How cryptocurrency is regulated in Estonia: basic rules
According to the Estonian Income Tax Act, cryptocurrency is considered property. If an investor receives income from the sale or exchange of a cryptocurrency, they must declare the income as profit from the disposal of the property. Profit is calculated as the difference between the sale and purchase price of bitcoin or altcoins on a particular day. However, only transactions that resulted in a profit for the investor need to be declared. Each transaction is treated independently and must also be filed as a separate item on the tax return.
Bitcoin and any altcoins are not considered securities under the law. Therefore, losses incurred during the exchange do not need to be included in the tax base. There is no need to declare them either.
You should also understand that cryptocurrencies are not considered a financial asset in Estonia, so you cannot use an investment account to buy and sell them, which gives investors a number of advantages.
Tax on cryptocurrency in Estonia
The answer to the question of how cryptocurrency is regulated in Estonia must necessarily include tax subtleties. According to Estonian law, cryptocurrency exchange, cryptocurrency wallet transactions and mining can be subject to sales tax. The key factor for calculating the tax will be how the income was earned.
In Estonia, the legislator distinguishes four types of income generation:
Mining, or cryptocurrency mining
Hosting, or renting disk space
Payment for goods and services in cryptocurrency
Receiving a salary in cryptocurrency
Trading participants are not considered to earn income if cryptocurrency transactions involve:
Donation of cryptocurrency, including to charity
Gift of cryptocurrency
Exchanging fiat for cryptocurrency
Transferring cryptocurrency from wallet to wallet
If the holder has received any income according to the criteria of Estonian law, he must pay tax — the same as if the income was received in traditional currency. To calculate the tax, you must recalculate the exchange rate of the cryptocurrency in euros on the date of the transaction, for example, payroll or hosting fees, and then apply the normal tax rate to it. And if the exchange rate of a particular cryptocurrency is shown only in relation to the U.S. dollar, you must recalculate it in euros at the rate of the Bank of Estonia at the time of the transaction. If, however, the altcoin to euro exchange rate is presented on the exchange, you can take it as the basis, there is no need to recalculate anything. Another important point - the entire amount of profit, not only the amount that the investor has withdrawn to his bank account, is subject to taxation.
At the same time, cryptocurrency can be used to pay for goods or services. However, if the rate of the cryptocurrency increased from the time of purchase to the time of the transaction, the investor will again have to pay income tax. The same rule applies to the purchase of any other goods, including cosmetics or food.
Licensing at the fiat currency level means that the business of exchanging and storing cryptocurrencies emerges for the first time as a sector of the regular legal economy. Until now, crypto-businesses have existed and operated partly or completely outside the legal field — not meaning illegally, but without the proven legitimacy of their activities. The penetration of crypto-businesses into the legal economy has been low, as most companies avoid the risks that go along with cooperating with companies in the grey area of the law. The legalisation of cryptocurrency means the emergence of the first "white" crypto-businessa operating entirely in the legal space. A license for cryptocurrency and fiat currency exchange or cryptocurrency storage allows ordinary companies to use such services officially, without the risk of being outside the legal field.
That's how our product Connectee came to life. Its idea was born as a result of the emergence of the possibility of crypto-business in the legal economy, registering companies focused on working immediately under new rules — providing unusual services to ordinary companies.