Taxation of virtual currency/cryptocurrency

Virtual currency (bitcoin or other virtual currency) is considered property for tax purposes and is covered by the general rules for income and wealth taxation. Gains/losses are taxed at 22 percent. The exemption method does not apply to virtual currency.

What is virtual currency?

Virtual currency, also called digital currency or cryptocurrency, originates online and is a type of unregulated digital money. There is no formal issuer of a virtual currency, nor is there an official exchange rate. The price of the virtual currency is determined based on supply and demand in the market. Virtual currency trading takes place in various places on the internet.

The most well-known virtual currency is bitcoin, but there are many other such currencies. Examples of other virtual currencies are Ethereum, IOTA, Litecoin, Dogecoin, Bitcoin Cash, EOS, Stellar (XLM), NEO, Ripple (XRP), Dash, ADA, Miata, Neo, Zec, BNB.

Taxation of virtual currency

For tax purposes, virtual currency is not equated with an ordinary currency, as this is not issued by or guaranteed by a national central bank. Virtual currency is a property object and is covered by the general rules for income and wealth taxation. The exemption method does not apply to virtual currency. Gains from the realization of virtual currency are regarded as capital income, which is taxed at 22%. This also applies to "switching" between different cryptocurrencies, even if it is not exchanged for traditional currency. To the extent that there is a loss, this can be deducted by 22%.

The taxation is 22% whether the investment is made personally or whether it is a limited company that has invested. Note, however, that if the investment has been made by a limited liability company, the shareholder will have to be taxed on dividends with 31.68% effective tax if he wishes to withdraw funds from the company. Because the limited company must tax on gains of 22%, the total tax burden for companies and shareholders as a whole will be 46.7%. If one looks at the tax effect in isolation, it can therefore be beneficial if investments in cryptocurrency are made in person.

Gain/loss calculation

Upon realization of virtual currency, there may be a taxable gain or deductible loss. Gains or losses constitute the difference between input and output value. The consideration the taxpayer receives for bitcoin that is realized, fewer transaction costs, will constitute the initial value. The entry value will be the cost price, ie what the virtual currency has cost the seller, including transaction costs. This applies both where the seller has bought the virtual currency or he has produced (mined/extracted) it himself.

A separate gain/loss calculation for currency effect should not be made (for example, where bitcoin is settled in USD).

Wealth taxation

Bitcoin or other virtual currency is considered an asset and should be included in tax assets. If you own, have "mined" or bought bitcoins during the income year and these are in your possession at the end of the income year, the value of these must be stated as assets in the tax return. The turnover value as of 31 December in Norwegian kroner must be stated in the tax return. The market price of virtual currencies is often stated in other currencies. The price must therefore be converted to Norwegian kroner based on the exchange rate as of 31 December.

If a limited liability company owns the virtual currency, the limited liability company as such is not liable to wealth tax. The shareholders in the company shall be taxed on wealth for the value of the shares. The value of the virtual currency will be included in the asset value of the shares for each year.

Especially about «mining»

The issuance of new bitcoin is regulated in the design of bitcoin and takes place through a process called "mining" (mining). New bitcoin is developed by solving advanced data algorithms that verify bitcoin transactions. The result of the verification is new bitcoins and a small transaction fee.

If you have a "mined" digital currency during the income year, this must be recognized as income at the market value in Norwegian kroner at the time of extraction. When calculating taxable income, one can get a deduction for costs one has had at the time of mining, for example, costs for the purchase of machines used for the extraction of virtual currency and electricity. The profit from the "mining" must be stated as taxable income.

Note that the "mining" can have a very different scope, and can be considered a business if the business requirements are met. Normally, "mining" of bitcoin or. with your private laptop is not considered a tax business.

Reporting of gains, losses on the realization of virtual currency, etc.

Wealth, profit, loss, etc. related to the virtual currency in which you have invested must be reported to the tax authorities. It is not easy to know how to report this.

The tax authorities have prepared special forms that must be completed and submitted as an appendix to the tax return. If you have made investments in virtual currency as a private individual, form RF-1159 must be used. Limited companies must use form RF-1359.

Note that if the information is not reported to the tax authorities, the tax authorities will be able to impose an additional tax of up to 60% of the tax evaded.

Documentation

The tax authorities will be able to request documentation to be able to verify the information given in the tax return. It is recommended that the following documentation be obtained and stored, in case the tax authorities should request it:

• Transaction log/documentation of realized virtual currency/bitcoins from brokers/exchangers with the currency (Bitcoins) addresses.

• Documentation showing the date when the sold virtual currency/bitcoins were acquired, mined, or purchased, including the relevant virtual currency's addresses for these and the entry value.

• If mining; Log from mining - overview of the number of mined virtual currencies/bitcoins and the time of extraction of these (payout address).

You do not need to attach documentation when you submit the tax return, but it must be possible to submit it if the tax authorities request the documentation.

Tax consequences if an AS invests in financial instruments with cryptocurrency as the underlying object

If the taxpayer is the subject of the exemption method, the exemption method will be applied to any realization of financial instruments if the underlying assets are mainly shares or the like. or an index that covers stocks and other assets that qualify under the exemption method. Cryptocurrency is not covered by the exemption method. If the financial instrument reflects the value development in cryptocurrency, and not shares, etc. the exemption method will not be used, and gains will therefore be taxable. Losses, in turn, will be deductible. The tax rate will be 22%.

Note that if you as a shareholder want to withdraw funds from the company, it will result in dividend tax with an effective tax of 31.68%. This means that if you look at the company and the shareholder as a whole, the total tax will be 46.7%.

Tax consequences if you invest in financial instruments with cryptocurrency as the underlying object

Private individuals who own virtual currency and similar products will be liable to tax on gains on realization. Gains from the sale of virtual currency or financial instruments that have virtual currency as the underlying object will, as a general rule, be regarded as capital income that is taxed at 22%. Losses are deductible in ordinary income at the same rate (22%).