Cryptocurrency Taxes in Spain

As new investment types become more popular, people generally get in touch with me about them. That is certainly the case with cryptocurrencies such as Bitcoin, and that now large investment firms are starting to invest (Blackrock for example), more people feel comfortable in also investing, or researching whether they should.

Many years ago, due to the technology (or lack of) available, it usually took some time, even a decade or so, for new companies and investments to become well known, sustainable or very successful. Now, with the exponential growth of technology, automation and social media, companies can go from almost zero to mega over a period of months or years. As you may have seen recently in the news with the commodity silver and the company GameStop, technology has become so powerful that groups of people communicating on social media can even ‘manipulate’ investment prices themselves, whether this be a good or bad thing. However, this also creates careful considerations when contemplating investing in these hyped assets.

You need to be very aware that these relatively young and very popular assets show an incredible amount of volatility, and therefore risk. This in itself is not a problem, just as long as you understand it. Investing in anything like this, and I would put cryptocurrency and Tesla or the like into that bracket, as fantastically as they can go up, they can also come down. So the golden rule to consider is, do not invest any monies you are not prepared to lose. Imagine you are walking in to a casino and have a figure in mind that you are going to gamble with; after it is gone you are prepared to walk away without it. That amount can be whatever you like, but you have to understand you can make an amazing profit if things go your way, or, you could lose almost all of it. As long as you are aware and accept this, then you are comfortable to invest in it.

I meet more and more people who have invested in these areas and then require help in taking their sometimes life changing gain to having it managed at a much lower risk level, consolidating and securing that gain. They have made their money, there is no need to keep the risk level that high, cash some if not all ‘out’ and use your ‘winnings’ to permanently change your life. For example, if you went to the casino and won a life changing amount of money, say €250,000, would you return the following week and carrying on gambling it? At what point would you ‘cash in your chips’ and take the reward? The probability still stays at 50/50 each day whether you win or lose, so, until you have ‘cashed in’ your chips, your high-risk level is still there. By de-risking, you are guaranteeing some of that gain and reducing your exposure.

What about taxes on cryptocurrency?
In October last year, the Spanish government brought in greater controls for this kind of investment. In real terms, this means if you buy, sell, transfer, exchange or use to buy something with it they want to know. However, there is only a taxable event when you dispose of this type of investment.

In terms of the tax to pay, this would come under savings tax in Spain (or capital gains tax as it is also known). These rates are currently:

• From 0 to €6000 you pay 19% in tax
• From €6001 to €50000 you pay 21% in tax
• From €50001 to €200,000 you pay 23% in tax
• From €200,001 +  you pay 26% in tax

This is only on the gain/profit you have made, not the amount you sell.

Key considerations to take into account
Cryptocurrency is also applicable under wealth tax in Spain, should the region you are tax resident in be applicable to this.

If your cryptocurrency investment should incur a loss, these can be offset against any gains you have over the next 4 years, so that is something important to bear in mind.

Buying using cryptocurrency
If you sell cryptocurrency and buy another investment type having made a profit, then this would be taxed as a gain at the above rates. If you use Bitcoin to make purchases for products or services, then 21% IVA (VAT) tax would also be applicable.

If you do not make the relevant declarations or pay the necessary taxes, large penalties and fines will apply, so you must make sure you not only do this, but perform it correctly.

If you would like help in looking into investing in Bitcoin or other cryptocurrencies, would like help declaring these correctly, or would like to take your already gained profit as tax efficiently as possible and have it managed professionally, don’t hesitate to get in touch.