How is cryptocurrency taxed in Spain?

Cómo tributan las criptomonedas
Table of Contents

Before explaining the bitcoin taxation process, it is important to be clear about two basic concepts of cryptocurrency operations.

  • Purchase and sale of Bitcoins or cryptocurrency: Bitcoins are a virtual currency that today is rarely accepted as a payment method in Spain. However, it can be used as a payment method in other countries and for very specific transactions. For example, Microsoft allows transfers with the Bitcoin in the United States, giving its users the possibility to buy Apps and games on Windows or Xbox. Venezuela also uses cryptocurrency for simple transactions, as the people find them more stabile than their local currency. Therefore, when a user buys bitcoins, i.e. exchanges euros for cryptocurrency in Spain, they consider the Bitcoin as an investment or speculative product, due to its high volatility. Here is a quick example: If in July 2017 I bought a Bitcoin for its value of €2,000 and sold it in December of the same year for €15,000, I would have a gain of €13,000. As this profit would be a result of an economic transaction, the €13,000 must be taxed, as we will explain below.
  • Mining Bitcoins or cryptocurrency: to understand in detail the operation of Bitcoin mining it is necessary to understand how blockchain technology works. We will explain it in a very simple way so that you understand the concept behind it. When a cryptocurrency is transferred from one user to another for its purchase and sale, this transfer of ownership is recorded in the last open block associated with that cryptocurrency. When one of these blocks is full because many transactions have been made and there is not enough storage to record another transaction, computing power is required to close the block and encrypt it in such a way that the information inside cannot be modified anymore. This computing power is generated by Bitcoin mining farms or by users’ computers that make the computing power of their computers available to the Bitcoin network for the purposes of encrypting the block and opening another one. This is where the blockchain terminology comes from. The more computing power, the more likely it is to close the block and open the next one. Each user, or so called “miner” gains Bitcoins, or the cryptocurrency they work for, in order to get compensated for the provided computing power after the block is closed. For example, let’s assume that thanks to the mining we have been rewarded with a Bitcoin and we have sold them in December 2017 for 15,000 euros. Finally, we have to note that Bitcoin mining is not as popular activity as Bitcoin buying and selling. This is due to the specific knowledge that mining requires.

Once we have these concepts clear we are ready to know how each activity is taxed. At the end of the article we have included different cases that give rise to capital gains and losses derived from cryptocurrency trading, such as gains from the purchase and sale of NFTs, gains from play to earn, airdrops, earndrops and cryptocurrency rewards, among others. For more information check our table of contents and we will redirect you to the section you are most interested in.

How is the sale of cryptocurrencies taxed?

The sale and purchase of cryptocurrencies generates a capital gain or loss for the difference between the acquisition value (AV) and the transfer value (TV). In the event that the difference (VT-VA) is positive, this transaction generates a capital gain that must be declared in the savings taxable base of the income statement. In the event that the difference (VT-VA) is negative, this transaction generates a capital loss that must be declared in the savings taxable base of the income statement.

Bitcoin Taxes and IRPF (Personal income tax in Spain)

In the first case in which we have bought Bitcoins (acquisition value) and we have sold them (transfer value*) obtaining a capital gain of 13,000 euros, this capital gain should be considered as a savings taxable base. This is typically taxed at rates between 19% and 23% according to the scale attached below, and therefore, generates an income tax liability of 2,610.00 euros (6,000 euros x 19% + 7,000 euros x 21%).

  • 19% for income up to 6,000 euros.
  • 21% for income between 6,000 and 50,000 euros.
  • 23% for income between 50,000 and 200,000 euros.
  • 26% for income over 200,000 euros.

*We understand any sale of virtual currency as a transaction, whether is to another virtual currency or for a regular currency.

In any case, in the absence of a quick reaction of the AEAT (Spanish Tax Agency), there are still doubts about the taxation in the savings base or in the general tax base.

The case is different if we find ourselves in the second case in which we acquire Bitcoin through “mining”. Then, if the taxpayer carries out this activity on a regular basis, this can be considered an ongoing economic activity, and should be taxed on the profits obtained from it under the general rate of personal income tax. In this case, taxation as an economic activity means that the tax rate will vary depending on the region (the autonomous community) in which we are located. Keep in mind that the tax rate can be as high as 45% or even higher, depending on the region of reference. This would imply taxing €6,750 or more in our example of Bitcoin mining.

In the event that we only buy cryptocurrencies and do not sell them, these should not be declared in the income statement. We will only have to pay taxes if there has been a transaction or mining that has generated losses or profits.

Bitcoin Taxes and VAT

In this case there are resolutions by the General Directorate of Taxes. These tell us that the simple transaction of cryptocurrency, as a means of payment, is aVAT  exempt activity. Therefore, VAT is not charged for any cryptocurrency transaction.

However, in the case of economic activity, i.e. “mining” bitcoins and receiving a cryptocurrency for compensation, VAT should be charged on the transaction.

This seems to be clear from DGT consultations CV31-8-16, CV 18-06-18, CV2-10-18 and CV-6-5-20. Thus, there would be no possibility of deducting, for example, the VAT incurred in the acquisition of the equipment used for mining. That said, it is necessary to be registered in the epigraph 831.9 of the first section of the IAE tariffs.

Bitcoin Taxes and Wealth Tax

This tax is levied on the ownership of goods and rights by individuals as of December 31 of each year. Therefore, if the taxpayer is required to provide a Wealth Tax declaration for whatever reasons, he/she must include the value of the Bitcoins at the close of the market on that day in the Wealth Tax return (art. 24 of the Wealth Tax Law), and pay at the corresponding rates.

Bitcoins taxes for Inheritance or Donations

In case of inheritance or donation of Bitcoins, something similar happens. Since inheritance and donations are levied on acquisitions of goods for profit by individuals, the taxpayer (the heir or donee) must declare the “real value” of the Bitcoins received (art. 9 of the Inheritance and Donation Law) and pay tax on them. The tax should be paid regardless of the possible incentives or bonuses established for these taxes by each autonomous community in Spain.

Keep in mind that if the amounts are significant, it must be demonstrated that the donation does not correspond to the performance of an economic activity that would entail the registration as self-employed.

Other taxable events

Stacking

For Staking activities, the Treasury considers that the Proof-of-Stake (PoS) would correspond to a participation account contract where cryptocurrencies are deposited in a pool managed by third parties. In other words, a return would be obtained for the deposit that goes to the savings taxable base and corresponds to a return on movable capital. It would be taxed between 19% and 26% just like movable capital and must be included in check box 33 of the Income statement.

NFTs

If you are an artist or designer who generates NFTs and sells them professionally, this will be an economic activity, and therefore you must register as self-employed. Everything you generate will be treated as income from your economic activity.

If, on the other hand, you buy and sell NFTs but it is not your main activity, it will be treated as a capital gain, just as if it were a purchase or sale of any cryptocurrency.

Cashback from crypto cards

To encourage the use of a cryptocurrency card, you get back a percentage of the capital spent. In this case, these refunds are paid in the corresponding cryptocurrency, so it will be necessary to write down its value at the time of receipt. They are considered as a result from movable capital and are added in the savings taxable base to receive a treatment similar to that of a staking.

Purchases with the exchange cards

When a purchase is made with a debit card with cryptocurrencies, a purchase and sale transaction is being carried out. That is, to say, from the cryptocurrency in question to the currency of the purchase. In our case if we are buying in Spain it will be euros. Therefore, this exit will be equivalent to a partial sale and will generate a loss or a gain that must be taxed.

Play to Earn

As in the case of NFTs, a distinction must be made between economic activity or return on capital.

If the profits obtained from playing are your main economic activity, you must register as a self-employed and they will be taxed as income from economic activity.

If you are a sporadic player, you are not dedicated to it, and you do not intend to obtain continuous returns over time, the benefits will be capital gains (if they are revaluations of your tokens, as for example SLP tokens are new generation) or capital gains (if the tokens are obtained from an existing wallet of another player).

Airdrops, earndrops and cryptocurrency rewards

Airdrops are part of the general taxable base and not of the savings tax base since they are not derived from the transfer of patrimonial elements. They are indicated as if they were a gift valued at the market price at the time you receive them. In the income they are considered capital gains that do not derive from the transfer of assets and must be included in check box 304. This is in the section of other capital gains and losses that do not derive from the transfer of capital items.

How to fill in the declaration

As experts in cryptocurrencies we use Cointracking to obtain the tax report corresponding to the year in question. Having the corporate account we connect to your exchanges with reading permissions to extract all the necessary information and be able to make your tax return. The price of doing the tax return with us is from 250€ + VAT. Keep in mind that only the license of the Cointracking program for individuals costs more than 100 euros and you would not have the help of a tax advisor.

The process you must follow is to fill out the form on the website. We will contact you shortly to schedule a video call and start the process, which will consist of the following phases:

  • Check your inbox. We have sent you a call link to Google Meets. On the day we will need to connect on the video call with you to guide you in obtaining the cryptocurrency transactions. It is important that you mark the day and time on your calendar so you don’t forget.
  • Prior to the call you must be logged in to all your exchanges, such as Binance, Coinbase, etc…. This will reduce the time of our video call.
  • What will we do during the video call? Mainly we will connect with a tool called Cointracking to your exchanges. With this tool we will get all the relevant tax reports to make the declaration.
  • The connection we will create will be read-only. Therefore, we will not be able to perform any operation within your exchanges beyond consulting the transactions.
  • Once the exchanges are linked, the operations take a few hours to synchronize, so the video call will end the moment we generate the connection. There is no need to wait for the synchronization to finish.
  • What do we do once the information is synchronized?
  1. We carry out checks to ensure that there are no lost or duplicate operations.
  2. In the event that there are, we will send you a report so that you can specify the nature of the operation. That is, if it is a withdrawal, a deposit, etc…
  3. In this case, you must respond within 2 working days to be able to close the tax report.
  4. Once we have the report finished, we will be able to calculate the capital gains or losses related to the cryptocurrencies to be included in the income statement.
  • Then our tax expert will contact you. We will send you an email to request all the relevant tax information to make the declaration. DNI, withholding certificate, rental contracts, etc…
  • You will also receive a link to make the payment corresponding to the declaration.
  • Once the payment is made, a video call will be scheduled with the tax expert, who will close the declaration and will review all the documentation, including that related to cryptocurrencies.

Form 720 cryptocurrencies

In the following post we show in which cases it is necessary to fill in the 720 form. The two questions that our clients constantly ask us are:

  1. Should cryptocurrencies in both centralized and decentralized Exchanges be considered in the form 720? The answer is yes.
  2. Should cryptocurrencies in wallets be considered in the form 720? The answer is yes

In the event that your cryptocurrency trading, staking, mining or generation of NFTs, airdrops, earndrops or rewards transactions have resulted in profits, you may need help to fill out the different tax forms, including form 720, but also personal income tax or VAT.

Binding queries on which we have made the article

The tax treasury, like all of us, is learning as the ecosystem develops. With this, it is incorporating new regulations in the form of binding consultations for the different cases. We have compiled the binding queries that have been made to date below:

What should I do now?
If you have more questions and want to know how we work, contact us and one of our consultants will contact you for advice. For further information on this and many other topics you can check out other articles in our blog where you will find references on this, and many more topics. If you liked this article, you can share it on LinkedIn, Facebook or Twitter by clicking on the icons below. I’m sure you have acquaintances who will like it as much as you do.

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