Bitcoin – Taxation of crypto currency

January 10, 2018

When selling digital currency, we must check if this generates profit or loss. In case of companies this should be shown as financial income or expenditure. In case of individuals even the fund of cryptocurrency is taxable.

In order to obtain Bitcoin one method is the „Bitcoin Mining”. The kernel of this is that the individual can obtain money through the use of a software. Currently the value is 25 BTC / occasion. This counts as an income from independent activity regarding the payroll tax law 1st paragraph of the Income Tax Law 16. § CXVII of the year 1995. The location of the gainful activity is the country where the individual is tax resident. According to the 3rd paragraph of Payroll Law number 17 expenses generated during the income making process (such as the value of the software) can be accounted. Considering that during „Bitcoin Mining” the payer anonymous, therefor he/she is responsible for a charge of 22% for health contribution according to the law LXVT of 1998 regarding health contribution. There is a further obligation of 15% to be paid as Personal Income Tax according to the part 13. § of the legislation about National Insurance Legal Relations.

The other method to obtain Bitcoin is to purchase. Bitcoin can be exchange any time to another traditional currency (e.g.: Euro, US dollar, etc…), as well you can pay with bitcoin (for a taxi, in the restaurant, etc…). The other advantage of exchanging Bitcoin to traditional currencies is that remarkably rising trend (even dough sometime acts on changes or even drops). As result of this if you pay attention when selling Bitcoin, you are likely to generate more currency than the time you purchased.

Crypto currency can not be handled as traditional currency. There are several reasons why. One of them is that there is no official issuer authority. Second, Bitcoin does not have an official exchange rate confirmed by MNB (the Hungarian National Bank). Only if the exchange happens in the circumstances of non-business related activity it exempts of tax payer obligations.

This bitcoin income regarding the Personal Income Tax law counts as „other income”, therefor dispositions referring to expense report can be applied. The obtained income is charged 15 % Personal Income Tax and 22% Health Contribution.

For further information please feel free to contact our experts at Ecovis Accounting!