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Wondering How to Navigate Crypto Taxes in South Africa? Read our detailed guide on South African Crypto Taxes!
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Curious about the future of crypto taxation in Malaysia? Explore our 2023 Crypto Tax Guide for expert insights on crypto taxation in the region!
Estonia is one of few countries that has released clear guidelines on the categorisation of crypto and its taxation despite not having a dedicated tax regime. Back in 2021, Crypto adoption in Estonia was at 2.4% and this number has only risen in the past few years. This is one of the reasons why Estonian authorities are constantly searching for innovative ways to manage crypto taxes.
This in turn means that the crypto tax authorities are in the middle of drafting new rules and guidelines around the same, and the crypto tax landscape in Estonia is bound to evolve. The impetus for compliance with the evolving tax structure lies with investors, which is not as easy as it sounds. That’s why we created this detailed tax guide on crypto taxation that addresses key pointers like “How is Crypto Taxed in Estonia?” “What are the tax rates?” “How to file crypto taxes in Estonia?” “How are De-Fi and NFT transactions taxed?” “How to calculate crypto gains and losses?” and more.
This guide will be updated regularly to accommodate any new rules and guidelines. It would be prudent to keep revisiting this guide just to stay updated on new trends and guidelines.
Crypto is taxed in Estonia (for regular taxpayers like us) based on income from various cryptocurrency activities. Taxable transactions include trading, converting cryptocurrency into fiat or other cryptocurrencies, and using cryptocurrency to pay for goods or services. Income from cryptocurrency mining is considered business income. Moreover, taxable income received in cryptocurrency, like rent, interest, and business income, is subject to income tax.
The Court of Justice of the European Union ruled that exchanging virtual currency for traditional currency and vice versa is considered the provision of services for consideration and is exempt from VAT. However, transactions involving non-traditional currencies are treated as financial transactions if parties accept them as alternatives to legal tender.
Income can be generated through price changes during sales or exchanges, paying with crypto, mining, and computer data rental. Non-taxable activities include donating, buying a cryptocurrency with fiat, transferring between wallets, and giving cryptocurrency as a gift.
Gains from cryptocurrency transfers, including exchanges, are subject to income tax and are taxed at a flat rate of 20%. The gain is calculated based on the difference between selling and purchase prices or the price of the received property and the purchase price of the cryptocurrency. Losses from cryptocurrency exchange cannot be deducted for tax purposes.
Cryptocurrency is considered property, and taxable income should be declared in the income tax return. Each transfer transaction, including exchange, is treated as a separate object of taxation. Cryptocurrency exchanges with traditional currency must be converted to euros at the market rate on the date of receipt.
Estonia being an EU member state has access to KYC details and transaction records from all exchanges and companies offering crypto-related services in the region, all thanks to regulations like AMLD-6 and DAC-8. These regulations ensure better compliance and reporting on the part of crypto companies for investor protection and to subdue money laundering efforts in the region.
Recent efforts to boost transparency in the crypto space have been fruitful as Estonia has signed up to the international Crypto Asset Reporting Framework allowing for exchange with tax related information between tax jurisdictions to prevent cross border tax evasion and money laundering.
Moreover, if you’re using an account from a regional bank, funds used to acquire crypto assets and funds received from their disposal, are all accessible from your bank statement. This information can be correlated from public ledgers to identify any discrepancies in tax reports. So it’s safe to say that the MTA is aware of all your crypto transactions and can easily identify if you’re underreporting your gains. So make sure you report all your transactions to the MTA and pay your taxes judiciously to avoid getting in trouble with the tax authority.
There’s no dedicated capital gains tax in Estonia and all transactions that result in a gain are taxed as regular income. When you engage in activities like trading cryptocurrency, converting it into regular fiat currency, or exchanging one cryptocurrency for another, the gains you incur are taxable.
The following transactions constitute a capital gain:
Moreover, it's not just the act of earning crypto that's taxable; even income received in cryptocurrency, such as rent, interest, and business income, is subject to income tax.
As mentioned earlier, there is no dedicated capital gains tax in Estonia.
Calculating your crypto gains and losses is a pretty straightforward process. You can use the following formula for that:
For those who are unaware of what cost basis means, it is simply the price you paid to acquire the asset.
Consider the following examples:
Let’s say you buy 2 BTC for €15,000 each, and you decide to sell 1 BTC 6 months later for €20,000. Since the token has been appreciated since the acquisition, the transaction constitutes a gain. You can calculate the gain by reducing the cost basis from the disposal amount i.e., Gain = €20,000 - €15,000 = €5,000
A person buys 5 Ethereum for 1,000 euros each, spending 5,000 euros. Later, they exchange 3 Ethereum for 0.3 Bitcoin worth €4,500 making the value of each ETH token €1,500. The value of each ETH token has gone up by €500, so the transaction constitutes a gain of €1,500 (for 3 ETH tokens).
In Estonia, losses incurred from cryptocurrency transactions are treated differently from gains. Unlike gains, losses from crypto exchanges cannot be used to reduce your tax liability.
If you make a loss on a cryptocurrency transaction, you won't be able to offset that loss against your taxable income. This means that you cannot deduct your crypto losses from your overall income to lower the amount of income tax you owe.
For example, if you bought 1 Bitcoin for €18,000 and later sold it for €12,000, resulting in a loss of €6,000, you won't be able to use that €6,000 loss to reduce the income tax you owe on your other sources of income.
There are no current guidelines on how lost or stolen crypto assets are viewed from a tax perspective. However, the MTA will likely make a case-by-case analysis of individual claims and then decide how such transactions will be treated. So we suggest contacting the MTA directly for more information on the subject.
Since losses are not tax deductible in Estonia, taxpayers cannot use tax-loss harvesting to lower their tax bill. However, the Estonian government does offer a basic exemption for all taxpayers. In 2023, individuals are entitled to a basic exemption of up to €700 per month, allowing for a total of €8,400 annually.
For those who are of pensionable age or attain it, the basic exemption rises discreetly to €704 per month, resulting in €8,448 per year.
The examples we have used so far to explain capital gain calculations are fairly simplistic and do not represent real-world transactions. An investor buys multiple assets of the same kind at different prices and that makes capital gain calculations a bit complicated because how does one decide which acquisition price to use as the cost basis?
That’s exactly why one must use a specialised accounting method for cost-basis calculations to avoid discrepancies. The MTA allows the use of FIFO and Weighted Average Accounting methods for cost-basis calculation in Estonia. Let’s look at how both of them work.
The FIFO or First-In-First-Out accounting method states that the acquisition price of the first asset you buy is to be used as the cost basis for the latest disposal. In simpler terms, the first asset you buy is the first one you sell.
The weighted average method states that the cost basis for disposal is equal to the average acquisition price of all assets in inventory at the time of disposal.
These accounting methods can be better understood using an example.
Consider the following ledger of transactions:
13/01/22 - Mark buys 1 ETH for €1,400
26/03/22 - Mark buys 1 ETH for €1,200
18/05/22 - Mark buys 1 ETH for €1,800
17/07/22 - Mark sells 1 ETH for €2,200
We will use both accounting methods to calculate the gain on the disposal to understand how they work and the effect they have on your gains.
If we use FIFO, then the cost basis would be equal to the acquisition price of the ETH tokens acquired first.
Cost Basis = €1,400
Disposal Amount = €2.200
Using the formula:
Capital Gain = Disposal Amount - Cost Basis = €2,200 - €1,400 = €800
According to the weighted average method, the cost basis is simply the average of the acquisition price of all assets in inventory.
Cost Basis = (€1,400 + €1,200 + €1,800)/3 = €1,467
Disposal Amount = €2,200
Using the formula = Disposal Amount - Cost Basis = €2,200 - €1,467 = €733
Notice how your gains are lower when you use the weighted average method instead of FIFO for capital gains calculations.
According to the Income Tax Act, cryptocurrencies are categorised as property. Gains from cryptocurrency transfers, including exchanges, are subject to income tax under subsections 15(1) and 37(1) of the Act.
Private individuals who receive income from trading, buying, selling, or exchanging cryptocurrency must declare this income as gains from the transfer of other property in their income tax return (tables 6.3 or 8.3).
The gain is calculated as the difference between the selling price and the purchase price, or in the case of an exchange, between the value of the received property and the purchase price of the cryptocurrency.
Only transactions that generate income need to be declared, and each transfer transaction, including exchanges, is treated as a separate object of taxation.
Losses incurred from exchanging cryptocurrency cannot be taken into account for taxation purposes unless the exchange involves securities under § 39 of the Income Tax Act. Such losses cannot be used as a deductible cost because crypto is not considered a security.
Unlike its neighbours, Estonia doesn’t have a progressive income tax rate.
Any gains incurred from crypto transactions are taxed at a flat rate of 20% regardless of the source.
Income tax on all transactions is expected to increase from 20% to 22% from January 1 2025.
The following transactions are taxed in Estonia:
The following transactions do not attract tax liabilities in Estonia:
In Estonia, crypto mining is considered a business activity and is taxed accordingly. Mined cryptocurrency is subject to taxation upon transfer, which includes converting it into regular currency, exchanging it for another cryptocurrency, or using it for purchases of goods or services. The income derived from mining must be declared in the income tax return Form E.
If an individual privately engages in cryptocurrency mining or data processing, income tax is not withheld, and they must declare this income as business income. However, private individuals cannot deduct expenses, such as equipment and electricity costs, incurred for mining.
Individuals involved in permanent cryptocurrency mining must register as a sole proprietor or a legal entity (company) in the Business register. Registered businesses can declare business-related expenses and deduct them from their business income. Income tax, social tax, and a contribution to a mandatory funded pension are levied based on the net income from the business, following the income tax return.
In Estonia, crypto staking is treated as lending cryptocurrency. When a natural person lends cryptocurrency for staking, it is not considered a taxable event. However, if the person earns interest income from the lending of cryptocurrency through staking, they must declare the interest received in Part II of Table 5.1 or Table 8.1 of their income tax return. The interest income should be reported in the income tax return corresponding to the year in which the interest was received.
There is no current guidance on how airdrops and forks are taxed in Estonia. However, tokens received through airdrops and hard forks will likely be taxed as income. Soft forks are non-taxable in most jurisdictions because no new tokens are created and redistributed among the chain participants.
Note that this is a speculation, and the MTA might hold a different view. Therefore, it would be prudent to consult a tax professional to understand the tax implications of such transactions.
The taxation of gifts and donations is governed by several distinct sections of the Income Tax Act and the tax implications are different for a legal person and a natural person.
A legal person is someone in public law, political parties, non-profit associations, foundations, etc. Regular investors are usually referred to as natural persons.
If we consider crypto donations to be the same as fiat donations, we can infer details about how such transactions are taxed. Crypto gifts made by a natural person to another natural person or a registered entity are tax-free.
In Estonia, donations made by private individuals to listed non-profit associations and foundations are eligible for tax deductions up to €1200, which includes interest on housing loans and training expenses. Recipients must submit a "Declaration of gifts and donations received" (Form INF 4) to the Tax and Customs Board, and this information is pre-filled in donors' income tax returns. Donations made by calling or messaging require donors to provide their details and the donated amount to the NGO in January, along with a phone bill as proof. Donors can review and amend the pre-filled information in their income tax returns if needed. Donating income tax refunds to eligible associations is possible. However, tax incentives do not apply when donating directly to certain Ukrainian entities. Overall, donors can support non-profits and benefit from tax deductions through this system.
The MTA views margin and leverage trades to be the same as regular trades. Any gains incurred from margin or leverage trades are taxed as income and subjected to a flat 20% income tax.
ICOs are special events that allow investors to own project native tokens from unreleased projects in exchange for mainstream tokens like BTC and ETH. They are similar to IPOs in traditional securities markets.
Although there is no clear guidance on how tokens received through ICOs are taxed, these transactions are likely viewed as crypto-to-crypto trades and any gains incurred from such transactions will be taxed as income.
We do suggest seeking guidance from experienced tax professionals to better understand how such transactions are taxed.
In Estonia, the taxation of NFTs varies based on the transaction's content from the perspectives of both the NFT creator and purchaser. If the NFT creator receives a resale fee, it is considered a royalty and must be declared as a licence fee in the income tax return.
For natural persons who buy and sell NFTs to earn income, the profits obtained from these transactions are subject to taxation. All profitable NFT transfers must be declared in Table 6.3 or 8.3 of the income tax return.
DAOs are member-owned communities with a shared vision. All the decisions in a DAO are made by the members in the absence of central leadership. DAOs are new-age institutions that aim to democratise decision-making and allow people to have a say in decisions that directly affect them. DAOs are often called the soul of Web3 and enable members to earn rewards in multiple ways. DAO contributors are rewarded for their contributions to the organization, similar to how centralized organizations pay salaries to their employees. They also pay out bounties for one-time projects and redistribute any profits generated through operations.
The MTA is yet to release specific guidelines on how income from DAOs is to be taxed. Compensation for work received in crypto is usually non-taxable in Estonia because the taxation is accounted for by the employer. However, this is not the case with DAOs since they’re autonomous organisations with no specific guidelines or structure for taxation. Therefore, it would be prudent to consult a tax professional to better understand how income from DAOs is taxed.
In Estonia, crypto lending is generally not taxable for the lender. When a natural person lends cryptocurrency to another individual or a company (or a DeFi protocol), the act of lending itself is not considered a taxable event. However, if the lender receives interest on the loan, whether, in the form of cryptocurrency or any other form, the interest income is subject to income tax.
Interest income must be declared in the income tax return corresponding to the year of receipt. It's important to note that the taxation of crypto lending on decentralised platforms follows general tax principles, and the specific nature of the transactions on these platforms should be taken into account. Overall, while the act of lending crypto is not taxed, interest income from crypto lending is subject to income tax and should be declared accordingly.
In Estonia, residents are required to submit their tax returns by 30th April (or May 2 for 2023) of the following year. Electronic filing of tax returns is accessible from 15th February.
Self-employed individuals are required to make advance tax payments. The deadlines for advance payments of social security contributions are as follows: 15th March (for Quarter 1), 15th June (for Quarter 2), 15th September (for Quarter 3), and 15th December (for Quarter 4
There are three ways you can file your taxes in Estonia:
Here’s a video tutorial on how you can navigate the e-MTA dashboard once you have signed into the portal.
When reporting gains from cryptocurrency transactions on your tax return, use either table 6.3 or 8.3, titled "Transfer of other property."
You should maintain the following records to have a seamless tax filing experience.
Now that you’re aware of how your crypto transactions are taxed and what forms you need to fill out to complete your tax report, here’s a step-wise breakdown of how Kryptos can make this task easier for you:
If you need clarification regarding the integrations or generating your tax reports, you refer to our video guide here.
Unfortunately, there are not a lot of ways you can avoid paying crypto taxes in Estonia since crypto losses aren’t tax deductible. However, there are exemptions and other strategies you can employ to lower your tax bill.
1. Is Crypto legal in Estonia?
This question is better phrased as “Are crypto investments legal in Estonia?” because just like most other countries crypto isn’t considered a legal tender, however, that doesn’t imply that investments in crypto assets are illegal as such. The government has specific regulations and guidelines for taxing crypto-related activities, such as trading, mining, staking, and lending. The Estonian Tax and Customs Board treats cryptocurrency as property, and gains from crypto transactions are subject to income tax. Additionally, crypto donations, crypto lending, and crypto staking are all addressed in the Estonian tax system.
2. Are cryptocurrency transactions visible in the investment account statement?
An investment account with a European bank displays all transactions, including contributions, withdrawals, purchases, and sales of financial assets. If you buy cryptocurrencies through an investment account, the transactions will be visible in the account statement. However, note that cryptocurrency is not considered a financial asset under the Income Tax Act, and gains cannot be tax-deferred. When reporting crypto transactions, purchases are declared as withdrawals in Table 6.5, and sales are declared as contributions in the income tax return. Moreover, gains from crypto transactions should be declared in Table 6.3 or 8.3.
3. Do you pay tax on crypto in Estonia?
Crypto in Estonia is taxed based on income from various cryptocurrency activities, including trading, converting to fiat or other cryptos, and using it for goods/services. Mining income is considered business income and taxable income in crypto is subject to income tax.
The Court of Justice ruled that crypto-to-fiat exchanges are exempt from VAT, while non-traditional currency transactions are treated as financial if accepted as legal tender alternatives. Income can come from price changes, mining, and more, while non-taxable activities include donating and transferring between wallets. Gains from crypto transfers are subject to a 20% income tax, calculated based on price differences. Cryptocurrency is considered property, and each transfer is a separate taxable object.
4. How can Kryptos simplify crypto taxes for you?
We’ve already discussed how to file your crypto taxes in the above sections of the guide offering a stepwise breakdown of the entire process. However, we agree that it is unreasonably complicated even for someone with a fair amount of prior knowledge. However, there’s an easy way to file your crypto taxes using a crypto tax software called Kryptos.
Where all you need to do is log in on the platform, add all your trading accounts, wallets, and DeFi accounts and sip coffee while Kryptos does all the heavy lifting for you. The platform can auto-fetch all your transactions from the tax year and generate a legally compliant tax report within a matter of minutes while also suggesting ways to lower your tax bill. It works like magic, all you need to do is try it once.
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!