How are cryptocurrencies declared?

Cryptocurrencies have gained popularity in recent years and despite their large fluctuations in the last year, they continue to be a financial alternative for many Spanish taxpayers who are looking for a product that is less affected than others by the macroeconomic decisions taken by countries and geopolitics, and a product that is a refuge from the feared collapse of part of the Western banking system.

By gaining prominence in the global financial landscape, the tax authorities have had to go one step further and adapt to the current scenario, so that in the 2022 tax return campaign, the Tax Agency is trying to adapt the Spanish tax system to this type of asset, in order to avoid tax evasion and fraud.

Cryptocurrency income news

As a novelty, in this tax year the section on capital gains and losses derived from other capital items has been broken down, as in the 2021 tax year, where the novelty of having to declare crypto-asset transactions was introduced, these were included with the rest of the capital gains.

However, for 2022, a specific section has been created for this type of asset, specifically, the code 0 must be entered in box 1626, which corresponds to virtual currencies.

In box 1631, the dates and values of acquisition should be reported. If there are multiple transactions, the operation should be repeated again in the “Asset and Liability Element” box.

What is most striking is that the maximum number of transactions is 25, so it will be necessary to group transactions from the same “trader” or from the same cryptocurrency. Anyone who invests in this type of asset, or even invests on a regular basis, knows that 25 records are very insufficient, as there are taxpayers who carry out thousands of transactions every day.

In this case, and given that the tax reports of the Exchange platforms are not adapted to our tax system, we recommend that clients record each and every one of the operations carried out with their acquisition price and date in order to be able to subsequently quantify the profit or loss incurred once sold and to be able to justify the amounts entered in the aforementioned boxes in the event that the Tax Authorities require it. As we can see, the progress made by the Tax Agency is minimal.

The burden of compiling tax information for this type of asset falls entirely on the taxpayer who, if he does not keep meticulous records, will be unable to report the transactions carried out, and in turn, the Treasury will not be able to cross-check data to verify the veracity of what is declared, as the Exchange platforms receive undecipherable data, if they receive them at all…

The latest new feature this year is the 721 form, aimed at individuals who own cryptocurrencies and hold a wallet worth at least 50,000 euros (there are similar forms for legal entities such as 172 and 173). Once a year, they must report the value of their portfolio as at 31/12.

Cryptocurrency and personal income tax returns

As we can see, the current situation is less confusing in terms of how to declare cryptocurrencies, so below are some relevant aspects in relation to these assets and personal income tax:

1. Declaration of holdings: the holding of these assets at 31/12 must be declared for Wealth Tax purposes, provided that the value of the overall assets exceeds the exempt minimum of 500,000 euros.
2. Exchange between cryptocurrencies: if cryptocurrency exchanges are carried out, it is considered a transaction subject to tax and therefore tax will have to be paid on the difference between the acquisition value and the value of this at the time the exchange takes place. Even if the conversion to fiat currency has not been made, it is still subject to tax.
3. Sale of cryptocurrencies: as mentioned above, the sale of cryptocurrencies must be reported on the tax return, and is taxed at 19% to 26% on the difference between the sale value and the acquisition value, which is why it is so important to record each transaction with the date and value of purchase, along with the number of units purchased.
4. Mining of cryptocurrencies: in case of obtaining cryptocurrencies through mining, this is considered an economic activity so the income generated must be declared as income from economic activities while expenses directly related to mining can be deducted. In addition, the taxpayer must register as self-employed with the Social Security.
5. Stacking: the income obtained from stacking is considered to be income from movable capital obtained from the transfer of own capital to third parties and will therefore also be taxed in the savings base at 19% to 26% and will be valued at their market value on the day they were received (without deducting custody or administration costs, as the Treasury does not consider them to be the same as negotiable securities such as shares in listed companies).
6. Cryptocurrencies as a form of payment: if cryptocurrencies are used as a method of payment for other goods or services, it should be borne in mind that they will be taxed at the time of payment for the difference between the market value at that time and the acquisition value.

If you have any doubts about this subject, please do not hesitate to contact us, by telephone to Carles Monfort Codina or by e-mail to cmc@btsasociados.com, we will be delighted to help you.