you to pay for the assets you own.
The amount from which the tax obligation begins varies according to the Autonomous Community, although there is an average of 700,000€ to be part of the taxpayers.
To calculate this amount, it is necessary to take into account all of your assets, not just your cryptocurrencies.
By when do I need to declare taxes?
If profits are obtained from activities with crypto assets between January 1st and December 31st of the previous year, these can be taxed as capital income and also as income from economic activities. Normally, the declaration must be done between the months of May and June of each year. For 2020, the deadline for the tax campaign is June 30, 2021.
Types of taxpayers regarding Income Tax returns
There are different taxpayers regarding the PIT. The first are the investors, those whose goal is to buy a good, which becomes part of their personal assets, so that when it is sold, they obtain benefits compared to the purchase price. This generates a capital gain that is taxed in Personal Income Tax.
The second figure is the self-employed, who have the possibility of collecting all their salary in goods. Cryptocurrency miners might enter this category. By the time they receive their crypto, they would become part of their wealth and would be taxed in the same way as the investor.
For their part, there are the employees, who can only collect 30% of their salary in goods. These will be taken as employment income at payment day price. Like the self-employed, when it comes to selling, it would appear as an investor.
If you are a trader, you don’t have to register as a self-employed, since you would be managing your own assets and not offering goods or services to third parties.
Taxes on crypto-fiat and crypto-crypto transactions
In Spanish legislation, both the transfer from crypto to fiat, as well as exchanges between cryptocurrencies are declarable. It is the same as it would happen with another investment instrument (i.e. stocks). Any type of exchange between cryptocurrencies must be included in your report.
Tax exempt situations
If we decide to hold our crypto, we have nothing to declare because we have not realized any profit from them.
There is no period of time that eliminates the obligation to declare at the time of sale.
Cryptocurrencies and VAT
In the case of Value Added Tax (VAT), cryptocurrencies are listed as a means of payment and according to article 20 of the VAT law, they are exempt from tax. Therefore, the cryptocurrency purchases you make are exempt from this 21% tax.
Disclaimer: The information provided in this blog post is for general information purposes only. The information was completed to the best of our knowledge and does not claim either correctness or accuracy. For detailed information on crypto regulations, we recommend contacting a certified legal advisor in the respective country. If any questions occur, feel free to contact us on our social media channels.