Crypto Regulations in Spain: Key Features
In the European Union, each country has the autonomy to set its own rules for cryptocurrencies. Spain finds itself in a paradoxical situation at the moment: while clear legislation has not yet been formed, significant moves in taxation have already been taken.
Spain: Legal Framework for Cryptocurrencies
In 2021, the Spanish government incorporated the European Council's 2018 Anti-Money Laundering Directive into its national legislation. Simultaneously, it was decreed and ratified by King Felipe VI of Spain and the Cortes Generales (parliamentarians) that digital currency is a digital representation of value, neither issued nor backed by any central bank or government authority.
Additionally, Law 11/2021 was enacted, clearly outlining the obligations of those providing financial services related to these digital assets, such as exchange services or storage in centralized wallets.
All cryptocurrency operators (exchanges) must meet three key criteria to legally operate in Spain:
- Register as a cryptocurrency operator with the Bank of Spain;
- Implement the Know Your Customer (KYC) process to identify their clients;
- Conduct due diligence to monitor the origin of the funds in circulation, adhering to Anti-Money Laundering (AML) regulations.
Crypto Taxes in Spain
The taxation of income in Spain is primarily governed by two sets of rules: the Personal Income Tax (IRPF), which ranges from 19% to 45% based on the size of the income, and the Value Added Tax (VAT).However, a decision by the European Union Court has exempted cryptocurrency transactions from VAT starting in 2023. This change stems from the recognition that virtual currencies are now considered a medium for value transfer, rather than a good or service in their own right.
However, this exemption does not extend to mining and staking, which are classified as economic activities without the characteristics of commercial trading.
Since digital assets in Spain are classified as intangible assets, they are also subject to Capital Gains Tax, ranging from 19% to 26%. Consequently, when individuals realize profits from selling cryptocurrencies, such gains are mandated to be declared as part of their income, with the applicable tax rate being contingent on the quantum of net income.
Another layer of taxation comes in the form of the Wealth Tax, which varies from 0.2% to 2.5%. This tax supplements the Personal Income Tax and envelops all assets held by an individual.
Its implementation is regulated by the autonomous communities, the administrative divisions in Spain.
Each autonomous community sets a threshold for the net value of assets, including digital ones, above which this tax is applicable. For example, in Andalusia, the threshold is $640,000, while in Asturias it is $550,000.
Additionally, losses incurred from cryptocurrency operations and mining are factored into tax declarations, enabling a reduction in the annual profit accrued from other assets.
In contrast to countries like Italy or Poland, Spain does not prescribe a minimum threshold for cryptocurrency taxation. This means that even minimal earnings, such as $10 from an airdrop or a referral program, are subject to mandatory declaration.
Until 2023, the submission of crypto tax declarations in Spain was not stringently enforced among retail market participants. However, starting from March 2024, failure to comply will attract fines ranging from €5000 to €10,000, with a €1500 penalty for late filings.
The mechanism for verifying taxpayer compliance remains somewhat ambiguous, especially as the law mandating exchanges to disclose client information is set to come into effect only in 2024.
In summary, Spain, like many other European countries, is still developing a coherent framework for cryptocurrency regulation. Despite local regulators' claims of accelerating the implementation of MiCA standards, Spain lacks specific rules for regulating NFTs and DeFi as of now.
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