Frequently Asked Questions – Cryptocurrencies
Given the frequently asked questions about the tax and legal implications of cryptocurrency trading that we receive from various parties, below we have summarized only those that have been repeated recently and to which we have given basic answers that should be sufficient to create an initial idea where to start from and how to proceed.
- Are taxes and contributions paid on cryptocurrency income?
Regarding the taxation of income generated from cryptocurrencies, two tax regimes are distinguished:
i. Tax regime valid until the beginning of the application of the Law on Digital Assets (“Official Gazette of RS”, No. 153/2020) and
ii. the other tax regime that will be applied after the application of the Law on Digital Assets begins, i.e. from 30 June 2021.
In this regard, until the beginning of the application of the Law on Digital Assets, and thus the provisions of the Law on Personal Income Tax (“Official Gazette of RS”, No. 24/2001, 80/2002, 80/2002, 135/2004 , 62/2006, 65/2006, 31/2009, 44/2009, 18/2010, 50/2011, 91/2011, 7/2012 -, 93/2012, 114/2012, 8/2013, 47/2013, 48/2013, 108/2013, 6/2014, 57/2014, 68/2014, 5/2015, 112/2015, 5/2016, 7/2017, 113/2017, 7/2018, 95/2018, 4 / 2019, 86/2019, 5/2020, 153/2020, 156/2020 and 6/2021, the „Law”) relating to digital assets, income generated on the basis of cryptocurrencies is taxed as all other non-taxable income on the second ground, in terms of Article 85, paragraph 1, item 16 of the Law, which is all – inclusive in nature and states the following:
“Other income is also considered to be other income that by its nature constitutes the income of a natural person, and in particular: all other income that is not taxed on another basis or is not exempt from taxation or exempt from taxes under this Law.”
These income is subject to personal income tax at a rate of 20%.
Once the application of the Law on Digital Assets begins, and thus the provisions of the Law relating to digital assets, the income generated from cryptocurrencies will be subject to the payment of capital gains tax.
The difference between the sale price of rights, shares and securities and their purchase price, realized through the transfer of digital assets, will be considered a capital gain. A transfer is considered to be a sale or other transfer with monetary or non-monetary compensation. So, if you earn income on the basis of cryptocurrencies, it will, starting from 30 June 2021, be taxed as capital gain at a rate of 15%.
Deadline for filing a tax return
In this regard, a taxpayer who transfers rights during the year on the basis of which a capital gain or loss may arise, is obliged to file a tax return no later than 30 days from the day when he earned or started earning income from digital assets. However, if the taxpayer can exercise the right to tax exemption by investing money obtained from the sale of digital assets in the capital of a company or investment fund operating in the territory of the Republic of Serbia, the deadline for filing a tax return is 120 days from the sale of digital assets.
The tax on capital gains is determined by the competent tax authority on the basis of data from the tax return as well as on the basis of other data. The taxpayer of capital gains tax in the tax return states data on the realized and purchase price, as well as data related to the right to tax exemption. The tax is paid within 15 days from the day of the decision of the Tax Administration.
If the taxpayer does not file a tax return, the tax liability is determined on the basis of data on the realized capital gain available to the competent tax authority.
Value added tax
Law on Value Added Tax (“Official Gazette of RS”, No. 84/2004, 86/2004, 61/2005, 61/2007, 93/2012, 108/2013, 6/2014, 68/2014, 142 / 2014, 5/2015, 83/2015, 5/2016, 108/2016, 7/2017, 113/2017, 13/2018, 30/2018, 4/2019, 72/2019, 8/2020 and 153/2020) stipulates that the subject of VAT is the supply of goods and provision of services (i.e. trade in goods and services) performed by the taxpayer in the RS for a fee, within the scope of performing activities, as well as the import of goods into the RS.
On the other hand, cryptocurrencies represent virtual money, but money that is not approved as means of payment in the Republic of Serbia. Therefore, the sale of cryptocurrencies is not subject to VAT taxation, since the fee earned on that basis does not constitute a fee for the taxable supply of goods or services under domestic law.
Compulsory social security contributions
Realization of income / capital gain on the basis of cryptocurrencies is not subject to payment of contributions for compulsory social insurance.
Namely, contributions are, pursuant to Articles 7, 8 and 9 of the Law on Contributions to Compulsory Social Insurance (“Official Gazette of RS”, No. 84/2004, 61/2005, 62/2006, 5/2009, 52/2011 , 101/2011, 7/2012, 8/2013, 47/2013, 108/2013, 6/2014, 57/2014, 68/2014, 5/2015, 112/2015, 5/2016, 7/2017, 113 / 2017, 7/2018, 95/2018, 4/2019, 86/2019, 5/2020, 153/2020 and 6/2021), paid on the basis of employment, appointment to a position, professional engagement on the basis of work outside employment, entrepreneurship, membership in companies, performing agricultural, independent or artistic activities and the like. Thus, the payment of contributions is related to some type of employment, and not to the fact that a certain person has earned income.
- Is the tax paid until the beginning of the application of the Law on Digital Assets, as well as the provisions of the Law concerning digital assets and is there a possibility of retroactive tax collection?
The retroactive application of the Law itself, i.e. provisions relating to digital assets are not provided. This means that revenues generated on the basis of cryptocurrencies will not be taxed as capital gains until the Law on Digital Assets begins to apply.
However, if a person in the previous period (before the application of the Law on Digital Assets) earned income on the basis of cryptocurrency, the possibility that this income is taxed as another, i.e., “other income”, i.e. personal income tax at the rate of 20%, is not excluded, until the beginning of the application of the Law on Digital Assets, when this income will be taxed as a capital gain at a tax rate of 15%.
We note that the determination and collection of taxes can be done within 5 years from the date of realization of income on which tax has not been paid (Article 114 of the Law on Tax Procedure and Tax Administration, “Official Gazette of RS”, No. 80/2002, 84 / 2002, 23/2003, 70/2003, 55/2004, 61/2005, 85/2005, 62/2006, 63/2006, 61/2007, 20/2009, 72/2009, 53/2010, 101/2011, 2/2012, 93/2012, 47/2013, 108/2013, 68/2014, 105/2014, 91/2015, 112/2015, 15/2016, 108/2016, 30/2018, 95/2018, 86 / 2019 and 144/2020).
And the taxation of previously realized income according to the then valid regulations (in this case, on the basis of Article 85, paragraph 1, item 16 of the Law), and the collection of taxes for this income does not represent a retroactive application of the law.
We state that the possibility of taxation of income from cryptocurrencies is “not excluded” from the aspect of currently valid legal regulations, while this question remains to be resolved in practice. Namely, the entire tax practice, as well as the legislation itself, still do not have a clearly defined position regarding the legal characterization of the term and legal treatment of cryptocurrencies, nor is the practice of taxation “elaborated” in that sense.
- Is the tax paid only on the amount of realized income or is any cryptocurrency trade, including internet trade, subject to taxation?
The subject of taxation is solely the realized income (until the Law on Digital Assets comes into force, i.e. until 29.06.2021, since the income from cryptocurrencies is now taxed as other income).
Starting from 30.06.2021, when the Law on Digital Assets comes into force, cryptocurrency income shall be treated as capital gain and the subject of taxation shall be solely the realized capital gain.
The cryptocurrency trade itself is not taxed, but, if the cryptocurrency trade has resulted in income, i.e. if the selling price realized by transferring the cryptocurrency is higher than its purchase price, this income / capital gain will be taxed.
- Are there any tax exemptions?
Pursuant to Article 79a of the Law, a taxpayer who invests funds generated by the sale of digital assets, within 90 days from the day of sale, and the investment is made in the share capital of a company – resident in the Republic of Serbia or in the capital of an investment fund whose business and investment activities are located in the Republic of Serbia, 50% of capital gains tax is exempt.
The right to tax exemption is determined by a decision of the competent tax authority, on the basis of documentation regarding the investment of funds generated by the sale of digital assets attached to the tax return.
Also, a taxpayer who, within 12 months from the day of the sale of digital assets, invests the funds generated by the sale of digital assets in the above manner, will be refunded 50% of the paid capital gains tax.
The refund of the paid tax on capital gains is realized at the request of the taxpayer, accompanied by the documentation on the investment of funds realized from the sale of digital assets.
Exceptionally, in the event that a company, in whose share capital funds from the sale of digital assets are invested, conducts a share capital reduction procedure in the calendar year in which the investment is registered and in the next two calendar years, the taxpayer loses the right to previously obtained tax exemption on the day the decision of capital reduction has been made, and is obliged to file a tax return for tax on capital gains and other income on which tax is not paid after deduction.
If the taxpayer invests in the share capital of the company, i.e. in the capital of the investment fund, only a part of the funds realized from the sale of digital assets, his tax liability is reduced in proportion to the amount of income he has invested for these purposes.
Finally, the right to tax exemption for the sale of cryptocurrencies will also exist when transferring the right of sale if aperson was the owner of digital assets continuously for at least 10 years, since the difference resulting from the transfer of rights only in this case will not be considered capital gain, in accordance with Article 72a, paragraph 1, item 5 of the Law.
Other types of tax relief (stipulating non-taxable amount of income, tax relief for certain categories of owners) are not provided by current legal regulations, including legal provisions whose application will begin in June 2021.
- Are only payments in cryptocurrencies subject to taxation?
The subject of taxation is only the income / capital gain generated by the sale of cryptocurrencies, while the purchase / use thereof, on portals where cryptocurrencies are recognized as means of payment, is not taxed. It is not possible to buy cryptocurrencies in theRepublic of Serbia, since cryptocurrencies are not a recognized means of payment in the Republic of Serbia.
- How is the income generated by cryptocurrency mining taxed?
Until the beginning of the application of the Law on Digital Assets, as well as the provisions of the Law regulating the tax on digital assets, the income from the sale of mined cryptocurrencies should be treated as other income and taxed at a rate of 20% less the standard costs of 20%.
From 30 June 2021, since the provisions of the Law governing the tax on income from the sale of mined cryptocurrencies begin to apply, this income will be subject to capital gains tax at a tax rate of 15%.
Capital gain, i.e. loss in the sense of this Law represents the difference between the sale price of rights, shares and securities and their purchase price, realized by the transfer of digital assets.
The selling price is considered to be the agreed price, or the market price determined by the competent tax authority, if the tax authority assesses that the agreed price is lower than the market price.
While, according to the Law, in the case of transfer of digital assets acquired by mining, the purchase price is considered to be the amount of costs that the taxpayer had in connection with the acquisition of that digital assets and which he can document.
In the case of the transfer of digital assets acquired through mining, which were subject to taxation on other income tax, the purchase price is considered to be the base on which the tax on other income was paid.