Due to the yet not fully defined Spanish tax legislation when it comes to new technologies and blockchain, the vast majority of crypto traders don’t know which are exactly their tax obligations. And, for sure, this is a really important issue if you want to avoid the big penalties you can be charged with. In this article we will solve all your doubts. We will carefully analyze if you really need to pay taxes on your cryptocurrencies or not; and if the answer is yes, you will understand how much, how to do it step by step, and when. So let’s get started!
Do you need to pay tax on cryptocurrency in Spain
Yes, you must pay taxes for your cryptocurrency investments in Spain. And that does not apply only to bitcoin, but to any other coin you are trading with.
The Spanish Tax Agency, observing the rise and popularity of this new type of asset, has started to regularize more and more its participation and therefore its tax collection efforts.
In that sense, on the 23rd of October 2020, the Spanish government published a draft law to gain higher control of cryptocurrencies.
With it, now you must inform the tax authorities about the possession of any cryptocurrency you may have and any transaction that you make in a very detailed way. And this applies to coins you have both in Spain and any other country in the world.
More precisely, you must inform about any cryptocurrency acquisition, transmission, exchange, transfer, collection, or payment made.
How? Through the asset declaration model 720, as we will see through this article.
Nevertheless, if you do not make any kind of movement (you simply hold your position) with your owned coins, then there is no tax to be paid.
How much taxes do you pay on Cryptocurrency in Spain?
To give a fast and summarized answer, the profits obtained when selling cryptocurrencies are subject to a capital gains tax that ranges from 19 to 23%.
This may be the answer you were looking for, but let’s dive deep into it to get the whole picture.
First of all, to what exact amount do you end up paying capital gains tax?
Basically on the profits you generate when you bought any coin at a price X, but sold it at a higher price, Y.
That is, you must pay taxes on the gain generated (the difference between the selling and the buying price, Y – X). It works under the following brackets:
- From 0 to €6.000, you must pay a 19%
- From €6.001 to €50.000, 21%
- From €50.001 onwards, 23%
This does not mean that if you earned €60.000 you will pay 23% on the whole amount. No. You will pay 19% for the first €6.000, 21% for the next €44.000, and 23% on the remaining part until €60.000.
Be careful with the wealth tax too
But capital gain tax may not be the only tax you will end up paying.
In Spain, the wealth tax levies the assets you have in case its value is somewhat high.
Each of the Autonomous Communities in the country defines a minimum up to which you must start paying this tax, but usually that minimum is €700.000.
So, basically, you will need to compute all the assets you have, including cryptocurrencies. If the total amount is higher than the minimum exempt in your region (which may be as low as €400.000), you will need to pay wealth tax.
It is a progressive tax that ranges from 0.2% to nearly 4% depending on your wealth and on the specific region in which you live (because percentages also differ in that sense).
What happens if you experience losses?
If you experience losses, not everything will be bad news.
You can then compensate or offset the losses you experience when for example selling cryptos (because you bought them at a higher price than the one you are selling at) with other gains (for example a gain generated when selling shares of any given company you had invested in).
How does that work?
You simply need to substract your crypto losses from your gains (gains coming from any other type of investment you made), and you will pay taxes just on the remaining amount.
But what happens if during that year you did not experience any monetary gain, but you had important losses?
Again, there is some good news.
You could accumulate those losses and offset them with gains during the next 4 years.
When exactly should you pay taxes on your cryptos?
As opposed to indexed funds or company shares, assets you pay taxes on just once you sell them, with cryptos the situation is completely different.
There are many cryptos that, in order to be obtained, must be acquired with bitcoins or ethereums (but can’t be purchased with euros or dollars).
Once you sell your bitcoin or ethereal to acquire any other crypto (let’s say, litecoin), you will need to declare that transaction and pay taxes accordingly.
That is because during your sale you have experienced a gain (the one related to selling your bitcoins), even though that income has translated into the possession of a new coin.
Then, in the future, if you sell those litecoin at a higher price than what you bought them for, you will pay taxes on that gain too.
Finally, bear in mind that the exchange between one coin into another is exempt from Value Added Tax (VAT), called “IVA” in Spain; which is usually 21%. But if you buy any product or service with your cryptos, then VAT will apply.
How to properly declare your operations
As you may already know, any asset you have abroad while living in Spain must be declared.
And you declare them by filling out the model 720.
As we say in one of our articles, this declaration serves the purpose to inform the tax agency about your assets and possessions abroad, so you can pay income tax accordingly (both the income tax declaration and the model 720 must be aligned).
But you may be asking yourself, what assets abroad, exactly?
All those cryptos you have in exchange pockets pertaining to companies that are not located in Spain.
In that sense, and just if the value of your assets (in this case, your cryptos) exceeds €50.000, you must submit the 720 declaration. If the total amount you possess is lower than that, then there is no need to prepare this model.
Furthermore, if you have all your coins located within a portable Wallet (like Trezor), you don’t need to formalize this declaration either, as that situation is analogous to having your cryptos in Spain.
And what about mining?
If you mine cryptocurrencies, and the income you generate with it is big enough so that the activity is considered a business, then you will need to pay income tax according to the amount of money generated.
Furthermore, you will need to manage and report your monthly accounting properly.
Nevertheless, you won’t need to pay VAT nor declare it, as there is no specific or defined client.
What are the risks of not declaring your cryptos?
Many.
You should always declare any crypto gain you benefit from when buying/selling. Otherwise, the Spanish Hacienda could impose a big penalty for that tax violation.
But things can get pretty bad quickly.
If the total amount exceeds € 120.000, the tax violation becomes a crime against the Tax Agency, with fines up to 5 times higher than the amount you did not declare.
In 2018 the government published a regulation specifying that they had started to investigate any kind of irregularity when it comes to new technologies such as those under the blockchain.
Again, this is really important to consider.
The possible gains that this type of investment can generate are enormous due to its high degree of volatility. So your penalty could escalate pretty fast without you even not noticing.
Hence the need to properly comply with the legal and tax regulations is truly important.
Get legal assistance with your cryptocurrency tax declarations
As we have just seen, properly declaring your cryptocurrencies in Spain is crucial if you want to avoid legal problems with the tax agency.
And this goes in hand with knowing how much to pay, and paying it through the proper models at the right time.
That is why we suggest you seek expert advice in order to optimize your crypto tax declarations.
Book a consultation with one of our lawyers and solve all your doubts:
At Balcells Group we have been foreigners effortlessly moving to Spain for over 11 years. We help expats from all around the world with their immigration, business, tax and legal needs; ensuring a legally safe and enjoyable transition to the Spanish territory. Our multilingual team understands the importance of adapting to the cultural and legal specificities of our international clients. We offer a comprehensive service that combines the expertise of several generations of lawyers with the innovation needed to address today’s legal challenges, always striving to simplify processes and ensure reliable, effective results.
