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About Cryptocurrency and VAT Implications

The World is Watching: Cryptocurrency and VAT Implications



With the rise of cryptocurrency in the last decade, it has led to a lot of questions around the world about personal tax and VAT implications. A lot of governments have been slow on the uptake with regards to implementing systems to start taxing cryptocurrency, largely as a result of these not being widely adopted and because they stem from a relatively unknown, decentralised source. When it comes to VAT implications around cryptocurrency, as with all taxation issues, it is important to ensure that your business remains compliant at all times. While legislation is undergoing rapid changes to keep up with the emergence of new technologies like cryptocurrency, it is your responsibility to make sure that you stay up to date, avoiding penalties and ensuring you always secure any applicable refunds too.

What is a Cryptocurrency?

Popularised by the rise of Bitcoin in 2011, cryptocurrencies are essentially virtual currencies that are largely unregulated. Controlled by its developers, it was initially only used by members of a specific online community, branching out over time to start reaching the mass market. There are many cryptocurrencies in the market, each operating as an unregulated, decentralised peer-to-peer form of private money, which can be exchanged for goods and services wherever it is accepted. Using digital cryptography, this virtual money is exchanged, ungoverned as a traditional currency is, and essentially out of reach of conventional financial supervision structures and systems.

Why Cryptocurrencies Add Complexity to Taxation Issues

As you can expect, cryptocurrency has added another layer of depth and complexity to taxation issues. As a result of the anonymous nature of cryptocurrencies, as well as the fact that they are decentralised, it can be difficult to bank on specific facts and behavioural characteristics that would come as second nature to a central or reserve bank, which has experience in dealing with traditional currencies. As a result of this, legislation remains fairly thin around the world, albeit that it is a field that contains ample debate from experts and analysts. 



VAT Considerations With Regards To Cryptocurrency

If you’ve done a bit of research, you may have heard some opposing views, including that cryptocurrency is VAT exempt, or even subject to a positive rate of VAT. The EU VAT committee (an advisory board) is hard at work and publishing papers discussing the effects on corporation, income, capital gains tax and more. It is evident that tax considerations should be made by any business engaging in the exchange of cryptocurrency, including supplies of goods and services remunerated by way of cryptocurrency, activity causing the exchange of cryptocurrency, activity concerning the arrangement of transactions in Bitcoin and other cryptocurrencies, as well as all “mining” activities online.

Don’t Make Assumptions about VAT

While global legislative changes around taxation of cryptocurrencies are taking place, it is important not to make any assumptions about VAT. It makes sense to remain aware of what is happening in the region you are operating in, as well the regions you are trading in. Operating a business can place a tremendous time burden on an individual, so it's important to ask for help if this is an area where you know you could do with some expert advice. At the click of a button, VATGlobal assists with VAT compliance for companies from around the world, and is always at the helm of the latest changes affecting small businesses and corporations. If your business is involved in cryptocurrency exchanges, it's worth getting in touch with them to ensure you stay compliant, especially as we head into the 2020s, where cryptocurrencies should continue to grow in popularity.

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While this article aims to provide an overview of the technicalities around cryptocurrency and VAT, it should not be considered a legal authority on the matter. You are encouraged to talk to a specialist if you need more information, or if you have specific questions about the processes mentioned.

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