Sometimes it can feel like settling cryptocurrency taxes is a task on the scale of a space expedition! In this special article, we will equip you with the weapons of a tax master, so you can confidently face this challenge. Self-taxation of crypto is really a battle with regulatory monsters, and we have secret hacks for you that will help you win this battle with the tax authorities!
Paying taxes on cryptocurrency gains is not only a duty of every citizen but also an important aspect of managing one’s investments. Lack of understanding of the tax obligation can lead to irregularities in settlements and even to legal consequences.
It all comes down to the tax declaration, which for many cryptocurrency investors becomes harder to understand than Bitcoin cryptography. Complex calculations, constant changes in rates, different trading platforms – all this makes the process full of surprises. And yet we all know how much the tax office loves surprises…
That’s why we have prepared the most important information about cryptocurrency taxes. First, we will focus on individuals, and then we will look at the rules for businesses.
How to pay tax on cryptocurrencies? Individuals
Individuals who buy and sell cryptocurrencies on their own account must pay personal income tax (PIT) according to the tax scale or a flat rate. The tax scale is 17% or 32% depending on the income level, while the flat rate is 19%. Income from cryptocurrencies should be declared in the annual tax return (PIT-36 or PIT-36L) by the end of April of the year following the tax year.
Income from cryptocurrencies is the difference between revenue and the cost of earning the revenue. Revenue is the value of sold cryptocurrencies in Polish zloty according to the exchange rate on the day of sale. The cost of earning revenue is the value of purchased cryptocurrencies in Polish zloty according to the exchange rate on the day of purchase. If an individual sells cryptocurrencies held for less than 6 months, the cost of earning revenue is reduced by 50%.
Individuals who receive cryptocurrencies for services or work must also pay PIT according to the tax scale or a flat rate. Revenue is the value of received cryptocurrencies in Polish zloty according to the exchange rate on the day of receipt. The cost of earning revenue is the value of expenses incurred for providing services or work.
Individuals who accumulate cryptocurrencies for personal use and do not intend to sell or exchange them for other goods or services do not have to pay PIT or report it to the tax office. However, if such individuals are asked by tax authorities to document the source of their cryptocurrencies, they must be able to do so.
Most important points to remember:
- Remember that the sale of virtual currencies has always been subject to income taxes – both personal and corporate income tax.
- Since 2019, the taxation of virtual currencies has significantly changed – for example, currently, under the term “virtual currencies” is understood what is indicated in art. 2 sec. 2 point 26 of the Act on Counteracting Money Laundering and Terrorism Financing:
“Whenever the act refers to virtual currency – it means virtual currency as defined in art. 2 sec. 2 point 26 of the Act on Counteracting Money Laundering and Terrorism Financing.” - The basic principle is self-taxation of the sale of virtual currencies – i.e., you determine the value of income and costs of earning income yourself, and you are the taxpayer.
- The taxpayer:
a. keeps records themselves;
b. calculates income and costs of earning income themselves;
c. calculates the tax liability to be paid to the tax authority’s account themselves.
Remember: Revenues from the sale of virtual currencies are revenues from monetary capital. - The sale of a virtual currency refers to the exchange of a virtual currency for:
a. legal tender,
b. goods,
c. service,
d. a property right other than virtual currency,
e. settling other obligations with virtual currency. - The basis for taxing virtual currencies is the income, which is the difference between the revenues from the sale of virtual currencies and their acquisition costs in a given tax year.
- Taxable income arises at the moment of selling virtual currencies.
- Exchanging one virtual currency for another does not generate income, so no tax obligation arises then.
“Costs of obtaining income do not include expenses incurred related to the exchange of one virtual currency for another.” - Remember: The date of receiving taxable income is crucial – it will help you calculate the taxable income.
- You can reduce the income in a given tax year by the costs of earning income.
“Costs of earning income from the sale of virtual currency include documented expenses directly incurred for the acquisition of virtual currency and costs related to the disposal of virtual currency, including documented expenses incurred on behalf of entities referred to in art. 2 sec. 1 point 12 of the Act on Counteracting Money Laundering and Terrorism Financing.” “The costs of earning income, as mentioned in sec. 14, are deducted in the tax year in which they were incurred, subject to sec. 16.”
IMPORTANT: Remember that the regulations are not very clear regarding the issue of “loss”. In the case of selling virtual currencies, if the costs of earning income exceed the revenues (loss), it increases the costs of earning income incurred in the next tax year. The regulations do not clearly describe the settlement of these issues – to best account for a loss, consult a tax advisor! - Annual tax settlement from the sale of virtual currencies is subject to separate legal regulations! Therefore, do not sum up revenues from virtual currencies with revenues from other monetary capitals!
- The tax rate for personal income tax from the sale of virtual currencies is 19%:
“Income tax from revenues obtained from the sale of virtual currencies is 19% of the earned income.” - You are not obligated to pay advance payments on personal income tax during the year when conducting virtual currency sales transactions! Settlement of the tax obligation for personal income tax from the sale of virtual currencies is done once a year in the annual tax return.
- When filling out the PIT, remember that:
a. Matters related to the sale of virtual currencies are declared in PI-38 in part E. Don’t forget to enter the sum of costs in position 35! In position 36, enter the total sum of all costs of earning income related to the purchase of virtual currencies in previous tax years, in which you were not able to deduct these costs due to lack of revenue or achieving a surplus of costs of earning income over revenues.
b. In position 37, indicate the taxable income being the difference between position 34, and 35 and 36. In position 38, show the surplus of costs of earning income over revenues in the given tax year, which you will be able to deduct in subsequent tax years.
c. In part F of PIT-38, calculate the correct amount of tax liability.
How to pay tax on cryptocurrencies? Legal entities
Legal entities, such as companies or foundations, engaged in business activities related to cryptocurrencies, must pay corporate income tax (CIT) at a rate of 19%. Income from cryptocurrencies is the difference between revenue and the cost of earning the revenue. Revenue is the value of sold or received cryptocurrencies in Polish zloty according to the exchange rate on the day of sale or receipt. The cost of earning income is the value of purchased or expended cryptocurrencies in Polish zloty according to the exchange rate on the day of purchase or expenditure.
Legal entities must also maintain accounting records and accounting related to their activities associated with cryptocurrencies. They must also prepare and submit monthly tax declarations (CIT-8) and annual financial statements (CIT-8/O).
The rules for taxation, including calculating the amount of income, costs of earning income, taxable income, and the tax rate in corporate income tax, are analogous to those in personal income tax, with the stipulation that:
- Profits from the sale of virtual currencies are counted as capital gains.
- Transactions in virtual currencies, even if carried out as part of business activity, are accounted for as income from capital gains, therefore they should not be combined with other income from business activities.
- The costs of earning income are documented expenses incurred directly for the acquisition of virtual currencies and costs associated with the sale of virtual currencies.
- Not receiving any income from the sale of virtual currencies in a given tax year, but incurring only costs of earning income, results in the obligation to declare these costs and submit the appropriate declaration.
- Excess costs of earning income over the income generated results in a loss from the sale of virtual currencies.
- Regarding VAT, in Poland, there is an exemption for cryptocurrencies. The 2015 decision of the European Court of Justice excludes cryptocurrency transactions from VAT, treating them as transactions concerning “currencies, banknotes, and coins used as legal tender”.
Remember, to correctly settle with the tax office, it’s best to consult a tax advisor. The above indications are not legal advice. Always check whether the regulations provided here are up-to-date and whether any changes have been made to the laws.
Summary
The sale of virtual currencies is subject to income taxes. The obligation to keep records, calculate income, costs of earning income, and tax liabilities lies with the seller. It is indicated that taxable income arises at the moment of selling virtual currencies, although exchanging one virtual currency for another does not generate such income. Key to calculating taxable income is the dating of receiving such income.
However, the regulations are not clear regarding the topic of “losses”. The personal income tax on the sale of virtual currencies is 19%. There is no obligation to pay advance payments on income tax during the year. Settlements are made once a year, in the form of an annual tax return.
The taxation rules for virtual currencies for legal entities are analogous to those applied to individuals. Profits from the sale of such currencies are classified as capital gains. It is noteworthy that transactions carried out using virtual currencies, even if they are part of business activities, are settled on different terms than the rest.
Documented expenses for the purchase of virtual currencies and costs directly associated with their sale are included in the costs of earning income. In a situation where you do not earn income from the sale of virtual currencies in a given tax year, but incur related costs, you must declare these costs and submit the appropriate declaration. If costs exceed revenues, a loss is incurred. In such cases, it is always advisable to consult with a tax advisor to properly settle the tax.
In summary, navigating the tax world of cryptocurrencies in Poland is like riding a roller coaster – full of surprises, emotions, and unexpected twists. Do you feel ready for this journey? Just remember, at the end of this ride, you are not greeted with a ticket for another round, but with a PIT form. Good luck!
