According to the provisions of the Personal Income Tax (PIT), all income received or earned by a resident is taxed. In a general sense, the income of a resident is the remuneration received by the resident for work performed, services provided, rights transferred or granted, for property, funds sold, otherwise transferred or invested, as well as other benefits received by the resident in cash and/or in kind, except for certain provisions in the law established exception.
According to Birutė Čirbaitė, a lawyer at the Glimstedt law firm, in the sense of the Civil Code, cryptocurrency is considered an asset (according to the law, not only movable and immovable objects are considered assets, but also financial instruments and other intangible assets), therefore the income received from the sale of this asset is usually taxed as another income from the sale of assets, but only if such cryptocurrency sale (other realization) transaction is one-time.
“It should be noted that the production of cryptocurrency itself (“mining”) is not considered a GPM taxable transaction. However, the income received from the subsequent sale of the produced currency (payment in cryptocurrency for purchased goods or services) is already taxed as income from the sale or other transfer of ownership of another asset. In this case, the difference between the income from the sale of the cryptocurrency and the actual costs of its acquisition is taxable, which often raises various questions in the practice of recording and determining,” says the lawyer.
She notes that the income received from the sale of cryptocurrency (if the cryptocurrency is used to pay for goods and services, the market price of goods and services will be considered as the income from the sale of cryptocurrency) adds up with all the income received by the resident from the sale of other assets during the tax period. And if the total amount of this income, calculated from the total income after deducting the expenses related to the acquisition of the property, does not exceed EUR 2,500 per year, then the income received by a resident of this amount is tax-free and does not need to be declared. However, if the income from the sale of other assets (including crypto-currency) received during the year exceeds the specified GPM tax-free income amount, the portion of the income exceeding EUR 2,500 is taxed at 15 percent. or 20 percent (part of income exceeding 120 VDU (202,188 EUR)) at GPM rate.
Crypto cashiers with a certificate of individual activity
How differently are taxed residents who continuously produce (“treasure”) cryptocurrency, invest in the purchase of cryptocurrency, sell it or provide cryptocurrency production (“mining”) services to others, rent the necessary equipment, draw attention lawyer.
“In such a case, the resident must register in the register of taxpayers as a self-employed person, and at the end of the tax year, submit the annual income tax declaration and declare the income received from the individual activity in it,” says B. Čirbaitė
It should be noted that in the case in question, cryptocurrency production (“mining”), buying and selling activities must comply with the set of characteristics characteristic of individual activities established by the Public Enterprise: the resident has a continuous period of time to engage in this type of activity on his own, in order to obtain economic benefits from it. In the case of individual activity, GPM is paid from the taxable income received from this activity, which is calculated from the individual activity income received during the calendar year after deducting the allowed deductions – in the case of individual activities related to cryptocurrency, this would be based on legally binding documents actually incurred with the production or acquisition of cryptocurrency related (purchase, commission fees, etc.) costs.
The resident has the opportunity to choose an alternative way of deducting the expenses of individual activities from income – to consider 30 percent of the allowed deductions from income. the amount of income received from individual activities, which does not need to be substantiated by documents with legal force.
Income from individual cryptocurrency buying and selling activities is taxed at 15 percent. At the GPM rate, the amount of income tax credit is deducted from this received amount, which is calculated after applying the formulas established in the provisions of Article 182 of the GPMĮ. The application of the formulas established by the GPMĮ means that the GPM rate actually applied to the resident’s individual activity income will depend on the amount of the resident’s annual income: income not exceeding EUR 20,000 per year will actually be taxed at 5%. rate, if the income exceeds 20,000 EUR per year, the GPM rate will increase until it reaches an unchanged 15 percent. tariff (incomes of EUR 35,000 and above will be taxed at the 15% GPM rate, specific examples of calculations are provided in the commentary to Article 182 of the GPM).
It also reminds that residents who are self-employed must declare their income every year, regardless of whether they received taxable income on which GPM must be paid in that tax year. In addition, residents performing individual activities have the obligation to pay VSD and PSD contributions.
However, even if a resident seeks to fulfill his tax obligations related to the declaration of income received from the sale of cryptocurrencies and the payment of GPM on this income, it does not mean that the tax administrator will recognize that the resident has performed this duty properly.
The first related tax dispute
Here, in the only tax dispute related to the taxation of cryptocurrencies, which has been examined by the Supreme Administrative Court of Lithuania, which forms the case law in tax disputes, it was established that although the resident had registered as an individual payer carrying out the activity of buying and selling virtual currency and had declared the income from the sale of virtual currency, as received during the performance of the specified type of individual activity, but the tax administrator assessed that in fact the taxpayer unjustifiably classified the income received as income from individual activity, as he had the obligation to declare it as income from the sale of other assets (virtual currencies), which led to the calculation of a significant amount of GPM payable to the taxpayer .
Such a conclusion (which was also supported by the Tax Disputes Commission and the courts that examined the tax dispute in a pre-trial procedure) was made by the tax administrator after assessing the circumstances that the taxpayer had digital money (bitcoins) received as a reward for marketing (advertising) services provided to other business entities, and used them not for further investment, and as a means of settlement for various personal settlements (to repay loans, purchase real estate). The stated circumstances led to the assessment that the virtual currency trading activity declared by the taxpayer did not have the necessary continuity of activity and economic benefits for individual activity, and therefore the income received by the taxpayer discussed in the dispute should have been assessed as income from the sale of other assets and taxed accordingly.
According to the lawyer, declaring the income received from crypto-currency transactions and correctly taxing them in GPM requires care and a detailed continuous assessment of actions.
Tags: Lawyers comment proprietary cryptocurrency profits attract attention VMI
