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Cryptocurrency taxation – the basics taken over

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Cryptocurrencies today offer great investment opportunities for both small and professional investors. The desired outcome of the investment is, of course, a return – and this will inevitably be followed by a tax-shaped shadow. As with any other profit, taxes earned in cryptocurrency must be taxed in accordance with the regulations of the Finnish Tax Administration.

 Is it possible to avoid taxes? 

Let’s go through the burning question of the day first, that is, is there any way to trade cryptocurrencies tax-free.

Virtual currency investors permanently residing in Finland cannot escape the taxpayer’s grasp in any way, but a share of the profits must be paid to the common fund without a mug. However, there are a few countries in Europe that do not have to pay taxes on cryptocurrency trading – at least for now.

These include Germany, Slovenia, Belarus, Portugal, Switzerland and Malta. The latest of these already has a lot of Finnish-based business. For example, many Finnish online casinos, such as Wildz.com, operate on this sunny island, and the gaming industry offers plenty of jobs for those who want a change of landscape.

However, before you start planning to move in pursuit of cryptocurrency tax-free, keep in mind that situations live at the same pace as cryptocurrency market developments.

 How does cryptocurrency taxation work in Finland?

In Finland, the taxation of cryptocurrencies with writhing has been underway for several years, and it is still in its final form. However, the practices have already become significantly clearer from the first steps, and the taxation of cryptocurrencies in Finland has become equal alongside other taxation.

The taxpayer now defines cryptocurrencies as assets subject to income tax law. However, they are not defined as means of payment and the tax base arises when they are converted into another official cryptocurrency or FIAT currency. Similarly, tax is paid when purchases are made in cryptocurrency.

Due to the structure of the cryptocurrency, it can be difficult to determine transactions and purchase prices if they have not been accurately accounted for. This should be taken into account from the outset.

 How much tax is paid on the cryptocurrency?

Taxation of cryptocurrency is in practice quite simple. The tax rate used is 30% according to capital income tax up to 30,000 euros, after which the tax rate becomes 34%. The taxpayer has a method in which the first items purchased are also sold first. This is called the so-called fifo method (first in – first out).

Here is a practical example of cryptocurrency taxation:

The person bought some virtual currencies years ago for 2,000 euros and now sells them out for a total of 12,000 euros. He has no other capital income for tax purposes in the year of the sale. Capital gains amount to EUR 12,000 – EUR 2,000 = EUR 10,000. The amount of tax is therefore 30%, ie the person pays taxes of 12,000 euros x 30% = 3,600 euros.

 Can I deduct the tax?

From 2019, investors operating in cryptocurrencies have been able to deduct trading losses from taxation. Losses and gains are reported in OmaVero at the same time as other income or changes. Despite the modern nature of cryptocurrencies, it is also possible to use a paper A9 form if, for one reason or another, it is not natural to make an online declaration.

Tax deductions for cryptocurrencies also take into account possible acquisition costs. They can be caused, for example, by mining cryptocurrencies, which consume large amounts of electricity. However, it must be possible to prove the costs: in the situation mentioned above, for example, the proportion of electricity used for extraction should be clearly specified.

When will cryptocurrency currency be taxed?

The declaration of gains or losses must be made in accordance with the tax year. For example, realized trades in the 2021 cryptocurrency will be reported in 2022. Reporting is easy to do in the OmaVero service we have already mentioned. Taxes are then paid in accordance with other taxes on capital or payroll income in connection with final taxation.

If you wish, you can also apply for an advance tax on virtual currency taxation. In addition, the so-called “tonne rule” applies to cryptocurrency trading. When released, you can make capital income of 1,000 euros in one calendar year tax-free. Note, however, that this includes all capital income for the year – not just income generated from cryptocurrency.

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