Income tax and cryptocurrencies - what will change the new regulations?

Income tax cryptocurrencies

From 2019, new regulations regarding income tax and virtual currency trading will apply to the Polish tax system. As a result, revenues from trading in cryptocurrencies will be subject to income tax in the amount of 19 per cent. Experts estimate that the regulations will become more orderly, but at the same time some of the regulations may be unfavorable for taxpayers.

Changes from the January 1

"The introduction of new regulations is provided for in the draft act (of August 24, 2018) amending the act on personal income tax, the act on corporate income tax, the act - Tax Ordinance and some other acts. Most of the changes should enter into force on January 1, 2019. The new cryptocurrency regulations will apply from January 1, 2018 for PIT taxpayers and from the tax year starting in 2018 for CIT. "

One of the most important novelties for taxpayers is to be modified rules for taxing virtual currencies, for which - according to the project - cryptocurrencies (eg Bitcoin) and so-called centralized virtual currencies (eg WebMoney). Appropriate changes will be introduced in the income tax law on PIT and CIT.

New rules for taxation of cryptocurrencies

The Ministry of Finance predicted in the project comprehensive settlement of matters related to the taxation of income from virtual currency trading. Income of this type will be classified as income from capital or capital gains. Importantly, these revenues are not to be combined with other revenues from capital or capital gains. At the same time, it will not be possible to deduct losses from cryptocurrencies from other income of the taxpayer.

Kamil Hupajło, an expert of the kryptoprawo.pl website, legal advisor and managing partner at the Law Firm Legaltec Hupajło & Partnerzy:

"The authors of the project proposed that the loss from trading in cryptocurrencies could not be deducted from other taxpayer's income. This is certainly not a good solution for taxpayers. In turn, the source of revenues from turnover will not include, among others revenues of entities providing services in the field of exchange of cryptocurrencies and means of payment. What does this mean in practice? The tax will not, for example, include exchanges and currency exchange offices".

The tax rate will be 19 percent. Danina will sell virtual currencies on the stock exchange, in a currency exchange or on the open market. Therefore, the revenues from the exchange of cryptocurrencies into the payment instrument will be taken into account. Similarly, digital currency payment for goods, services and property rights that are not a virtual currency, as well as the settlement of such other currencies will be treated as well. As a rule, the income from cash capitals is equal to the purchase price.

Exchange and costs

The Ministry of Finance proposes that exchange between virtual currencies should not be taxed in the context of income tax. Meaning will not be whether the exchange is made on the stock exchange or otherwise.

Kamil Hupajło adds:

"This solution should be more beneficial for taxpayers, especially those exceeding the second threshold of the tax scale (85 528 PLN), who would otherwise pay tax at the 32 percentage level. New proposals of the Ministry of Finance can be assessed as moderately positive from the point of view of individuals and companies investing in digital currencies".

The current version of the draft amendment of tax bills also assumes that taxation will cover the taxpayer's income - as a result, it will be possible to include expenses related to the circulation of cryptocurrencies in the costs of obtaining revenues. As announced by project promoters, the costs can be documented expenses for the purchase of virtual currencies, which were incurred in a given tax year. Only expenses related directly to the purchase and sale of cryptocurrencies are to have significance, which means that the costs of obtaining revenues will not be the costs of financing their purchase.

Settlements in the annual statement

Taxpayers will be required to show in annual tax returns all costs incurred during the year - also when the taxpayer does not receive any income.

Maciej Grzegorczyk, an expert of the kryptoprawo.pl website and a lawyer and proxy of the Law Firm Legaltec Hupajło & Partnerzy:

"In the new regulations, the Ministry of Finance relied on the principle of self-tax calculation, which is to be settled in the annual tax return. There will also be no need to pay tax advances, and individual entities operating in the industry, including, for example, exchanges and exchange offices, will not be obliged to prepare for taxpayers and tax authorities information on the sale of cryptocurrencies in a given year".

According to Maciej Grzegorczyk, the positive effect of the planned changes should be the greater ordering of matters related to taxes and the circulation of cryptocurrencies. At the same time, however, the expert notes that the project still needs further development, and some solutions could be more tax-friendly in practice.