Cryptocurrency Taxation in Spain in 2024

In 2024, cryptocurrency taxation in Spain has intensified, with new regulations and requirements for investors. These changes, largely driven by the adoption of the European MiCA regulation, aim to increase transparency and traceability, impacting both investors and companies in the sector. Here, we review key points and offer practical recommendations for complying with tax obligations.

1. Declaration of Capital Gains and Losses

To properly declare capital gains and losses derived from cryptocurrency investments in Spain, it is important to use tools that automate the process and prevent calculation errors, especially when applying the FIFO (First-In, First-Out) method. Platforms like Cointracking and Koinly are essential in facilitating this task.

Capital Gains Tax Scale

• 19% for gains up to €6,000

• 21% for the bracket from €6,001 to €50,000

• 23% for the bracket from €50,001 to €200,000

• 26% for gains exceeding €200,000

Loss Compensation

This is an advantageous aspect for active investors. Losses can be offset against gains obtained within the same fiscal year or over the following four fiscal years, reducing the taxable base and optimizing tax payments.

Use of the FIFO Method and the Importance of Tax Management Tools

In Spain, the FIFO method is mandatory for calculating capital gains and losses, where the first acquired assets are considered the first sold.

Tools for Declaration: Cointracking and Koinly

Cointracking and Koinly allow for the connection of exchange accounts and wallets via APIs, facilitating the tracking of each transaction and reducing the risk of manual error.

Practical Tips for FIFO Declaration and Management Tools

• Report Review: Although the tools automate calculations, it is essential to review the reports, especially if transactions were made across multiple exchanges.

• Optimization and Planning: Use the tax simulation feature to anticipate the tax burden.

• Keep Generated Reports: Maintain annual records of gains and losses to comply with audit requirements.

2. Form 721 for Foreign Assets

Starting in January 2024, tax residents in Spain who hold crypto assets valued over €50,000 on foreign platforms are required to submit Form 721, introduced under Order HFP/886/2023.

Key Details and Requirements for Completing Form 721

Each asset must be registered individually, detailing the balance as of December 31, the value in euros, and the custodian’s identification. Assets held in cold wallets or international exchanges require careful attention to ensure compliance.

Comprehensive Transaction Record and Final Balance

To submit this form correctly, it is crucial to keep meticulous records of all transactions and maintain updated euro valuations for the assets.

Fines and Penalties for Non-Compliance

The Tax Agency has established significant penalties for those who fail to submit or incorrectly file Form 721, with fines up to €300 per requirement or €150 for substantial errors.

Practical Tips for an Efficient Filing

• Quarterly Review: This facilitates the management of the annual balance and avoids last-minute issues.

• Voluntary Regularization: Allows for correction of omissions and reduces penalties.

• Specialized Advisory Services: Due to the form’s complexity, it is advisable to use management software and consult with tax advisors.

3. Income from Staking and Mining

Staking and mining activities are increasingly common and income-generating. Spain’s Tax Agency classifies these earnings as capital income, subject to progressive tax rates ranging from 24% to 47%.

Tax Treatment of Staking and Mining

Staking as Capital Income

The Tax Agency requires staking rewards to be declared at the time of receipt. Tools like Koinly and Cointracking allow for automatic tracking and calculation of these earnings.

Mining as an Economic Activity

Mining can be classified as an economic activity if conducted professionally. Miners should be aware of income tax, social security contributions, and VAT, and are advised to seek specialized guidance.

Regulatory Challenges and Doubts

Ambiguity in Staking Regulations

The lack of specific regulations on staking leaves room for interpretations that may vary from one fiscal year to the next. Although the Tax Agency has indicated that these earnings should be declared as capital income, precise guidelines on calculating rewards and reporting frequency are lacking. This uncertainty emphasizes the need for investors to keep meticulous records.

Market Value Variability

High cryptocurrency volatility affects reporting accuracy. It is recommended to use the market value at the exact time assets are received for each staking or mining income. Cointracking and Koinly are beneficial here, as they connect to exchanges to obtain precise historical price data, facilitating accurate calculations and ensuring compliance consistency.

Penalties for Non-Compliance

Lack of regulatory clarity does not exempt taxpayers from penalties for incorrect reporting. The Tax Agency may impose fines, which, in extreme cases, can reach up to 150% of the undeclared tax amount. Taxpayers should consider voluntary corrections to reduce penalties in the event of future discrepancies.

Practical Tips for Staking and Mining Declarations

• Daily Record-Keeping and Euro Valuation: Conducting daily or weekly valuations ensures more accurate estimates in case of an audit.

• Specialized Advice and Automation Tools: Having an expert tax advisor and using platforms like Cointracking and Koinly streamlines reporting and ensures compliance with Tax Agency requirements.

• Loss Compensation: Losses from fluctuations in the value of staking or mining rewards can be offset against gains from other assets, helping to reduce the taxable base.

Wealth Tax and Inheritance Implications

Staking and mining activities are subject to tax regulation in Spain as capital income, with progressive tax rates ranging from 24% to 47%, depending on income.

Tax Considerations for Staking and Mining

Valuation of Rewards

Rewards from staking or mining should be valued at the time of receipt, which can be challenging due to market volatility. A conservative approach, valuing assets upon receipt, is advisable to avoid potential issues in future audits.

Mining as an Economic Activity

Mining, if conducted continuously and with dedicated infrastructure, may be classified as an economic activity. This classification requires registration as a freelancer or the creation of a company to report income appropriately, which includes responsibilities such as VAT payment and a more complex accounting structure.

Uncertainty in Staking Regulations

The lack of clarity on staking raises questions about its long-term treatment. It is recommended to keep detailed transaction records and treat them as capital income to comply with current requirements set by the Tax Agency.

Tips for Effective Filing

• Regular Income Evaluation and Record-Keeping: Frequent valuations, especially for staking, can help prevent issues in the event of an audit.

• Professional Planning and Consultation: Due to the specific and evolving nature of these activities, it is essential to consult with a crypto-asset tax specialist.

• Loss Compensation: Losses from fluctuations in the value of crypto assets can be offset against gains from other assets, helping to reduce the taxable base.

Fines and Penalties for Non-Compliance

Failure to meet the new tax obligations for crypto assets in Spain carries severe penalties. The Tax Agency has intensified its oversight, especially on international platform operations, to improve asset traceability. In 2022, over 300,000 warnings were sent to crypto asset holders, and even stricter controls are expected in 2024.

Types of Penalties

• Fines for Not Filing Form 721: This form includes fines of up to €300 per requirement and €150 for substantial errors, as well as €20 per omitted data and €10 per minor error.

• Penalties for Undeclared Capital Gains: Failing to declare capital gains can result in penalties of up to 150% of the owed tax.

• Penalties for Concealment and Evasion: Additional penalties apply for intentional concealment, with surcharges for evasion if the non-disclosure is recurrent or willful.

Strategies to Mitigate Penalty Risks

Voluntary Filing

In cases where taxpayers have not filed correctly in previous years, voluntary regularization can significantly reduce penalties. The Tax Agency allows taxpayers to correct errors without the need to open a sanctioning procedure.

Detailed Documentation Maintenance

It is essential to keep a detailed record of all transactions, valuations, and records of cryptocurrency operations. This ensures that, in the event of an audit, the taxpayer has the necessary documentation to justify income and assets.

Specialized Tax Advice

Given the complexity and severity of penalties, it is recommended that investors consult a specialized advisor, especially if conducting transactions on international platforms, to ensure compliance with all current regulations.

New Obligations for Crypto Transfers: MiCA and TFR

In 2024, the MiCA (Markets in Crypto Assets) regulation and the Transfer of Funds Rule (TFR) impose additional controls on cryptocurrency transfers within the EU. These include the collection of personal data from both parties in a transaction, complying with Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements.

Implications for Investors

Investors must be prepared to provide more details for each international crypto transaction, which may increase administrative burdens and transaction costs. When operating on EU-based exchanges, it is essential to be aware of additional KYC procedures that may arise due to these regulations.

Taxation on Passive Income: DeFi and Participation Yields

The taxation of income generated on DeFi platforms—such as yield farming, lending, and liquidity pools—will intensify in 2024. Although the Tax Agency has not yet defined exhaustive guidelines, these yields are considered capital income and are subject to progressive tax rates of up to 47%.

Practical Tip

Keeping detailed records and documenting each income and position change in DeFi helps prepare for filing these incomes as capital income, thus avoiding future penalties.

Deductions and Tax Credits for Crypto Assets

There are few specific deductions for crypto assets, though certain expenses related to asset acquisition, platforms, or transaction fees may be deductible if properly justified.

• Documenting Costs and Expenses: Keeping receipts or electronic invoices for each operation allows for the justification of these expenses in filings.

• Limitations on Deductions: The lack of clear deductions for crypto assets limits the positive impact on investment portfolios.

Final Thoughts on the Regulatory Framework

The evolution of crypto-asset taxation in Spain in 2024 reflects pressure from European authorities to integrate transparency and control into the crypto sector. The adoption of Form 721 for foreign crypto assets and the implementation of MiCA underscore efforts to harmonize and regulate crypto activity under a common framework, focusing on transparency, consumer protection, and reducing tax evasion risks.

Challenges for Investors

While these regulations aim to protect consumers and stabilize the market, they present significant challenges for investors, particularly those with fewer resources, due to the rigorous documentation requirements and severe penalties for non-compliance. Aspects such as staking, mining, and DeFi activities still lack comprehensive guidelines, creating uncertainty about the precise tax treatment and exposing taxpayers to potential discrepancies in future audits.

Practical Recommendations

1. Keep Your Records Organized.

2. Optimize the Use of Tax Tools like Cointracking and Koinly.

3. Anticipate Key Deadlines.

4. Consult a Specialized Tax Advisor.

5. Take Screenshots of All Platforms on December 31 to Document Your Year-End Balances.

6. Organize Documentation in a Digital Folder for Easy Filing.