Cryptocurrency – cryptocurrency is a common name for digital money. The cryptocurrency operates on the basis of cryptographic algorithms, and has all the characteristics of the right currency, except that the authority of the state does not stand behind them and exist only in electronic form.

Cryptocurrencies are directly owned by a natural or legal person and are not guarded by banks or other financial service providers. As an owner, you have access to your cryptocurrencies using a so-called “private key,” a key that reflects the right of ownership to the corresponding amount of cryptocurrency units within the network.

Sending and receiving cryptocurrencies takes place directly from person to person, in/from a digital wallet (crypto wallet).

Due to the great interest in this market and the development of several hundred cryptocurrencies, it was necessary to determine both the financial-accounting monitoring of this type of asset, and therefore the basis for calculating taxes.

Natural persons and capital income tax

Oscillations of virtual money exchange rates allow you to make a quick profit, but they can also bring large losses. Although the cryptocurrency market in Croatia is not regulated by law, this does not mean that market players are not subject to tax.

Taxation of the operations of natural persons with cryptocurrencies is related to the Income Tax Act and treats the purchase of cryptocurrencies as a form of financial investment in the money market, and the realized profit when selling is treated as capital income.

In addition, it is also important to note that the purchase of goods and services with payment with cryptocurrencies is not exempt from paying taxes. In such cases, cryptocurrencies are used as a means of payment, but in tax terms they remain financial assets and it is necessary to pay taxes on realized capital gains.

When transactions in cryptocurrencies, tax is paid based on capital gains made on the difference between the purchase and sale price minus any transaction costs.

In the tax treatment of cryptocurrency transactions, the Tax Administration invokes the judgment of the Court of Justice of the European Union.

‘Bitcoin trading is considered a financial transaction, in accordance with the EU judgment in Case C-264/14 of 22 October 2015., and following the above, income earned based on bitcoin trading, as well as all other cryptocurrencies, pays income tax based on capital gains, as it is a gain on the basis of the purchase and crypto or virtual currency, which is equivalent to money market instruments. Tax is paid on the difference between purchase and sale price minus possible trading costs,’ the IRS said in its interpretation of the tax treatment of capital gains based on cryptocurrency transactions.

As of this year, in Croatia the tax is paid at a rate of 10 percent, and then increased by surtax according to the place of residence.

The tax paid in this way is considered final, which means that it is not considered in the annual calculation of income tax and the taxpayer does not have to file an annual tax return on this basis.

How to calculate, pay and record taxes?

It should be emphasized that trading platforms and exchange offices do not calculate or charge taxes automatically, but users are obliged to independently keep records of transactions and report any capital gains on an annual basis and pay the corresponding tax.

Therefore, tax is paid after the exchange of cryptocurrencies for an official currency (kuna, euro, US dollar…) or the purchase of goods/services by cryptocurrency, if capital gains have been made.

The taxpayer is obliged to calculate and pay taxes no later than the end of February of the current year for receipts earned in the previous year, by which time the JOPPD form is to be submitted to the Tax Administration. The form records all transactions (purchases, sales) realized in the previous year and calculates the realized capital gains.

The principle is that for each sale of cryptocurrencies purchased in the last two years, the price difference is calculated. The realized profit is subject to taxation, and the realized loss and transaction costs (commissions) are deducted from the tax base. The tax base is subject to tax at a rate of 10 percent plus the corresponding surtax. For proof of transactions carried out, purchase and sales certificates and transaction cost invoices must be attached.

SAPIENTIA Nova can help you determine your tax liability based on trading and selling cryptocurrencies. Contact us with confidence at crypto@sapientia.hr.The price of our service for natural persons depends on the number of transactions and the complexity of the calculation, and varies from 450 kuna per calculation. You can arrange consultations related to tax issues on cryptocurrencies via crypto@sapientia.hr or by calling +385 01 619 42 00. The price of consultations is 450 kn / hour.

Legal entities and cryptocurrency tax

In 2019, the IASB and IFRS interpretation Committee issued an opinion on the application of international standards to cryptocurrencies, i.e. the application of standards for the records of crypto assets.

IFRS IC concluded that the possession of cryptocurrencies should be calculated according to IAS 38- Intangible assets, unless they are held for sale in the ordinary course of business, in this case IAS 2 – Inventory would apply. “Cryptocurrency trader”- a commodity intermediary could measure its cryptocurrency stocks at fair value minus sales costs.

Changes in value are subject to corporate tax calculation.

SAPIENTIA Nova can help you draw up accounting policies, and determine the tax liability on the basis of trading and selling cryptocurrencies. Contact us with confidence on the crypto@sapientia.hr