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On 26 July 2018, the Luxembourg tax authorities published a circular on specific fiscal aspects of virtual currencies.
Since it does not consider virtual currencies as a real currency, the circular clarifies that the Luxembourg tax accounts can not be prepared and the taxable income can not be reported in a virtual currency. Virtual currencies are intangible assets that must be reported to their countervalue in a real currency. The exchange rate at the time when positions in virtual currency are taken and released should be used. The income must be determined by applying the exchange rate of the day on which it is made available to the tax payer and the expenses applying the rate of the day on which they are incurred. Thus, although not explicitly mentioned, the circular applies a historical cost rather than a mark-to-market approach to determine the results of the virtual currency.
The circular explains that the tax regime applicable to transactions in virtual currency depends on the nature of income. The income in virtual currency derived from a corporate tax payer is the income from work in default (tax rate of 26.01% in the city of Luxembourg). The virtual currency itself constitutes a taxable asset for the purpose of net capital tax. Only the taxpayers of the companies are subject to the net equity tax.
For individual taxpayers, income in virtual currency is taxed as corporate income (progressive rates up to 42%, excluding surcharges for employment funds and municipal business tax) at the rate of 6 , 75% in the city of Luxembourg) only if it is generated in the context of a commercial enterprise. An enterprise is an independent business with a profitable intent that is exercised permanently and that constitutes a participation in the general economic life. The circular specifies that these conditions are met regularly if a taxpayer creates (" mines" ) virtual currency, conducts an online virtual currency exchange platform or automatically distributes virtual currency. In addition, premises or infrastructures dedicated to virtual currency transactions, borrowed capital, frequent alternations of virtual currency inventory or trade on behalf of third parties are considered typical indicators of a & # 39; commercial enterprise. If income qualifies as corporate income, the operating expenses incurred in the commercial enterprise are deductible only from taxes.
In the event that a single tax payer is not engaged in a business, income from a virtual currency is taxed if it results in speculative gains exceeding 500 euros during a calendar year. This is the case if the virtual currency is disposed of with a profit within six months of its acquisition. The tax payer is required to have consistent and continuous documentation, in particular in relation to the date of acquisition or creation of the virtual currency, as well as the related costs. The burden of proof lies with the tax payer. Where, in the context of the creation of virtual currency, the individual identification of the currency traded proves to be difficult or even impossible, the purchase price of the realized virtual currency will be determined on the basis of the weighted average price method. When a mining business does not meet all the criteria to qualify as a commercial enterprise, it can generate and be taxed as other net income.
This new circular, accessible here, should be of interest to investors in virtual currency, be they professionals or amateurs, miners or operators of virtual currency platforms. In times when many questions on the taxation of virtual currencies remain unanswered, this guide is certainly a first step towards greater legal certainty. Note that a circular is an explanatory note, which is binding on tax authorities but not as such for tax payers. Taxpayers can however reasonably be able to rely on it on the basis of the principle of good faith.
