Cryptographic coins such as Bitcoin, Ethereum or Cardano are becoming more and more popular – which is not surprising, as in the last decade it has been around. the crypt market has grown by a million times. The fast-growing sector offers countless investment opportunities, from trading on cryptocurrencies to mining to NFT (Non-Fungible-Token) “art treasury trading”. There are already hundreds of billions of forints worth of assets in Hungary.

The prospect of huge returns is attractive to both institutional and retail investors, but due to the unregulated nature of the cryptocurrency, there is very little talk about the relevant tax issues .

In this article, we have summarized the tax implications of cryptocurrency investments under the current rules.

Is the crypt the new offshore ?! No.

First, we need to clarify: what is a crypto?

A cryptocurrency (or “cryptocurrency”) is a digital means of payment that allows us to buy goods and services in the same way that we use our account money. The peculiarity of cryptographies is that they are based on blockchain technology, which is actually a decentralized database registered on multiple computers at the same time. The algorithm compresses the data (transactions in the case of cryptocurrencies) into blocks , the chain of which – the block chain – is recorded simultaneously by all the decentralized computers in the system; this will make the blockchain extremely secure. Once a piece of data is recorded using blockchain technology, it is then almost impossible to change it. It is no coincidence that one of the most common applications of blockchain is authentication.

An important question is how the legislator can fit cryptocurrencies into the specific system of law, distinguish them from other currencies or assets, endow them with an independent legal status. In Canada, for example, the crypt is considered a commodity, in Switzerland it is considered a foreign currency, while in Germany it is classified as “private money”. EU law, following the legal development work of the Court of Justice of the European Union, currently simply values it as a specific currency.

But what is cryptocurrency mining?

Before discussing cryptocurrency taxation, we also briefly introduce cryptocurrency mining. Mining computers actually solve complex cryptographic equations that validate each transaction and then record it in a blockchain. The process is extremely processor-intensive, but the system “prints” new tokens, which rewards miners as an incentive – so miners get cryptocurrency in exchange for their computing power. This innovative industry has also had to deal with unexpected consequences for the world, such as the shortage of video cards and the sharp rise in the price of computer parts globally. Interestingly, the water of a smaller lake in America was almost boiled, as a crypt miner used to cool the power plant-sized machine park serving the system.

Cryptocurrency taxation according to current regulations

It is a common misconception that cryptocurrencies are not subject to tax legislation, and foreign exchange gains from trading are accordingly tax-free. Reality is far from that. Although the current Hungarian regulations do not contain any specific provisions regarding cryptocurrencies, the legislator has recognized the potential for special taxation of cryptocurrencies and the dangers of unregulated cryptographic markets (and cryptographic assets!). However, due to the lack of special regulation, cryptocurrencies are currently subject to significantly higher tax burdens than equities. Hereinafter referred to as 2022. until 1 January we compile the tax rules in force.

Trading:

There are no special tax rules for trading in cryptocurrencies (there is no individual cryptocurrency taxation according to the rules in force), therefore the PIT Act. the income so realized is classified as “other income”. Other income is defined as any income for which special regulations are laid down in the PIT Act. does not include the fact that part of the revenue is not duly substantiated.

In essence, this means that after the purchased cryptocurrency, we may incur a cryptocurrency tax liability, ie when we convert it to another cryptocurrency, to a legal tender (eg forint) or to a commodity. The tax base is 87% of the return thus generated. Translated into the language of the practice: we buy a tax liability for Bitcoin purchased for HUF 100,000 in 2015, if we sell it for HUF 10 million today for another cryptocurrency, against a means of payment or a sports car.

The return in this case is the difference between the verifiable investment (HUF 100 thousand) and the income of HUF 10 million – 87% of this is the tax base. And after the tax base We incur a 15% PIT payment obligation and a 15.5% social contribution tax liability , provided that the ceiling for sochora is not applicable. It is worth noting that gains realized during the tax year cannot be offset against loss-making transactions – unlike trading on regulated capital markets.

Mining:

For tax purposes, mining is a stand-alone activity – this means that the mined cryptocurrency is considered revenue at the usual exchange rate at the time. In this case, too, 15% PIT and 15.5% socio payment obligation arise. A flat rate of 10% is available for cost accounting, with the advantage that it is not necessary to keep accounts of expenditure. However, itemized accounting can also be chosen, in which case the taxpayer is obliged to record the cost accounting supported by receipts.

The taxation of the cryptocurrency will change from 2022

Cryptocurrency taxation 2022. from 1 January

In the area of cryptocurrency taxation, the legislature plans a major reform from 2022, but the new rules can be applied to the 2021 tax year. According to the new regulations, “ [t] he digital media is a digital display of value or rights that can be transferred and stored electronically using shared general ledger technology or similar technology. ”By definition, cryptocurrencies include both cryptocurrencies and the increasingly popular NFTs.

Day-traders can breathe a sigh of relief: in terms of cryptocurrency taxation, the tax fact only comes true if someone switches their cryptocurrency to a non-cryptocurrency . This means that there is no tax liability to be declared for ordinary cryptocryption transactions in the course of trading, for example when someone buys Cardano for Ethereum. Thus, the tax fact is realized when we buy something for a cryptographic device – e.g. we switch back to a product – or forint. The regulation follows a similar logic for miners – it is no longer taxed when the token is mined, but when it is sold.

In addition, the tax burden is significantly more favorable in the case of the taxation of cryptocurrencies: according to the interpretation of the Minister of Finance Mihály Varga, the current tax of 30.5% will be reduced to 15% . In addition, a significant advantage for retail investors is that gains on a transaction that do not exceed 10% of the minimum wage are not taxable, provided that the taxpayer does not receive income from another transaction on the same subject on the date of the transaction and if the cryptographic the total amount of profits does not exceed the current amount of the minimum wage.

As with capital market transactions, it is now possible to profitable and loss-making transactions , as under the new rule “An individual has incurred a loss resulting from a transaction carried out with a cryptocurrency in the tax year, the year preceding the tax year or the two years preceding the tax year and shall indicate it in the tax return for the year in which the loss occurred. According to them, it will be worthwhile to file a return even in tax years that only generate losses, as we can deduct it from the tax payable later.

The taxation of cryptocurrencies and the taxation of cryptocurrencies are also constantly on the international agenda. It will be a hit in the coming years and will pose a serious challenge to legislators and law enforcers. In this article, we can see that in September 2021, the issue is also on the agenda in the United States. Click HERE for this article

If you have any questions about cryptocurrency taxation, click HERE .