Cryptocurrencies and Tax Law
Cryptocurrencies are the Property Law
According to administrative courts, cryptocurrency is considered property law which will classify a cryptocurrency trading transaction as a contract of sale and exchange of property rights and thus – taxation of transactions with civil law tax.
The definition of income from cryptocurrencies is provided in Art. 17 sec. 1f of the PIT Act. According to it, “The sale of a virtual currency against payment is understood as the exchange of a virtual currency for a legal tender, goods, service or property right other than the virtual currency or the settlement of other liabilities with a virtual currency”. As a result, we only pay tax when we exchange cryptocurrency for fiat currency or goods.
19% of Taxation Basics
Since we treat cryptocurrency as property law, in Poland its turnover is taxed at 19%. the basics. Tax is subject to the so-called “Pure Income Value”. In your tax return, we calculate the difference tax on all cryptocurrency transactions during the tax year. At the same time it should be remembered that in the case of PIT-38 there is no tax-free amount. The taxpayer is obliged to pay the profit regardless of whether he earned 1 million PLN or 1 PLN. Taxpayers earning capital gains are not required to pay any advance payments during the tax year. The tax is payable no later than the end of April of the year following the tax year.
- At the beginning we buy Cardano for 1000 PLN.
- After that we make multiple transactions to different Cardano addresses or for example to Bitcoin.
- Next we transfer all collected funds to one Cardano account (for example on the Kraken exchange).
- We exchange all Cardano for Euro and earn 1100 PLN.
- Then we transfer Euro to our account.
- And finally we calculate the tax: 1100 – 1000 = 100 * 0.19 = 19 PLN.
Tax Return - PIT-38
Income from cryptocurrencies is settled with PIT 38. The declaration is submitted by April 30 2020. We complete PIT 38 as natural person receiving capital income. It is not possible to submit PIT-38 together with your spouse, even if you both have earned capital income.
PIT-38 - Loss
If we had a loss in previous years, we still have the option to take into account 50% of the loss from the last five years. What it looks like in practice PIT 38 “the settlement of losses from previous years“ will show us, for example: you should imagine that 2 years ago we achieved a loss of 8,000 PLN. A year ago we earned the same amount, 8,000 PLN. We can account for a maximum of 50% of the loss so we can deduct 4,000 PLN from our tax liability and instead of a tax of 1,520 PLN (19% from 8,000 PLN), pay only PLN 760 (19% from 4,000 PLN). In the case of another profitable year we can account for the remainder of our loss.
However, you should remember that the loss may be settled over the last 5 years. This means that if after a long absence on the market we ended the year with a profit, we cannot account for the loss from, for example 10 years ago. Likewise, in the case of several years of losses in a row, we cannot take into account the loss that was not settled 6 years ago.
Remember that all those rules of tax law apply only to Poland and each country may have different rules of cryptocurrency taxation. You should learn by yourself about tax law of cryptocurrencies in you country as it is very important part of investing in them and not doing that properly may cause some serious problems with authorities.