For almost a decade, and especially in recent years, concepts related to cryptographic technology have been entering our vocabulary to such an extent that it is now common to hear concepts such as “blockchaini“, “cryptocurrencies” or “bitcoin” in any communication media. It is almost impossible not to have heard the repeated story of some people who long ago invested in blockchain & cryptocurrency and who are rich today.
The benefits of using blockchain technology are so remarkable that not even the most traditional economic sectors have managed to escape its reach. So much so, that since this technology was applied in the first cryptocurrency (Bitcoin in 2009), more than 15 different cryptocurrencies with global relevance have already appeared. Even many economists and economically renowned newspapers consider it as the new substitute for Gold.
Even so, it seems incredible that in 2019 there was still no international definition of what a crypto asset was. Currently, the Financial Action Task Force (FATF) defines it as a representation of value that can be digitized or transferred and, in addition, can be used to make payments or investments. Also, in the case of crypto currencies, these are protected by cryptography.
Legal treatment and tax regulation
For this reason, many States have taken the initiative to begin to legislate a regulatory framework that regulates the use of this technology and that offers its citizens the necessary legal security and stability. In the Andorran case, for example, a bill is being discussed that allows offering a general regulation of action so that, subsequently, the development of sectoral legislation with a common minimum is possible.
Even so, in the tax area, there is a clear lack of guidance on how to tax cryptocurrencies in all its many facets, which makes it a very complex task. Currently, there are many countries in which digital currencies are considered by law as a legal asset, while in others they are prohibited or there is not even an official pronouncement.
Its regulation involves many doubts: how do we treat the income generated by cryptocurrencies? Can they be treated as patrimony? If they were treated as capital, what would be the procedure to value them correctly? Could value added taxes be applied on the creation or transfer of these crypto assets?
Legislation Blockchain & cryptocurrencies – Case of Andorra:
As we mentioned, Andorra does not yet have a specific regulation for this type of activity, however, the Department of Taxes and Borders has considered the sale of crypto-assets as a capital gain.
It is important to remember, then, that in Andorra there is no wealth tax, nor an inheritance or donation tax, so this capital gain may only be subject to the Personal Income Tax (IRPF), considering that cryptocurrency trading is usually done in a personal capacity.
Therefore, the value of the returns generated by cryptocurrencies (transmission price – acquisition price) would be taxed based on savings and would be classified as capital gains and losses. In this way, a fixed withholding of 10% would be applied (as a general rule) with an exempt minimum of up to € 3,000.
In addition, it is intended to create an Exchange-type platform called Andorra Digital Exchange (ANDEX) in order to centralize the sale of this type of assets. The creation of licenses and permits that companies can obtain prior government authorization is also planned to guarantee greater security and transparency towards end customers.
As we can see, the Andorran tax system is very interesting to carry out activities related to blockchain technology and the sale of crypto assets, so the option of wanting to operate from Andorra could easily be considered. But is it a plausible option? As we will see later, it depends on the territory in which you reside.
Legislation Blockchain & cryptocurrencies – Spanish case:
In Spain there is a somewhat different scenario to that of Andorra, since, although they are considered a financial asset, in this case, there are other tax obligations in addition to personal income tax:
- Wealth Tax. In this case, the holding of a cryptocurrency is treated as the holding of some shares in a company. That means that if you exceed the minimum (which is different depending on the autonomous community in which you are) you will also have to pay them.
- Inheritance tax and donations. Similarly, the transmission of crypto assets by way of succession or donation must also be declared and, again, the specific applicable rate depends on each autonomous community.
- Tax on Economic Activities. In addition, if the activity is “cryptocurrency mining”, the Spanish treasury will consider it as an economic activity, so the subject must register as self-employed and, therefore, will be subject to the economic activities tax. But there is the possibility of discounting the possible expenses associated with the activity.
Regarding personal income tax, the procedure is the same as in the case of Andorra: the capital gain or loss resulting from applying the difference between the transmission price and the acquisition price will be declared. But the rates and the taxable bases of savings are totally different:
Also, the Spanish Tax Agency will force to find an equivalence between the prices of the dates.
But what if I want to operate outside of Spain? Well, returning to the situation that we had introduced in the previous section, if you reside in Spain, but operate in Andorra (or, in fact, anywhere in the world), you must declare the known (and controversial) model every first quarter of the year.
This model requires citizens to report their assets abroad and the regulations establish high fines for not presenting it or submitting it after the deadline to the Tax Agency. In fact, its non-presentation carries serious penalties, even losing 95% of the value of the cryptocurrency.
As we can see, there are differences between the two countries in terms of consideration and taxation.
In the case of Andorra, the country of the Pyrenees intends to welcome and offer a more friendly and welcoming environment. Andorra is aware that it needs to diversify its economy and open up to the future. That is why it is implementing measures to improve the international image of the country and thus be able to attract new capital and diversify its economy. Proof of this is the desire to create ANDEX and the implementation of licenses.
In contrast, in Spain taxation on digital assets and cryptocurrency continues to be high. Situation that discourages the attraction of capital to the country. Furthermore, there are so few measures or projects on the part of governments to increase interest in moving to Spain.
For all these reasons, Andorra continues to be a very interesting destination if you have cryptocurrencies