In view ofthe imminent campaign on Personal Income Tax (PIT) filings and, where applicable,Wealth Tax (WT) in the currentcontext of the rapid growth in recent years of cryptocurrencies, it is important to realize the tax treatment given in Spain the Spanish State Tax Administration Agency (Agencia Estatal de la Administración Tributaria AEAT) to cryptocurrencies.
How does Spanish AEAT consider cryptocurrencies?
Cryptocurrencies are, taxwise, generally considered an asset, a form of ownership or an investment ratherthan a traditional currency or means of payment, legal tender. Therefore, when preparing the PIT return (and in some cases, also the WT of these assets), crypto currencies must be declared as follows, depending onhow they have been acquired and used throughout the fiscal year concerned (e.g.2023):
Thus, as a definition of cryptocurrencies on its website, the AEAT refers to the definition contained in Law 10/2010, of 28 April, on the prevention of money laundering and the financing of terrorism (AML-FT Law): 'exchange of virtual currency for fiatcurrency' is understood as the purchase and sale of virtual currencies throughthe delivery or receipt of euros or any other foreign currency of legal tenderor electronic money accepted as a means of payment in the country in which it was issued.
It further provides that virtual currencies are considered, for tax purposes, as intangible goods, computable by units or fractions of units, which are not legal tender or "fiat",but which are used as a means of payment as they can be exchanged for other goods, including other virtual currencies always provided that they areaccepted by the person or entity transferring the goods, right or providing services.
As the holding and operations with virtual currencieshave economic implications, like the rest of the assets owned by a PIT -WT taxpayer in any country or place in the world, they must be declared. It is of essence to check transactions performed with tax implications to determine tax treatment, the most frequent being:
a) Purchase and holding cryptocurrencies: Cryptocurrencies have been acquired and held unsold (HODL or Hold method): not-subject to declaration.
b) Exchange of cryptocurrencies: a profit or loss is generated being subject to declaration whether they are sold for fiat money or exchanged between cryptos.
c) Payment for goods and services with cryptocurrencies: By using cryptocurrencies for transactions, a process similar to exchange is activated, generating a capital gain that must be declared or a loss.
d) Cryptocurrency mining: Income from the activity of "Proof of Work (PoW) mining" requires registration as aself-employed worker, while Proof of Stake (PoS) income, which requires prior investment, is taxed as an asset income.
It should be noted that taxpayers with tax residence in Spain are subject to taxation inSpain, for PIT-WT for world-wide origin income, capital gains and possession of cryptocurrencies and transactions on them, whether or not they have been converted into fiat curren, if DeFi has been traded or if there were only swapsfor euros without sales.
Investments must only be declared in the PIT-WT if income has been generated. Losses must also be included if they are to be used to offset other capital gains. Staking (locking up certaincrypto currencies to support network security and receiving certain rewards inreturn), and airdrops (free-handing over crypto assets to a group ofpeople), are also subject to taxation.
Genral tax rates applicable
Gains below 6,000euros: PIT 19%.
From 6,000 up to 50,000 €: PIT 21%.
From 50,000 up to 200,000 €: PIT 23%.
Gains exceeding 200,000 €: PIT 26%.
Conclusion.
Cryptocurrencies are not aliens to the legal system, to the "fiat" world. They are not exempt from tax and anti-money laundering regulations. Given the complexity of these assets, it is more than necessary to consult with professionals to obtain guidance and advice.
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