The development of virtual currencies and an increase in the number of transactions related to them can be observed in recent years. Unfortunately, Polish tax law has not kept pace with the development in this field so far, which was expressed by the lack of regulations taking into account the specificity of transactions using cryptocurrencies. Ergo, there is a lot of doubts about the way tax provisions should be interpreted. Starting from January 1, 2019, the legislator put an end to these doubts when it comes to income taxes. Currently, work is underway to finalize the issue of taxation on the sale or exchange of cryptocurrencies with tax on civil law transactions.
Changes since 2019 – income taxes
Since January 1, 2019, amendments were introduced into the Polish Income Tax Acts to dispel doubts regarding the taxation of profits obtained from trading cryptocurrencies. Revenues from trading in virtual currencies are revenues from capital gains, which are taxed at a rate of 19%. In relation to natural persons, this also applies when the taxpayer obtains these revenues as part of business activities, so it is not possible to choose taxation on general principles at the rate of 18% and 32%. The exception is natural persons conducting business activity, consisting in the provision of services, inter alia, in the field of exchange between virtual currencies and means of payment, and exchange between virtual currencies. Revenues of such taxpayers still do constitute revenues from economic activity taxed, according to the choice, on general principles or at a 19% flat rate.
Revenues from cryptocurrency trading include, among others, revenues from their sale, i.e. exchange into legal tender. Payment with such currencies for a good, service or property right that is not a virtual currency and settlement of other obligations is treated as a sale of virtual currencies. The taxable base is income, i.e. revenue less tax deductible costs. Documented expenses incurred for the purchase of cryptocurrency, as well as costs related to its sale are considered to be these.
What about tax on goods and services (VAT)?
Professional – and therefore having the features of a certain organization and continuity – trading in cryptocurrencies is in the light of the Act on Goods and Services Tax, the provision of services as a part of business operations. Therefore, it is subject to tax on goods and services (VAT). At the same time, however, it is an activity exempt from this tax. Consequently, the taxpayer is not able to deduct input tax in the case of the purchase of goods and services related to the business of mining and selling cryptocurrencies.
Tax on civil law transactions
The sale or exchange of cryptocurrencies outside of professional trading – not subject to goods and services tax (or exempt from it) – should in principle result in the obligation in tax on civil law transactions at a rate of 1%. However, at present, the Ministry of Finance, pursuant to the Regulation, ordered to suspend the collection of tax from taxpayers purchasing cryptocurrencies through a sale or exchange contract in cases where the contracts underlying the transaction are concluded between July 13, 2018 and December 31, 2019. Until then, it is planned to introduce clear statutory exemption of the sale or exchange of cryptocurrencies from tax on civil law transactions. The amendment is to enter into force from January 1, 2020, which will ensure continuity in tax-free transactions related to cryptocurrency after the expiry of the abovementioned Regulation by the Ministry of Finance.
By Tomasz Piejak & Wojciech Jaranowski