Cryptocurrencies are defined by Article 2 of the Anti-Money Laundering Law. The definition of cryptocurrency is included in the concept of virtual currency. According to the legislation, virtual currency is a digital representation of value. It is not:
- an official means of payment issued by the National Bank of Poland, foreign central banks, or other authorities,
- an international unit of account established by an international organization and recognized by cooperating countries,
- electronic money in accordance with the Payment Services Act of August 19, 2011
- a financial instrument as described in the Act on Trading in Financial Instruments of July 29, 2005,
- a bill of exchange or a check.
Income from cryptocurrency transactions
Under the CIT Law, certain transactions related to the exchange of cryptocurrencies are recognized as capital gains income. In addition, the PIT Law defines such transactions as taxable income. The taxable income is:
- the exchange of virtual currency for a means of payment
- the exchange of virtual currency for goods, services, or property rights,
- the settlement of other obligations using virtual currency
In this case, income can be defined as the exchange of virtual currency, for fiat currency. In addition to this, income is also defined as payments for goods or services using virtual currency.
Staking and Binance Simple Earn
Staking is a way of receiving benefits for owning cryptocurrencies. This allows cryptocurrencies to generate profits. By storing cryptocurrencies in a ‘wallet’, the blockchain network is strengthened.
Binance Simple Earn is a product that is offered by the Binance platform. Users can deposit their cryptocurrencies and in return earn interest (rewards) on them. Cryptocurrencies can be transferred to be deposited in a flexible manner (users can withdraw at any time they choose) or for a given period of time (assets then remain locked for a certain period of time). If the user wants to withdraw from the investment before the time limit expires, it is possible to do so, but he must remember that he will lose all the interest he has previously earned.
The user’s receiving of rewards from staking and Binance Simple Earn results in income at this point. The rewards from staking or BSE can be tax deductible if the user later disposes of the cryptocurrency for a consideration.
Deductible costs
As the PIT Act and the CIT Act specify, deductible expenses are those incurred directly through the acquisition of virtual currency, as well as those incurred through the disposal of virtual currency. Deductible expenses include the cost of acquiring the cryptocurrency itself, as well as commissions from its acquisition and disposal, which are charged by the exchange. The deductible costs do not include commissions that are charged in virtual currency, only commissions charged in fiat currency qualify.
Accounting for an income from cryptocurrencies
According to the current PIT Law and CIT Law, the tax rate applied to income from the disposal of virtual currencies is 19%. Income, on the other hand, is that income earned from the disposal of cryptocurrencies and reduced by the deductible cost.
Investors of cryptocurrencies will be held accountable under the PIT law. Investors are therefore obliged to file a PIT-38 tax return by April 30.
According to the Ministry of Finance, the PIT-38 declaration must be completed by those who are engaged in business activities. Their income belongs to non-agricultural business activities. According to the guidelines of the Anti-Money Laundering Law, such entities are those that engage in activities related to:
- exchange between virtual currencies, and means of payment,
- exchange between virtual currencies,
- account maintenance (maintenance of an electronic set of identification data that allows authorized persons to use units of virtual currencies).
Investors are responsible for calculating their income on their own, as tax liability occurs automatically. The PIT-38 form must show the income earned and the deductible costs incurred. The difference between the two determines the income, taxed against the adopted 19% rate. It is also possible to deduct deductible costs from previous years that were not settled in the previous year. This is especially important for investors who incurred a loss in the previous year.
Accounting for expenses in the absence of income from cryptocurrencies
It is worth remembering that any taxpayer who is involved in cryptocurrency investment is required to file a tax return. If there is no such income, the taxpayer takes into account deductible expenses. As included in the PIT Law, if costs exceed taxed income, the taxpayer can settle his excess costs in the next tax year.
The excess costs can be accounted for not only in the following year, but also in subsequent years. This follows from an interpretation by the Director of the National Tax Chamber on June 8, 2022. A taxpayer can include costs related to the acquisition of cryptocurrencies not only in the year they are incurred and in the following year, but also in subsequent years. The taxpayer is not limited by time.
VAT
The activity that involves buying and selling cryptocurrencies is subject to VAT as a paid supply of services. According to the VAT law, the definition of currencies used as legal tender also includes cryptocurrencies. Transactions that involve selling or exchanging cryptocurrency for traditional currencies, exchanging cryptocurrency for another may be exempt from VAT.
If you need assistance about navigating some complex cryptocurrency matters in terms of taxes, do not hesitate to contact us!
Text based on: https://ksiegowosc.infor.pl/podatki/pit/pit/rozliczenia/6428419,opodatkowanie-kryptowalut-w-polsce-przychody-koszty-rozliczenia.html
