Investing in cryptocurrencies has become increasingly popular in recent years. People are now building up digital assets. Cryptocurrencies, such as Bitcoin and Ethereum and more, are rapidly emerging into wider public ownership and usage. However, it is important to consider the potential tax implications on wealth generated from investing in cryptocurrencies.  

Regulation on Cryptocurrencies 

Cryptocurrencies are not regulated by the Central Bank and are not considered to be legal tender throughout the euro area. Therefore, only a small number of businesses accept cryptocurrency as a form of payment.  

Tax on Cryptocurrency Profits 

There are no specific tax rules for cryptocurrencies, however, that does not mean that there is no tax obligation rising from these types of investments. Revenue’s self-assessed system trusts taxpayers to evaluate their assets and finances correctly to pat the appropriate tax due. Revenue looks at investments in cryptocurrency in the same manner as an investment in any other currency, stock, or share. If you are making a profit through the selling, gifting, or exchanging of your cryptocurrency, you need to declare it to Revenue for capital gains tax (CGT).  

Income Tax and Corporation Tax 

The profits and losses arising to individuals and companies on cryptocurrencies are taxable under normal income and corporation tax rules. If a cryptocurrency transaction is regarded as a trading activity, the profits would be subject to income/corporation tax and capital gains tax would apply to transactions that are held as investments.  

The profits and losses of a non-incorporated business on cryptocurrency transactions must be reflected in their accounts and will be taxable on normal Income Tax rules. The profits and losses of a company entering into transactions involving cryptocurrency would be reflected in accounts and taxable under normal Corporation Tax Rules.  

Capital Gains Tax and Corporation Tax on Chargeable Gains 

If a profit or loss on a currency contract is not within trading profits, it would normally be taxable as a chargeable gain or allowable as a loss for Corporation Tax or Capital Gains Tax purposes. Gains and losses incurred on cryptocurrencies are chargeable or allowable for Capital Gains Tax if they accrue to an individual or, for Corporation Tax on chargeable gains if they accrue to a company. Irish tax resident individuals and companies are liable to CGT (currently 33%) on any gains arising after offsetting current and prior year capital losses. 

VAT Treatment of Bitcoin and Similar Cryptocurrencies 

Bitcoin constitutes a currency for VAT purposes. It is Revenue’s view that Bitcoin and similar cryptocurrencies are regarded for VAT purposes as ‘negotiable instruments’ and exempt from VAT in accordance with the VAT Consolidation Act 2010. 

Exchange of Cryptocurrency 

Financial services consisting of the exchange of bitcoins for traditional currency are exempt pursuant to Paragraph 6(1)(d) of the VAT Consolidation Act 2010, where the company performing the exchange acts as principal (i.e. buys and sells cryptocurrencies acting as the owner of the virtual currency). 

Supplies of Goods & Services 

VAT is due in the normal way from suppliers of any goods or services sold in exchange for bitcoin or other similar cryptocurrencies. The taxable amount for VAT purposes will be the Euro value of the cryptocurrency at the time of the supply. 

Mining  

Income received from cryptocurrency mining activities will generally be outside the scope of VAT on the basis that the activity does not constitute an economic activity for VAT purposes. 

PAYE Treatment of Cryptocurrencies 

Where emoluments payable to an employee are paid in a cryptocurrency, the value of the emoluments for the purposes of calculating payroll taxes is the Euro amount attaching to the cryptocurrency at the time the payment is made to the employee. Returns to Revenue must be shown in Euro amounts and remittances made appropriately. 

Valuation of Cryptocurrencies 

Many cryptocurrencies, such as Bitcoin, are traded on a number of exchanges. Unlike shares or commodities, the value of the cryptocurrencies may vary between exchanges. Therefore, there is not always a single “exchange rate” for cryptocurrencies. A reasonable effort should be made to use an appropriate valuation for the transaction in question. 

Get in Touch 

If you require further advice in relation to personal taxes and the taxation of cryptocurrencies, please don’t hesitate to book a no-obligation call with Gallagher Keane.