Virtual currency

What it means

A virtual currency is a digital representation of value that no central bank issues and that is not legal tender. It is accepted as a means of exchange by agreement between the parties and is held and transferred electronically.

In the books it is neither money nor a foreign currency, so simply holding it creates no exchange differences, and it is not securities either. The Accounting Act values it at fair value as at the day of the transaction.

What separates it from electronic money is the missing right to redemption. Electronic money is issued by a licensed institution and the holder can exchange it for euros at face value at any time; for a virtual currency nobody owes that. This is why income tax does not treat it as money either: every exchange of it is a sale of property, not a payment.

How it works in practice

Tax does not arise on mining, nor on a price rise inside the wallet, but on disposal: exchange for property, for a service, for another virtual currency, or a transfer for consideration. The base is the income achieved less the expense that can be evidenced.

When a company takes payment in crypto that is an exchange, not a cash receipt: the receivable is settled at the value of the coins on the day received. Exchange and wallet services are regulated and their provider carries AML duties, client identification included.

Anyone who bought in instalments at different prices has to decide, on each sale, which purchase was actually sold. The matching method chosen, FIFO for instance, is then applied consistently throughout. We therefore prepare for the client an export of trades from every exchange and wallet for the whole holding period, not just the last year.

What to watch out for

The costly gap is missing purchase records. Without statements from exchanges and wallets the expense cannot be evidenced, the whole sale proceeds are taxed, and years of trading produce tax calculated on the gross amount rather than on the gain.

An individual offsets a loss on selling crypto against the profit from their trade licence. Income from selling a virtual currency is other income, where expenses count only up to the amount of that income, so the loss reduces nothing and is not carried forward. Putting it right means a supplementary return, the extra tax and late-payment interest.