Cryptocurrency Taxation in Estonia
Estonia is particularly famous in the fintech community for the fact that cryptocurrencies are regulated and that businesses can obtain licenses from the government to offer services related to virtual currencies in general. While there still may be countries around the world that does not regulate nor tax crypto profits, this is not the case in Estonia. In this article, we will go over how cryptocurrency taxation in Estonia works both for businesses and private individuals to give a complete overview.
In general, there are no specific taxes directly related to cryptocurrencies in Estonia, in fact, their taxation is no different as for other assets and profits that a business or private person can generate.
Whether you will work with cryptocurrencies using a business or as a private person, taxes are only applicable to profits generated.
According to the Estonian Tax and Customs board, profit is generated when:
- there is a change in prices, which can occur due to selling or trading virtual currencies for FIAT money or other virtual currencies;
- mining virtual currencies;
- renting out cloud storage capacity;
- paying for goods or services in virtual currencies;
- receiving as a form of payment for goods or services (and salaries).
Profit is not generated when:
- virtual currency is donated;
- buying virtual currency with FIAT money;
- transferring virtual currency between own digital wallets.
Business’ Cryptocurrency Taxation in Estonia
As mentioned before, there are no specific taxes that apply to cryptocurrencies in Estonia, therefore, businesses working in that sector will have the same taxes applied to their operation as all other Estonian businesses. However, there are some intricacies when it comes to keeping accounting in order.
Before we get into the accounting, doing business in Estonia is beneficial in general for all types of businesses as there is a 0% corporate income tax (CIT) on retained and reinvested profits. In other words, tax is only applicable when your business has made profits and made the decision to distribute dividends to the shareholders.
In Estonia, dividends are taxed with the rate of 20/80, while on regular dividend payments 14/86 is applied.
While most activities related to virtual currency trading and mining are VAT exempt, the need to register for VAT comes when your business crosses the taxable revenue threshold of €40,000 within a year. Until the threshold is met, registering for VAT is done on a voluntary basis. The general VAT rate in Estonia is 20%, while there are certain goods and services where 9% or even 0% VAT is applied.
Accounting For a Cryptocurrency Business in Estonia
The Estonian Accounting Standards Board has defined that there are four different classifications regarding cryptocurrencies:
- Virtual currencies – coins that are in a digital form and based on blockchain technology.
- Asset-backed tokens – digital markets that are based on blockchain technology and grant the owner ownership of a physical asset.
- Utility tokens – tokens that grant its owners access to a company’s products and/or services.
- Security tokens – a financial instrument that allows its buyers to invest into a specific company.
These classifications should be reflected within a business’ accounting documents and used to determine their value.
Purchase, Sale, and Exchange of Virtual Currencies as a Business
According to the International Financial Accounting Standards, virtual currencies are not regarded as money or currency, and the Estonian Income Tax Act defines it as an asset.
If your business is actively trading different virtual currencies and is not planning to hold them for a long time, then the best practice is to report them as stocks. On the other hand, if your business will be holding virtual assets for extended periods, they should be considered as financial assets and be reported in euros using the FIFO or weighted average method to report their fair values.
Cryptocurrency Mining as a Business
For tax purposes, earnings gained from cryptocurrency mining are treated as investment earnings. The time of first obtaining the virtual currency from mining is used as a reference to determine the historical price and the fair value is related to your business’ balance sheet’s date.
Renting Out Cloud Storage as a Business
If a company leases its data capacity for mini