Taxation of private person’s crypto earnings in Estonia
What you need to know if you have your income coming from the virtual currency in Estonia.
Starting a crypto exchange — common way of investing in cryptocurrency in Estonia. Here the cryptocurrency is strictly regulated by the authorities. First of all, you need to obtain a license, open a banking account, and follow other legal procedures regarding crypto exchange/fund.
However, as we focus on an individual’s income, we need to consider the situation from a slightly different perspective.
Hence, according to the Estonian Tax and Customs Board income of an individual can be generated in several ways:
• price changes of virtual currency when buying and selling/exchanging virtual currency
• mining of the virtual currency
• renting out the cloud storage capacity
• receiving salary in virtual currency
It is essential to note that in Estonia, income received by investing in virtual currency is taxed as income received in traditional cash. Speaking of the taxation of virtual income, the purchase or sales price or received income must be converted into euros at the exchange rate of virtual currency established on the market applying on the date of receipt of the income or costs.
Purchase, sale or exchange
According to subsection 15 (1) of the Income Tax Act, virtual currency is considered property. Income tax is charged on earnings from the transfer of virtual currency, including exchange (subsections 15 (1) and 37 (1)).
In that way, if an individual gets income from purchasing and selling cryptocurrency online or from the exchange of crypto money for another type of money, then an individual needs to declare that income, where the income is the difference between what an individual has sold and bought or, in the case of an exchange, between the price of a received property and the purchase price of the virtual currency.
Please note that only the transactions that generated income have to be declared!
An individual who independently deals with cryptocurrency mining and does not pay income tax, then a private person has to declare his income as business income and pay taxes.
Moreover, an individual continuously mining virtual currency has to register himself in the Business register as a sole proprietor. When registered as a sole proprietor, a private person can declare business-related expenses and deduct them from income.
Renting out the cloud storage capacity
Gains received from renting out the storage capacity of a private person’s computer must be declared as rental income. If cryptocurrency mining and renting out storage capacity is a business activity, the income from such business has to be declared according to the government regulation.
Salary in virtual currency
All employers paying salary in virtual currency within Estonia have to convert it into euros according to the market price and pay labour taxes before making payments to employees.
“If an individual receives service fee in virtual currency from which income tax is not withheld, for example from a foreign employer, then the person has to convert such income into euros at the current market price on the date of receipt of the cryptocurrency and declare it as business income. If the employer has already withheld taxes on the wages received in virtual currency, the virtual currency can be used for purchasing various goods or services without any additional tax liabilities” — Tax and Customs Board of Estonia.
Exchanging virtual currency for traditional payment method is exempt from VAT. Consequently, if an individual is dealing with cryptocurrency, he doesn’t need to register a VAT number.