The dynamics of tax law are very similar to those of the cryptocurrency world. The impending Bitcoin halving, the Ministry of Finance’s announcement of new regulations for crypto-assets, and the PIT settlement for virtual currency trading are just some of the changes that cryptocurrency enthusiasts can expect to see in the coming weeks.
What will the combination of these developments mean for businesses and investors? Let’s find out.
30 April 2024 is the deadline for accounting for revenue from the sale of cryptocurrencies
The deadline for accounting for revenue and expenses related to cryptocurrency trading is coming up in the next few weeks. Taxpayers must remember to file their tax returns by the end of April 2024.
It is also worth remembering that if a taxpayer has not received any revenue from the paid disposal of virtual currencies, but has incurred expenses for their purchase, they should declare this in their PIT-38 return, as failure to do so will result in the inability to subsequently deduct such expenses.
It is also important to note that only the following are taxable:
- The exchange of cryptocurrencies for fiat currencies, e.g. the euro, the US dollar or the Polish zloty
- The payment with virtual currency for a service, good or property right that is not a virtual currency
- The payment of debts with cryptocurrencies
When one virtual currency is exchanged for another, the transaction remains tax neutral.
Deductible expenses are those incurred by the taxpayer for the purchase of virtual currency and expenses related to its disposal. The income tax rate on income calculated in this way is 19%.
Will Bitcoin halving coincide with new tax definitions
Bitcoin is the world’s most popular cryptocurrency, which operates on a decentralised platform based on blockchain technology. It is worth noting that only 21 million Bitcoins can be mined worldwide. The halving is a 50% reduction in the reward for Bitcoin mining every four years. Another halving happened in the second half of April 2024, with the reward dropping from 6.25 Bitcoins to 3.125 Bitcoins per ‘mined’ block.
Interestingly, the upcoming halving may coincide with new cryptocurrency regulations.
Indeed, in February this year, the Ministry of Finance published a draft law that focuses on the implementation of two EU regulations and the creation of a legal basis for the operation of cryptocurrencies. The main objective of the bill is to establish a framework for the effective supervision of this market and investor protection, and also expands the powers of the Polish Financial Supervision Authority (KNF) to supervise crypto.
In the area of taxation, changes to the two income tax acts (PIT and CIT) are also envisaged.
The reference to the Anti-Money Laundering and Counter-Terrorism Financing Act in the definition of ‘virtual currency’ in the relevant tax acts will be replaced by an autonomous definition. The new wording of Article 4a(22a) of the CIT Act and Article 5a(33a) of the PIT Act will be as follows:
“virtual currency – this means a digital representation of value that is not:
- a) a legal tender issued by the National Bank of Poland, foreign central banks or other public administration bodies,
- b) an international settlement unit established by an international organisation and accepted by individual countries that are members of or cooperate with that organisation,
- c) electronic money as defined in the Act of 19 August 2011 on payment services (Journal of Laws of 2024, item 30),
- d) a financial instrument as defined in the Act of 29 July 2005 on trading in financial instruments,
- e) a promissory note or cheque
– but one that may be exchanged for legal tenders and accepted as a means of exchange in the course of commercial transactions, and may also be stored or transmitted electronically, or be the subject of electronic commerce.”
As explained by the legislature, the definition has been changed because it was too broad. Importantly, the new definition will not give rise to non-tax regulations.
Both acts will also introduce a new definition of ‘virtual currency trader’. This will include entities conducting exchanges between currencies and means of payment, or exchanges between virtual currencies.
Public consultations on this are already underway. Although lawmakers are assuring that the new Cryptocurrency Act is intended to maintain the rules of taxation of revenue from the sale of virtual currencies as regards the subject-matter scope applicable prior to the changes introduced by this Act, it remains to be seen how the tax authorities will apply the new changes.
Summary
Taxpayers need to be aware of the upcoming deadline for accounting for revenue and expenses related to cryptocurrency transactions, and the need to file tax returns by the end of April 2024.
The impending Bitcoin halving and changes to tax definitions may also affect the cryptocurrency market. Despite assurances from lawmakers that the rules of taxation will be maintained, public consultations are underway, suggesting that only the subsequent practical application of the new regulations will reveal their true impact on cryptocurrency investors and taxpayers.
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