ESAS CONSULTING, in this article shortly presents personal income tax on cryptocurrency trade in Lithuania. Taxation differences are going to be compared for persons engaged in cryptocurrency trade regularly (with individual activity certificate) and non-regularly (without individual activity certificate). Also, we will take a look at how Personal Income Tax (PIT) rules differ for tax residents and non-tax residents of Lithuania.
Bank of Lithuania (LB) in its position established cryptocurrency definition. According to LB, cryptocurrency, also known as virtual currency (e.g. Bitcoin, Ethereum, Ripple, Litecoin, etc) is non-regulated digital money that can be used as means of payment, and this money is issued and guaranteed by a non-central bank.
In 11/06/2018 letter (English version is in the bottom of document), Lithuania State Tax Inspectorate (VMI) explained how shall be taxed cryptocurrency that is disposed by the natural persons.
1. Personal Income Tax on persons engaged in not regular cryptocurrency trade
VMI explains that according to Art. 2 (14) of Lithuania Law on Personal Income Tax (PITL), personal income is a reward for the work or services performed, rights transferred or granted, assets or funds sold or otherwise transferred or invested and/or any other benefit in cash and/or in kind, except for the benefits specified in paragraphs 1-8 of this Article which is not considered as income.
According to Article 2(28) of PIT, virtual currency is considered as property; therefore, when incidental income from sales of a virtual currency is received, it is taxable the same as other income from sales of assets or other transfer into ownership. In this case, the difference between sales and the acquisition price is taxed. A general PIT rate is 15% on such an income (if annual taxable income does exceed EUR 180,492). More about PIT in Lithuania you can find here.
VMI notes that the produced (“mined”) virtual currency or an instrument of the same nature is not considered as personal income. Only when a resident sells the produced virtual currency, it is considered that income is received from the sale which is taxed on 15% PIT rate.
VMI indicates that according to Art. 17 (1) (27) of PITL if taxable profit received from a non-regular sale of cryptocurrency (virtual currency) during 12 months is less than EUR 2 500 then PIT is not applied on such a profit.
If a person that is not engaged into regular cryptocurrency (virtual currency) trade activity acquires Ethereum cryptocurrency for EUR 5 000 and sells it for EUR 7 000 then he/she will not pay PIT because taxable profit is not going to exceed EUR 2 500.
2. Personal Income Tax for tax residents of Lithuania engaged in cryptocurrency trade regularly
The income of individuals from sales of virtual currencies or sales of produced virtual currency may be taxed as income from individual activities if such activities are performed continuously to receive individual economic profits and such activities:
- are performed for a continuous period;
- activities satisfy the aggregate criteria (continuity, autonomy and pursuit of economic benefits).
Continuity is attributable to the performance of activities of such nature for a continuous period, which is not limited by tax period. Such operational circumstances as recurring, continuous transactions, their number, continuous period (recurrence) are related to the nature of continuity of such activities.
Regular cryptocurrency (virtual currency) trade profit received from individual activities is taxed on 5-15% PIT rate.
We remind you that individuals performing cryptocurrency (virtual currency) trade regularly under individual activity certificate, also must pay particular Social Security Contributions.
3. Personal Income Tax for non-tax residents of Lithuania engaged in cryptocurrency trade regularly
According to Article 2(13) of PITL, a non-tax resident of Lithuania is deemed to be operating in Lithuania through a fixed base, if he in Lithuania: exercises his activities permanently or carries out his permanent activities in Lithuania through a dependent representative (agent).
Individual activities carried out by a non-tax resident of Lithuania are considered to be permanent, if from the start of his activities in Lithuania such activities make a complete cycle of commercial operations (i.e. cover the following stages of operations: marketing and advertising, order placement and conclusion of contracts, the supply of services, payment acceptance).
A non-tax resident of Lithuania mines a virtual currency through servers placed in Lithuania which he/she has rented from the Lithuanian companies, however, if he/she controls servers (mining of a virtual currency) physically present in another state, and sells the mined virtual currency through electronic means of communication. In such case, a non-tax resident of Lithuania has no obligation to register individual activities carried out through a fixed base in Lithuania, and the income generated, according to Article 5(4) of PITL, would not be considered as the object of income tax in Lithuania.
If you have additional questions about the taxation of income from cryptocurrency (virtual currency) trade, including the taxation of companies engaged in similar activities or more questions about individual activity certificates, please do not hesitate to contacts us.