Cryptocurrency Tax in Slovenia

When amateur investors start trading with cryptocurrencies and making profits turns into a business, tax standards come into effect in this area as well.

Status of Cryptocurrencies in Slovenia

Currently, Slovenia treats cryptocurrencies as virtual currencies, meaning that, according to the Slovenian Act on Payment Services and Systems, they are neither financial instruments nor monetary assets.

In order to meet the latest requirements for fiscal transparency, Slovenia has updated its Anti-Money Laundering Act with explicit reference to cryptocurrencies. The law defines all cryptocurrency exchanges and dealers engaged in the cryptocurrency trade as financial institutions for money laundering purposes. Those entities are therefore required to comply with the transparency rules and compliance procedures applicable to financial institutions.

Cryptocurrency Taxation in Slovenia

In the guidelines issued in 2017, the Financial Administration of Slovenia (FURS) addressed the issue of taxation in relation to capital gains obtained from cryptocurrencies. Taxation of transactions involving bitcoin and other cryptocurrencies depends on several factors, such as the status of the trader, the type of the transaction, and other individual circumstances.

Individual Taxation

Any income that individuals obtain in the form of Bitcoin and other cryptocurrencies (e.g., employment income) is subject to personal income tax. The exchange rate between the cryptocurrency and the euro on the date of receipt is used as a base to calculate the taxable value of such income. The same strategy is used for taxation of individual income that is obtained from cryptocurrency mining.

However, the FURS says that the profits that individuals receive from Bitcoin trading (due to fluctuations in the cryptocurrency market) do not fall under income taxation. The reason for this is because, according to the Slovenia's Personal Income Tax Act, capital gains are generally not taxable if they arise from movable property or the disposal of derivative financial instruments. Since cryptocurrencies are not defined as financial instruments or shares, they are not included in the individual’s taxable capital gain.

Taxation of Individuals Engaged in Business Activities

Individuals trading or extracting cryptocurrencies in the course of their business activities (e.g., sole proprietors and consultants) are required to pay income tax on profits derived from those business activities. Income is taxed under the relevant corporate income tax regimes.

Corporate Taxation

There is less clarity when it comes to taxing companies that own and trade cryptocurrencies in Slovenia. The FURS states that the taxation of such business activities depends on the individual treatment of each tax return submitted by the company and the income and expenses stated in it.

Specifically, the FURS points out that: "The accounting treatment in the described trade or company depends on the circumstances of the specific case." When calculating corporate tax, the status of the income recipient and the type of income must be considered. As a result, cryptocurrency mining, cryptocurrency trading or acceptance of payments and paying with cryptocurrencies for tax purposes may be treated differently. If profits from cryptocurrency-related activities are treated as capital gains under the corporate law, capital gains are considered regular income and the total amount of profits earned is taxed at 19%.

It is important to note that the current company law in Slovenia does not allow business activities based solely on cryptocurrencies (eg. accepting Bitcoin as the only payment option for goods and services). Companies must maintain a bank account for monetary transactions and comply with all rules applicable to companies in Slovenia.

ICO (Initial Coin Offering) Taxation

In Slovenia, tokens used to raise start-up funds during the ICO are processed for tax purposes in accordance with standard accounting rules and the general provisions of the Law on Corporation Tax. The tax base is determined by subtracting operating expenses from revenues earned by the business.

Cryptocurrencies are taxed separately from physical currencies, but real-world cryptocurrencies are not exempt from accounting standards. Although profits from cryptocurrencies are not taxed under the current Slovenian (moderate) regulation, they are taxed on the basis of the income tax scale if profits are incurred as part of an activity, emphasizes lawyer Domen Romih.

Romih was one of three speakers at the recent online event "Tax and Accounting Aspects of Cryptocurrencies", organised by Blockchain Think Thank Slovenia (BTT).

Cryptocurrency Accounting

Participants followed the event in two parts. First, the accounting definitions of cryptocurrencies and a legal overview of current regulations were presented, followed by a lengthy Q&A session.

Part of the accounting was presented by Silva Koritnik Rakela from Abc računovodstvo, who addressed the subject in 2015. She raised the issue of accounting standards and taxation (eg. who defines taxation exactly), economic categories of balance sheets and where to place cryptocurrencies, while also commenting on the country’s current explanations for cryptocurrencies.

Koritnik Rakela introduced the basic design of company balance sheets and the accounting standards that define them. Using practical examples, she placed cryptocurrencies in balance sheets. "Standards are rules which provide for the recognition and de-recognition of economic categories, initial measures, subsequent measures and reporting. While accounting standards are relevant when we engage in certain activities, the situation is different for individuals," says Koritnik Rakela.

Business or Leisure Time Activity

How to deal with cryptocurrencies in accounting also depends on the company’s goal, Koritnik Rakela says: “Is the purpose of cryptocurrency business investment, trading or payment? This purpose has an effect on how you handle accounting”.

It is thus important to distinguish between a business activity or leisure time that an individual dedicates to cryptocurrencies; this depends on how the profit will be treated by the FURS. Veronika Knavs, a lawyer and expert in the field of cryptocurrencies, and Domen Romih also spoke about the issue. Both paid close attention to taxation in Slovenia.

"Tax laws are meant to be written to cover all fields, but cryptocurrencies are such a novelty that everything needs to be built from scratch,” says Knavseva, who also points out that because of the large number of innovations, it is always necessary to be up-to-date and monitor the changes.

Despite the innovations and rapid changes, the fundamental principles remain the same. So, the most fundamental question remains whether you are doing something as an individual at home or taking part in real activity. "Once a person exceeds the threshold for opening a business or activity, they have to register as a sole proprietor, a limited liability company, joint stock company or some other form. All these cases come with a set of guidelines on how to manage the activity, when and how to identify the assets and take them into account," says Knavseva.

Criteria

When distinguishing between an individual and an activity, it is important to add that the taxation of profits also depends on it – moderate profits generated by an individual using cryptocurrency are not currently taxed in Slovenia.

Valentina Knavs notes six criteria to better understand whether someone is already involved in the activity. She goes on to say that meeting only one of the criteria is not enough for an individual’s activities to become business activities; it needs to do more, and the overall goal is to generate long-term profits.

Six criteria when a person is considered to be carrying out an activity and must also register it:

1. a larger number of orders placed over a one-year period;

2. the number of trading days over a one-year period;

3. higher value of realized orders over a one-year period;

4. higher average value of the cryptocurrency portfolio over a one-year period;

These four criteria provide a fundamental idea and direction of how to proceed, but emphasis is placed on two others:

5. investment or use of dedicated equipment and other resources to carry out activities, information, knowledge and technologies;

6. existence of an organizational structure and the division of work among several people in order to reach a common goal.

Six criteria show if taxpayers spend more on the equipment they use (e.g., mining); once such activities happen, it indicates the performance of business activity, says Knavseva.

Company Abroad

At the same time, Knavseva pointed to the frequently mistaken belief that if a company is registered abroad and meets all the tax requirements it, taxation in Slovenia is not required. This is not the case if the business has a tax residence in Slovenia.

Basically, tax residence means that the company has a statutory seat in Slovenia or a management, where it takes all important decisions. In that case, all revenues may be taxed, including those from abroad. A legal entity can also set up a branch in Slovenia. This means the income of the taxpayer is taxed, which can be attributed to the branch office in Slovenia. This is not noticeable in our country," Knavseva points out.

A somewhat provocative stance was taken by Domen Romih, who stated that the FURS’ explanations were by no means binding. They were published in order to assist the public, at least to some extent, in understanding the current legislation.

At the same time, Romih stressed that, despite the currently non-binding guidelines of the financial administration, all changes when we want to turn cryptocurrencies into physical money. "When cryptocurrency enters the real economy, the FURS may request the source of the profit. The government shows up when profit shows up. This happens when we want to buy a property or a car with physical money", says Romih. He also adds that the FURS usually starts with supervision when the amount moves around €50,000 or more.

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