International reference to virtual currencies
Denmark’s reference to transactions in virtual currencies:
Danish Tax Agency Proposes Changes to Crypto-Asset Taxation Draft Control Signal
A draft Control Signal No. 24-0334438 consultation was presented by the Danish Customs and Tax Administration on March 2024 having as a purpose the clarification of the taxation of trading in crypto assets, including:
- A Revision of the calculation method applicable for the trading in cryptocurrencies.
- The setup of May 1st as the deadline for the revision of 2020 tax year assessments based on the Control Signal Draft..
- Provisioning of the requirement for undocumented deposits to be assessed with an acquisition cost of zero Danish Krones, when the acquisition cost of deposits is not documented.
Japan’s reference to transactions in virtual currencies:
Japan allows Investment Funds to retain Cryptocurrencies
Japan’s cabinet published on February 16, 2024, the text of a bill on the Ministry of Economy, Trade and Industry’s website that reveals a proposed amendment to the country’s Industrial Competitiveness Enhancement Act. The bill aims to include crypto assets among the assets that investment limited partnerships can acquire and hold, as a form to secure capital for investments. Investment limited partnerships are utilized by venture capital firms to secure capital for investments.
Concretely under this proposed amendment:
- Limited partnerships can buy crypto, and
- Venture capital, investment funds raise capital from LPs. An LPS is considered a fund that invests in unlisted companies and startups.
This means that Japan now made progress in allowing venture capital firms and other investment funds to hold digital assets directly.
The bill is submitted by the government for debate the Japan’s parliament and if it is approved, it will move Japan’s investment sector to greater exposure to digital assets.
Latvia’s reference to transactions in virtual currencies:
On January 24, 2024, the Latvian State Revenue Department published a set of instructions for implementing tax and accounting regulations on transactions with virtual currency.
In the file, the Latvian government reiterated the official position which states that cryptocurrencies are neither currency nor legal tender and analyzed the issue.
The file includes the opinion of the Latvian government on the legal status and risks involved in the use of virtual currencies.
It should be noted that the file generally specifies the European position (which is the same as the Israeli position at the time the file was published). The matter is rather surprising because the file came out after there were signals from Latvia regarding a more lenient treatment of virtual currencies, considering the lenient approach of neighboring Estonia. Our assessment is that the purpose of the file is to establish a position regarding an official reference (which will apply retroactively) in preparation for the publication of easements in the field.
Accounting in virtual currencies:
The file states that the accounting must include transactions made in virtual currencies when they are converted to euros and included in the company’s books.
In the company’s balance sheets, the value of the virtual currencies should be revalued so that they are recorded at market value or cost – whichever is lower (in fact – as any other asset).
Taxation of virtual currency transactions:
The day the taxpayer receives money or money equivalent is considered the day of receipt of income from the sale of virtual currency. Also in exchange with another virtual currency.
Income from the sale of virtual currency to an individual (natural person) is subject to capital gains tax at a rate of 20%. It should be reported in accordance with the normal rules – if the income increased over 1,000 euros per quarter – on the 15th of the following month for the quarter. If under 1,000 euros – once a year. For foreign residents (outside of Latvia) there is a reporting obligation until the 15th of the month following the month of income generation.
Production of virtual currencies is considered business income.
VAT in virtual currency transactions:
There is no reference in the law, reference must be made to the ruling on the subject.
The ruling states that a transaction of purchase and sale of virtual currencies is a transaction exempt from VAT, therefore – there is also no obligation to register in the VAT payer register of the SRS for a person whose entire business is sensitive and the sale of virtual currencies.
The file also lists rulings in the field, and examples of the application of said guidelines to specific cases.
Link to the file – Click Here