With the rise in ownership of cryptocurrency, crypto-assets, and Non-Fungible Tokens(‘NFTs’), the tax treatment of these transactions is becoming an area of interest to both Revenue and to the asset holders
Since the introduction of Bitcoin in 2008 by a person or group of people using the pseudonym Satoshi Nakamoto, the idea of a decentralised currency has gathered pace within a large portion of the online and trading community. With the introduction of other crypto-assets such as Non-Fungible Tokens (‘NFTs’) the gains and losses incurred have come under Revenue scrutiny and will only come under increased interest with the growth in the crypto space.
There are over 7,500 cryptocurrencies and thousands of NFTs according to industry experts available for investing or purchase. While the market for crypto-assets is growing, the asset values are very volatile and as such profits and losses can be substantial.
Cryptocurrency and NFTs income/corporation tax
The often-asked question on transactions involving crypto-assets is whether the transaction should be subject to income tax/corporation tax or Capital Gains Tax(“CGT”). CGT should apply to transactions involving crypto-assets where the asset was held for investment purposes. The “Badges of Trade” should be consulted when determining if the income should be treated as a trading transaction. Case law on the sale of traditional shares provides that even if shares are traded regularly and in an organised fashion, the transaction may still be considered an investment as opposed to a trade. The position will depend on the exact fact pattern of the disponer. Where a company is deemed to be a trading entity and carrying on a trade of investing in crypto-assets, the profits from the sale should be subject to corporation tax at the standard rate of 12.5%. If the trade is carried on in a personal capacity, the individual may be taxable at their marginal rate of up to 55%.
Capital taxes on cryptocurrency and NFTs
Should a transaction be deemed to be subject to capital gains tax, the chargeable gain should be taxable at the standard rate of 33%. The gain may be mitigated by any other capital losses the disponer may have carried forward or realised in the tax period. A return should be filed with Revenue noting the value of all crypto-assets on acquisition and disposal.
As these assets may be viewed as investments, the inheritance or gift of crypto-assets should be subject to capital acquisition tax (“CAT”). CAT is charged at the rate of 33%. The reliefs that apply to the acquisition of any inheritance or gift should also apply in this instance. It is important that individuals remember to include crypto-assets as part of their estate and not to merely consider “traditional” assets.
Stamp duty on cryptocurrency and NFTs
As the currency exchanges most commonly used are not based in Ireland, such transactions should be outside the scope of Irish Stamp Duty. However, it is recommended that should be reviewed on a case by case basis.
If you have any questions in relation to the above, or if you would like to discuss this topic further, please contact a member of the Mazars corporate tax team below:
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