Cryptocurrency Taxation in Lithuania
According to the Law on Corporate Income Tax and the Law on Personal Income Tax «Virtual currency» is a negotiable asset that can be used as a means of payment for goods and services. On the VAT side, the virtual currency is considered to be the same currency as the euro.
Since the state currency of Lithuania is the euro, therefore all transactions in virtual currency in accounting are converted into euros and recorded in euros. Since the law does not regulate the exchange rate of the virtual currency against the euro, the source of the published virtual currency rate used in accounting should be recorded in the internal accounting rules. Given the fact that the exchange rate of a virtual currency can change significantly in a short period of time, an organization’s accounting policy must record not only the source but also the time of the transaction.
EXTRACTION AND SALE OF VIRTUAL CURRENCY
From the point of view of Lithuania’s corporate income tax, at the moment of production of the virtual currency tax does not arise.
A tax arises when a virtual currency is sold.
Taxable income is calculated by subtracting the value of production/acquisition of virtual currency from the sale price.
The price of production/acquisition may consist of all actual costs incurred, for example:
- Software development
- Depreciation of equipment and software
- Electricity costs
- Costs of services purchased
- Labour costs
The documents supporting the costs on which the costs are based should contain all the required accounting particulars.
Mining (meening) and selling virtual currency is subject to VAT?
According to Court of Justice other European Union in case C-264/14 the sale of a virtual currency (exchange for a traditional FIAT currency ) is regarded as a sale of services for a fee. Which means the exchange of virtual currency is subject to VAT. It should be noted that when virtual currency units are exchanged for Fiat or other virtual currencies, the taxable amount is equal to the margin, that is, the difference between the purchase/production price and the sale price.
PAYMENT FOR GOODS AND SERVICES IN VIRTUAL CURRENCY
On the tax side, there is no difference as to how the goods or services were paid (in cash, bank transfer or in virtual currency). Accounting for each transfer is mandatory. The transaction must be recorded both the payment of the purchased good or service and the purchase/sale of assets (virtual currency) at the rate of exchange at the time of the transaction.
An account for goods or services that are paid in virtual currency should not be different from an account when payment is made in traditional currency. The account must contain all required accounting details. Notwithstanding the currency in which the account will be paid, all amounts must be in euros, i.e. the virtual currency must be converted to euros at the market exchange rate prevailing at the time of accrual.
Salaries in virtual currency
According to Article 139(3) of the Labour Code of the Republic of Lithuania, the salary must be paid in money. Goods and services provided by employees are not considered part of the salary. Thus, all benefits paid to the employee in virtual currency are considered to be work-related income from which the employer must calculate, pay and declare income tax.
VIRTUAL CURRENCY TRANSACTIONS
A virtual currency can be bought in any way, both at a virtual exchange point and at other exchange venues.
From the point of view of the law, the difference between the sale price and the purchase price of a virtual currency is the income from the sale of a virtual currency. The acquisition price may include costs incurred in acquiring assets such as commissions and fees.
According to Article 79(1) of the Law on VAT, if a VAT payer sells a virtual currency through an exchange created in Lithuania through anonymous transactions, the VAT considers that the virtual currency has been sold to the exchange, and in that case the exchange must be listed as the buyer in the invoice. If the virtual currency is sold outside the territory of the country (for example, through an exchange established in another State), the sale of such currency in Lithuania is not confirmed by the account.
TAXATION OF TOKENS
A token is an instrument that gives its owner rights established by the issuer (e.g. right to share in profits, company income, interest on investments, right to receive certain goods or services, etc.). The VAT token is not considered as a virtual currency because it does not correspond to the definition of a virtual currency, i.e. the individual issuing it clearly defines the scope of the instrument, provides for certain obligations of the instrument, etc. etc.
However, it is worth noting that there are cases where tokens do not fit the above definition of token and are treated as virtual currency or coupons.
The issuance of tokens (considered as a security) is neither a supply of goods nor a service, so VAT is not subject to. Since according to Article 3 of the Law on VAT the supply of goods and/or services is carried out in Lithuania, VAT is subject to.
If brokering services are provided for tokens considered to be securities, such brokering services provided in Lithuania pursuant to provisions of Article 28(5) of the Law on VAT, exempt from tax. If brokering services are provided for tokens considered as coupons, such brokering services provided in Lithuania are taxed using the standard VAT rate.
INCOME OF AN INDIVIDUAL
According to Republic of Lithuania Law on Personal Income Tax, virtual currency is considered property, so income from the sale of virtual currency is taxed in the same way as other income from the sale of assets. This means that taxable income is the difference between acquisition and sale.