If you’re a newly-born crypto startup searching for a safe nest to grow your wings, the Irish taxation system is the right choice for you, thanks to its three-year exemption from the Corporation Tax which for new startups can be reduced to 0% if their Corporation Tax due is 40,000 EUR or less in a single tax year. If your crypto business is more mature, Ireland still maintains its appeal due to the low general tax rates and attractive tax incentives.
Taxes in Ireland are administered by the Revenue Commissioners. The tax year runs from the 1st of January to the 31st of December.
Irish companies can manage their taxes (file tax returns, make payments, claim repayments and more) online via the Revenue Online Service (ROS). Once you are registered with ROS (or have MyAccount), you can use eRegistration online service to register your company as a taxpayer. Only companies with Irish-resident directors can avail of this service.
A company’s residency status impacts its tax treatment. A company is a tax resident in Ireland if it’s incorporated there, unless it’s already considered a tax resident in a country which Ireland has a double taxation agreement with. If a company is incorporated elsewhere but is centrally managed and controlled in Ireland, it’s also considered an Irish tax resident.
Ireland has over 70 international agreements on the elimination of double taxation which cover Capital Gains Tax, Corporation Tax, Universal Social Charge and Income Tax.
There’s no crypto-specific tax or rules in Ireland, however registered Virtual Asset Service Providers (VASPs) are obligated to follow general Irish taxation principles and pay the following general taxes:
- Corporation Tax (CT) – 12,5%
- Capital Gains Tax (CGT) – 33%
- Universal Social Charge (USC) – 0,5%-11%
- Value Added Tax (VAT) – 23%
- Stamp Duty (SD) – 7,5%
- Withholding Tax (WHT) – 25%
The following business activities may trigger tax liabilities in Ireland:
- Exchange between virtual assets and fiat money
- Exchange between one or more types of virtual assets
- Transfer of virtual assets (conduct of a transaction on behalf of another person that moves a virtual asset from one virtual asset address or account to another)
- Provision of custodian wallets
- Participation in, and provision of, financial services related to an issuer’s offer or sale of a virtual asset or both
However, since virtual assets, or crypto assets, aren’t properly defined and classified, each case is considered individually by looking at the relevant facts and circumstances. In the end, the tax treatment of crypto-related transactions depends on the nature of business activities and on the involved parties.
Generally, all companies engaging in crypto-related activities are liable for paying the Corporation Tax. Irish tax residents pay the Corporation Tax on their worldwide profits (income and capital gains), while non-residents trading through Ireland-based branches or agencies must pay the tax on the profits allocated to these Irish locations and on certain income sourced in Ireland.
Returns are filed and any tax due is paid on or before the 23rd of the ninth month from the end of the accounting period. It includes calculating and paying preliminary tax, filing a CT1 form and a 46G form as well as paying any balance of tax. Failure to make the payments on time will result in having to pay an interest charge at a daily rate of 0,0219%.
Businesses accepting payments for products or services in cryptocurrencies continue to follow the same principles of revenue recognition and profit calculation. Furthermore, they are responsible for keeping record of cryptocurrency transactions for tax reporting purposes. Company’s profits and losses pertaining to crypto transactions must be included in their accounts and general rules of the Corporation Tax must be applied.
Companies engaging in crypto-related activities can prepare their accounts in a currency other than euro, provided that it’s their functional currency. However, cryptocurrencies aren’t considered functional currencies which is why accounts, for tax purposes, can’t be prepared in cryptocurrencies.
Capital Gains Tax
The Capital Gains Tax is levied on the disposal of assets, including sales and transfers of virtual assets. The taxed amount, or a chargeable gain, is the difference between the sales proceeds and the costs of the crypto assets. The calculations must be made for each disposal of each asset separately. Returns of the Capital Gains Tax must be filed by the 31st of October in the year after the date of disposal.
Irish tax resident companies are taxed on their worldwide income, whereas non-residents are required to pay the tax on the disposal of virtual assets used for the purpose of business activities carried out in Ireland.
In the case of a capital loss on an investment in an asset, it can normally be deducted from a chargeable gain in the same or future periods. If the loss exceeds the gain, the remaining loss can be carried forward to future periods for use against future chargeable gains. It’s not possible to offset capital losses against corporate income or to surrender capital losses within a tax group.
The tax liability on chargeable gains from assets is generally included in the company’s Corporation Tax payment. This means the chargeable gain will be calculated at the Corporation Tax rate and included in the CT1 form. Due to the difference between Corporation Tax and Capital Gains Tax, the capital gain needs to be adjusted.
The adjusted gain is calculated as follows:
- Calculate what the amount of the Capital Gains Tax liability would be at the Capital Gains Tax rate
- Divide this amount by the Corporation Tax rate
Value Added Tax
Since the Court of Justice of the European Union (CJEU) ruled out that such cryptocurrencies as Bitcoin are treated as fiat currencies for VAT purposes, cryptocurrencies are exempt from VAT in Ireland.
Furthermore, financial services relating to the exchange of cryptocurrencies for fiat currencies and vice versa aren’t subject to VAT under the Paragraph 6(1)(d) of the VAT Consolidation Act of 2010, if a company operating as the exchange service provider acts as principal (i. e. acts as the owner of the traded virtual assets).
If providers of regular products and services are paid in cryptocurrencies, they must follow the regular rules when paying VAT. The taxable amount is expressed in the euro value of the cryptocurrencies at the time of the supply.
Income received from cryptocurrency mining activities is generally outside the scope of VAT on the basis that the activity doesn’t constitute an economic activity for VAT purposes.
Crypto companies can avail of such incentives as a 25% credit on certain R&D expenses, lowered tax rates for IP exploitation and allowances for energy efficient equipment.
The tax credit applies to the full amount paid by a company for qualifying R&D activities and is given in addition to the normal 12,5% revenue deduction available for the R&D which results in the total tax benefit of 37,5%.
Irish companies acquiring intellectual property are exempt from paying Stamp Duty and are eligible for tax deduction for the capital cost of acquiring certain intellectual property (patents, copyrights, trademarks, licences, computer software, etc.) used for carrying out economic activities.
Lastly, it’s imperative to remember that companies offering crypto products or services are also obligated to keep records of all transactions involving virtual assets for tax purposes. If the records are stored in a crypto wallet or vault on a device, such as a laptop or mobile phone, they must be shared with the Revenue Commissioners upon their request. These records have to be retained for six years, in line with legislation.
If you’re preparing to register and run a crypto company in Ireland, our highly experienced and insightful team of Regulated United Europe (RUE) is here to support you. We offer comprehensive advice on crypto taxation, crypto company formation and crypto licensing. Moreover, we’ll be more than happy to step in if you’re in need of accounting services. Rest assured, we guarantee efficiency, confidentiality as well as meticulous attention to every detail that impacts your business success. Contact us now to book a personalised consultation.
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