Latvia Recognizes Cryptocurrencies in Order to Tax Them

Trying to take its share of the profits, the government of Latvia may accept cryptocurrencies as a legal means of exchange. This year’s tax filing campaign is underway and officials don’t have much time. Two parliamentary commissions and the Ministry of Finance have expressed their views on the matter this week. Latvians may very soon owe the state tax on their gains from crypto transactions.

Also read: Poles Protest Unfair Taxation of Crypto Incomes and Profits

Cryptocurrencies Deemed Dangerous but Taxable

According to the Latvian Finance Ministry, 20% tax can be imposed on capital gains from deals with cryptocurrencies. Its representatives announced the proposal during a meeting with deputies from the Parliamentary Budget and Taxation Committee on Wednesday.

Some lawmakers reminded their colleagues and constituents that cryptocurrencies are not considered a legal tender in the Baltic state and come with speculative bubbles and financial pyramids. Members of the Financial and Capital Markets Committee, however, noted that cryptos like bitcoin can “function as a means of exchange”.

The Ministry of Finance also revealed that the Latvian government is mulling over comprehensive cryptocurrency regulations. A working group set up by Prime-Minister Māris Kučinskis has been tasked to prepare the proposals. According to the Baltic Reporter, it will study market risks, but also evaluate potential benefits associated with cryptocurrencies.

Policy makers have often criticized cryptos for failing to perform one or more of the functions of fiat money – means of payment, medium of exchange, unit of account, and store of value. It seems, though, that when budget revenues are in mind, the requirements towards “virtual money” are not that strict. The “means of exchange” labeling now gives Latvian authorities an opportunity to tax cryptocurrency transactions. Maybe if they think about VAT, a “means of payment” status will also be attributed. No tax is currently due on crypto purchases of goods and services in Latvia.

Cryptocurrencies are not covered by any Latvian law but authorities in Riga say revenues from crypto trading are subject to personal and corporate income tax. The country has a flat income tax rate of 23%. Incomes from dividends and interest are taxed at 10%. 15% tax is due on capital gains from shares, real estate, and intellectual property. The standard rate of Value Added Tax is 21%. Financial transactions are exempt from VAT. Tax returns in Latvia are filed between March 1 and June 1 of the year following the taxation year.

Tax Authorities Catching Crypto Fever

Latvia is not the first country in Europe tempted to tax cryptocurrencies before adopting proper regulations. Governments across the continent have decided to tap into crypto incomes and profits, despite their predominantly negative attitude towards the “unguaranteed money”. Tax rates vary significantly in different EU member-states. Income tax and capital gains tax are often imposed on crypto-related revenues. Many tax authorities have stated that the provisions of the current tax codes of their countries are also applicable to the crypto sector.

Neighboring Estonia, for example, has subjected cryptocurrencies to capital gains tax and VAT. Poland has recently clarified its stance on crypto taxation. Taxes on crypto-related income there can reach 32%. A decision to impose 1% tax on every crypto transaction has sparked angry reactions in the local crypto community. New regulations in Russia will be adopted by the summer, but even now Russian citizens are expected to pay 13% tax on their crypto-related incomes.

Belarus is a positive exception. President Lukashenko’s administration legalized crypto activities creating favorable conditions for the development of the industry. His Decree №8, which entered into force on March 28, introduced tax breaks and other incentives until 2023. No taxes will be imposed on companies which mine, issue, or exchange digital coins. Private crypto income from mining and trading cryptocurrencies will not be taxed either.

Do you think crypto incomes and profits should be taxed? Share your thoughts in the comments section below.

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