Trading in crypto has risen in popularity in recent years. With inflation and the uncertainty of traditional trading methods now prompting more people to invest in cryptocurrency, it’s worth knowing what tax rules might apply to you.
When it comes to taxation, one of the most confusing things about cryptocurrency is its decentralised structure. This means that instead of being controlled and regulated by one specific entity, crypto is instead ‘controlled’ by a distributed network i.e. its own users.
Because of its structure, many people moving to Ireland believe that crypto gains will be taxed under the remittance basis of tax. This is usually because the location of the funds is ambiguous and can lead to the assumption that they therefore exist outside of the State.
On the contrary, according to the taxation of crypto-assets transactions Tax and Duty Manual published by Revenue, “where a crypto-asset exists ‘on the cloud’, it will not actually be situated anywhere and therefore, cannot be viewed as ‘situated outside the State’.”
In Ireland and across Europe, governments are adapting fast to the pace at which cryptocurrency is growing. As a result, tax rules regarding cryptocurrency do in fact exist and as an expat coming to or from Ireland — it’s worth knowing how Irish policies might affect you.
Before tracking taxes associated with cryptocurrency, your first step will be to investigate whether Ireland is the country you should be paying your taxes to.
In Ireland, your tax residency will depend on the number of days you are present in Ireland during a tax year.
You are considered to be ‘tax resident’ in Ireland if you are present in Ireland for:
or
While some exceptions will apply (which you should always discuss with a tax expert on a case-by-case basis), this is the general rule for taxation in Ireland.
Once you’ve established that Ireland is where you should be paying your taxes, it’s now time to examine what way Ireland classifies cryptocurrency. This is important because often, there’s a misconception that because cryptocurrency does not have “legal tender status” in Ireland, it’s not taxable. This is not the case.
Instead, crypto gains are treated as an asset. The term used in Ireland for these assets is ‘crypto-assets’, with ‘crypto-asset transactions’ being a term commonly used to describe trades.
As mentioned, cryptocurrency does not have legal tender status in Ireland. Therefore, there are currently no specific rules for cryptocurrency transactions in the State. Currently, it is up to each individual business owner to decide whether or not they want to accept crypto as payment for goods or services.
Even though Bitcoin is still one of the most popular types of cryptocurrency in Ireland (35%), others have begun to emerge. They include:
For businesses in Ireland who want to accept cryptocurrency as payment, Revenue generally treats cryptocurrency in the same way as goods or services paid for in Euro. For example, VAT will be due as normal on the sale of goods and services where cryptocurrency was used as a method of payment.
According to Revenue, “the taxable amount for VAT purposes will be the Euro value of the cryptocurrencies at the time of supply”.
Note: Something that businesses need to note is that a detailed record of all crypto transactions across your business will need to be kept.
The direct taxes generally associated with crypto-assets are:
When buying and selling crypto-assets, the use of the word ‘trade’ might not be regarded as a ‘financial trade’ for tax purposes. This is because as mentioned previously, Ireland largely treats cryptocurrency in the same way as:
That said, expert advice should always be sought before assuming that your trading of crypto-assets is not subject to IT. While for most crypto traders, CGT is the tax that will affect them the most, an analysis of the facts and circumstances is required to determine what is considered ‘trading’ (such that income tax rather than CGT applies to profits arising).
Similar to IT, the sophistication of crypto trading for the average individual is difficult to establish in terms of what is considered to be a ‘financial trade for tax purposes’.
So what are the implications if a company is 'trading' in crypto?
According to Revenue: “The profits and losses of a company entering into transactions involving crypto-assets would be reflected in accounts and, where they arise from a trade, will be taxable under normal CT rules”.
For Irish resident companies found to be “trading” in crypto, profit on the sale will be subject to CT at a rate of 12.5%. Again, this is why it’s always best to speak with a tax expert to determine whether a trade is carried on.
Because of Ireland’s classification of crypto-assets, most Irish residents involved in handling crypto gains will be subject to Capital Gains Tax.
In Ireland, the standard rate of CGT is currently 33% of the chargeable gain you make. However, if you are an individual, you have a personal exemption of €1,270 each year.
With crypto-assets, where the proceeds of a crypto-currency exchange are less than the original investment cost, a capital loss may arise.
Capital losses can sometimes be used to offset against capital gains realised in the same or subsequent years. If the loss is less than the chargeable gain (or if there is no loss to be offset), your annual exemption amount of €1,270 will still apply.
Because Ireland operates a self-assessment system of taxation, it’s up to each individual taxpayer to pay attention to important dates relating to their tax liability.
In terms of CGT, taxpayers should pay attention to the two following periods:
Tax rules can be complicated at the best of times. This is why the best ‘rule of thumb’ for approaching cryptocurrency tax is to treat cryptocurrency how you would physical funds. The same as with physical funds, if there’s any doubt in your mind about the tax you need to pay — always consult an expert.
Especially as an expat, it’s important to remember that with taxation in Ireland, your case might be a little more complicated. For crypto-assets, this can make matters even more overwhelming.
If you’d like advice on tax matters relating to crypto-assets, or any other tax issues, you can book a consultation with us at a time that suits you.
As specialists in Irish taxation, we’ll help you feel more confident about your move to or from Ireland.
