In Estonia, cryptocurrencies are typically classified as virtual currencies or digital assets.
Categorization of Transactions:
- Buying and selling cryptocurrencies: Treated as capital transactions.
- Mining cryptocurrencies: Considered as income from economic activities.
- Trading cryptocurrencies: Subject to similar tax treatment as buying and selling.
Taxable Events:
- Selling cryptocurrencies: Capital gains tax applies to the difference between the selling price and the acquisition cost.
- Mining cryptocurrencies: Income tax applies to the value of the mined cryptocurrencies at the time of acquisition.
Treatment of Gains and Losses:
- Gains: Taxable as income or capital gains, depending on the nature of the transaction.
- Losses: Can be offset against gains from other cryptocurrency transactions or carried forward to future years.
Applicable Tax Rates on Cryptocurrency Transactions
Capital Gains Tax: Flat rate of 20% on distributed profits, applicable to capital gains from cryptocurrency transactions.
Income Tax: Progressive income tax rates apply to mining income, depending on the taxpayer's total income level.
Exemptions/Deductions: Certain expenses related to cryptocurrency transactions, such as transaction fees and mining equipment costs, may be deductible.
Legal Provisions: The taxation of cryptocurrencies in Estonia is governed by the Income Tax Act (ITA) and the Value Added Tax Act (VATA).
Legal References:
- The treatment of income from economic activities, including mining, is covered under Section 14 of the Income Tax Act.
- Capital gains tax rates are specified in Section 47 of the Income Tax Act.
Estonia aims to provide a clear and competitive tax framework for cryptocurrency transactions, balancing the need for regulation with the desire to encourage innovation in the digital asset space. The taxation of cryptocurrencies aligns with broader tax principles while accommodating the unique characteristics of virtual currencies.
