Estonia, known for its crypto-friendly regulations, provides clear guidelines on how it taxes various crypto activities. In this comprehensive guide, we will guide to solve the complexities surrounding taxed and untaxed crypto transactions in Estonia, offering valuable insights for investors and traders.

Taxed Crypto Transactions

1. Trading and Converting

In Estonia, taxes on cryptocurrency are based on earnings from different crypto activities, such as trading, converting to regular currency or other cryptocurrencies, and using it to buy goods or services. Income from mining is seen as business income, and any taxable crypto income is subject to regular income tax.

According to a court ruling, exchanging crypto for regular currency is exempt from Value Added Tax (VAT). Non-traditional currency transactions are treated as financial if recognized as legal tender alternatives. Income can be derived from various sources like changes in crypto prices and mining. 

If you make gains from transferring crypto, there's a 20% income tax applied, calculated based on the differences in prices. Cryptocurrency is viewed as property, and each transfer is considered a separate taxable event.

2. Crypto Mining

In Estonia, engaging in crypto mining is viewed as a business activity and is consequently subject to taxation. When transferring mined cryptocurrency—whether converting it to regular currency, exchanging it for another cryptocurrency, or using it for purchases—it becomes taxable. The income generated from mining needs to be reported in the income tax return Form E.

For individuals conducting cryptocurrency mining or data processing privately, income tax is not automatically withheld, and it is their responsibility to declare such earnings as business income. However, these private individuals are unable to claim deductions for expenses related to mining, such as equipment and electricity costs.

If individuals are consistently involved in cryptocurrency mining, they are required to register either as a sole proprietor or a legal entity (company) in the Business register. Registered businesses are allowed to disclose and deduct business-related expenses from their overall income. The calculation of income tax, social tax, and a contribution to a mandatory funded pension is based on the net income derived from the business, as indicated in the income tax return.

3. Staking Crypto

In Estonia, when you engage in crypto staking, it's treated like lending cryptocurrency. If you're a regular person lending your cryptocurrency for staking, it doesn't trigger a taxable event. However, if you end up earning interest from this lending activity through staking, you need to declare that interest in Part II of either Table 5.1 or Table 8.1 when filing your income tax return. Make sure to report this interest income in the tax return for the year in which you received the interest.

4. Margin Trades, Futures, and CFDs

According to the MTA, margin and leverage trades are treated just like regular trades. Any profits made from these types of trades are considered income and are subject to a flat 20% income tax.

5. ICOs and Crypto-to-Crypto Trades

ICOs are unique opportunities where investors can obtain tokens from upcoming projects by swapping mainstream tokens like BTC and ETH. They share similarities with traditional IPOs in securities markets.

Even though there's no explicit guidance on the tax treatment of tokens acquired through ICOs, it's probable that these transactions are considered akin to crypto-to-crypto trades. Any profits arising from such transactions are likely to be subject to income tax.

For a clearer understanding of the tax implications, we recommend consulting with experienced tax professionals to gain insights into how these transactions are taxed.

6. NFT Transactions

In Estonia, the taxation of NFTs depends on the nature of the transaction for both the NFT creator and buyer. If the NFT creator receives a resale fee, it's treated as a royalty and needs to be reported as a license fee in the income tax return.

For individuals who engage in buying and selling NFTs to generate income, the profits derived from these transactions are taxable. All profitable NFT transfers should be disclosed in either Table 6.3 or 8.3 of the income tax return.

7. DAO Earnings

DAOs, or member-owned communities, operate on a shared vision where decisions are collectively made without central leadership. These modern institutions aim to democratize decision-making, giving people a voice in matters that directly impact them. Often hailed as the heart of Web3, DAOs let members earn rewards in various ways, compensating contributors for their efforts just like traditional organizations pay salaries. They also distribute bounties for one-off projects and share any profits generated.

However, the MTA hasn't provided specific guidelines on how income from DAOs should be taxed. In Estonia, compensation received in crypto for work is typically non-taxable because the employer takes care of taxation. Yet, with DAOs being autonomous entities lacking specific tax structures, it's advisable to consult a tax professional to better grasp how income from DAOs might be taxed.

Tax-Free Crypto Transactions

1. Donations and Gifts

The rules for taxing gifts and donations are outlined in specific sections of the Income Tax Act, and the tax implications vary between legal persons and natural persons.

Legal persons include entities like those in public law, political parties, non-profit associations, foundations, and so on. On the other hand, regular individuals are usually referred to as natural persons.

When it comes to crypto donations, treating them like traditional currency donations gives us insights into how they are taxed. If a natural person gives crypto gifts to another natural person or a registered entity, these transactions are tax-free.

In Estonia, if you're a private individual making donations to registered non-profit groups and foundations, you can enjoy tax deductions of up to €1200. This limit covers various contributions, including interest on housing loans and training expenses. To facilitate this, recipients need to submit a "Declaration of gifts and donations received" (Form INF 4) to the Tax and Customs Board. Donors, in turn, find this information pre-filled in their income tax returns.

For donations made through calls or messages, donors should share their details and the donated amount with the NGO in January, along with a phone bill for verification. If necessary, donors can review and modify the pre-filled information in their income tax returns. Additionally, it's possible to donate income tax refunds to eligible associations. However, it's important to note that tax incentives don't apply when donating directly to specific Ukrainian entities. Overall, this system allows donors to support non-profits and enjoy tax deductions.

2. Crypto Transfers in between Wallet

Transferring crypto between wallets and swapping regular money for crypto are untaxed transactions.

Non-Taxable Activities: Moving crypto between different electronic wallets and giving crypto as a gift are not subject to taxation.

3. HODLing Crypto 

Thinking of holding onto your crypto for a while? It's a smart move, and it also means good news for your taxes - you won't pay any taxes on the crypto you're holding.

But don't forget to keep track of how much you paid to buy your crypto. This way, you can accurately figure out any gains or losses when you decide to sell or trade it later.

For those of you who are in it for the long run, it might be helpful to use a platform that can keep track of your trading information for longer periods. Most exchanges only hold onto this information for a few months (3 - 6 months). Storing this data elsewhere can be useful. You can then easily import this information into Kryptos to quickly determine your tax liability.

Filing Crypto Taxes in Estonia

Residents in Estonia have until April 30th (or May 2nd for 2024) to submit their tax returns. Electronic filing opens on February 15th, offering a digital route for taxpayers. Self-employed individuals must adhere to advance tax payment deadlines in March, June, September, and December.

Crypto Tax Filing in Estonia Made Simple

When it comes to filing your taxes in Estonia, you've got three hassle-free options:

• File your taxes online through the user-friendly e-MTA portal. Just make sure you have a government-authorized ID card, a Mobile-ID, a smart ID, or an e-ID from an EU country.

• Send your tax info via post to the Tax and Customs Board’s Service Bureau.

• Keep it simple with good old-fashioned paper forms.

And to guide you through the e-MTA portal, check out the video tutorial once you've logged in.

When you're reporting profits from your cryptocurrency transactions on your tax return, refer to either table 6.3 or 8.3, labeled "Transfer of other property."

If the platform you used for crypto transactions is based in Estonia, record the transactions in Table 6.3. For platforms registered elsewhere, note the transactions in Table 8.3. In the table, specify "cryptocurrency" as the type of property.

Include the purchase cost and any associated expenses for the transfer, along with the sales or market price. The purchase cost is the value of the bought cryptocurrency in euros at the time of purchase, while the sales or market price is the cryptocurrency value in euros at the time of sale or exchange.

What Records does the MTA Need

Detailed records of all transactions, acquisition prices, disposals, fair market values, and asset types.

Maintain information on the type of asset bought, sold, exchanged, or traded.

How to Easily Handle Your Crypto Taxes with Kryptos

Now that you understand how crypto transactions are taxed and the necessary forms for your tax report, let's break down the user-friendly steps to streamline this process using Kryptos:

1. Head over to Kryptos and sign up using your email or Google/Apple Account.
2. Select your country, currency, time zone, and accounting method.
3. Import all your transactions from wallets and crypto exchanges.
4. Choose your preferred report and click on the "generate report" option on the left side of your screen, allowing Kryptos to handle all the accounting for you.
5. Once your tax report is ready, easily download it in PDF format.

For any questions about integrations or generating your tax reports, check out our helpful video guide.

FAQs

1. How are taxed crypto transactions treated in Estonia, specifically trading and converting activities?

In Estonia, taxes on cryptocurrency involve trading, converting to regular currency, or other cryptocurrencies. Income from mining is considered business income, subject to regular income tax. Exchanging crypto for regular currency is exempt from VAT, and gains from transferring crypto incur a 20% income tax, treated as a separate taxable event.

2. What are the tax implications for crypto mining in Estonia?

Crypto mining in Estonia is viewed as a business activity and is taxable when transferring mined cryptocurrency. Individuals need to report mining income in the income tax return Form E. Private miners are responsible for declaring earnings as business income, but they cannot claim deductions for expenses. Consistent miners must register as a sole proprietor or legal entity for deductible business-related expenses.

3. How is income from crypto staking taxed in Estonia?

Crypto staking in Estonia is treated like lending, and while lending doesn't trigger a taxable event, earning interest does. Interest income from staking must be declared in the income tax return, under either Table 5.1 or Table 8.1, for the year in which the interest is received.

4. Are crypto donations and gifts taxable in Estonia?

Crypto gifts between natural persons or to registered entities in Estonia are tax-free. Private individuals making donations to registered non-profit groups can enjoy tax deductions of up to €1200.

5. Are there tax implications for transferring crypto between wallets in Estonia?

Transferring crypto between wallets and gifting crypto are untaxed transactions in Estonia.

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All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!