Crypto - Here's what you should know!

Cryptocurrency – What you need to know!

Despite how volatile the market has been in recent weeks, we are still receiving multiple crypto queries every week and for that reason, we asked our tax expert and crypto trader Cristina to provide further insight on Irish taxation when it comes to cryptocurrency.

Under the current Irish tax legislation, there are no specific rules for cryptocurrency transactions. Instead, the tax treatment applicable to cryptocurrency transactions will depend on the nature of the transactions and the parties involved i.e., whether the cryptocurrency transactions are viewed as trading transactions or investment transactions.

The taxes that will apply to such transactions will be subject to one of the below:

Individuals

• Capital Gains Tax
• Income Tax

Corporations

• Capital Gains Tax
• Corporation Tax

Individuals:

Capital Gains Tax (CGT)

Where an individual is invests in cryptocurrency in a non-trading capacity (for investment purposes only), CGT rules will apply.

Reporting

Acquisitions and disposals made in a tax year (calendar year) must be reported in your annual income tax return (if you are required to submit one). The tax return is due for filing the following year i.e. 2021 acquisitions and disposal reporting will be reported in your 2021 tax return which will be due for filing the following 31 October 2022.

If you are not required to file an income tax return, the reporting should be made on a Form CG1 instead. Same deadline of 31 October applies.

Payment

The above is for reporting. If you have made a gain on disposal of assets, CGT may apply to the gain at 33%. The payment for CGT is due 15 December or 31 January i.e. CGT payable for gains made between;

• 1 January 2021 to November 2021 – CGT due 15 December 2021
• 1 December 2021 to 31 December 2021 – CGT due 31 January 2022

An annual personal exemption of €1,270 is available for each tax year. On the basis the gains made in a tax year are less than the annual exemption of €1,270, the payment dates above can be ignored as no payment is required and disposals will be reported in the relevant tax return.

CGT arises on disposal AND exchange of cryptocurrency. Therefore, if you sell cryptocurrency for cash a CGT event arises, and this also applies if you are exchanging one cryptocurrency to another cryptocurrency. The current Irish CGT rate is 33%

Income Tax

In general, cryptocurrency transactions made by individuals are considered as investments and subject to CGT rules. However, if the volume of transactions is substantial, consistent and the main source of income, these transactions would be viewed as a trade rather than investment and normal Income Tax rules will apply as opposed to CGT.

A Form11 Income Tax return will be required to be submitted to Revenue to enclose details of the trade, calculate tax payable and payment of tax i.e. 2021 trading details will be reported on the 2021 tax return which will be due for filing the following 31 October 2022. Payment of tax liabilities arising for 2021 would also be due for payment on 31 October 2022.

The current Irish Income Tax rates will vary depending on the profits made and can be as high as 55%:

• Income Tax up to 40%
• USC up to 11%
• PRSI 4%

Corporations:

Capital Gains Tax (CGT)

In a trading company, if the company invests in cryptocurrency in a non-trading capacity (for investment purposes only), CGT rules will apply.

The current Irish CGT rate is 33%

Corporation Tax

Trading Company

Where a trading company exists, and the company allows for business transactions to be made in cryptocurrency form, this is treated as a form of currency and the profit/loss will be reflected in the company’s profit & loss account as any other form of currency is treated.

The current Irish Corporation Tax rate for Trading companies is 12.5%

Investment Company

Where a company is incorporated solely for the purposes of making investments, all cryptocurrency transactions are subject to Corporation Tax rules (there is no distinction between trading and investing as the sole purpose of the company is investments i.e., investments are the trade).

The current Irish Corporation Tax rate for Investment companies is 25%

Considerations

The above 25% corporation tax rate may appear more favourable to the Income Tax rates which can be as high as 55%, however if profits in the investment company are not distributed to the shareholders of the company, an additional Close Company Surcharge will arise which can bring the total effective rate of tax to 40%.

Even if profits are distributed to the shareholders of the company (which removes the Close Company Surcharge obligation), the funds distributed by way of a salary or dividend can be subject to Income Tax of up to 55% on the individual depending on their level of other personal income.

Summary

If you are invested in Cryptocurrencies or interested in understanding more of the taxation behind it, why not get in touch with us directly to organise a complimentary consultation to ensure your compliance and tax efficiencies? In a market that is so volatile, understanding the potential tax liability should be a minimum goal before making any decisions that may have a long term impact.

Email info@iconaccounting.ie to organise or alternatively, you can call us on 01-8077106.