The Croatian Tax Authority has issued several relevant opinions regarding the taxation of virtual currencies, such as the application of value added tax (VAT), income tax and capital gains tax. The authority has also addressed the issue of payment in virtual currencies.(1)
In regard to VAT taxation of exchange services in virtual currencies, the Croatian Tax Authority issued an opinion dated 7 May 2015(2) reviewing VAT taxation on agency services for buying and selling virtual currencies. The authority considered that agency services are exempt from VAT since such transactions with virtual currencies are considered transactions with negotiable instruments. The European Court of Justice's (ECJ) Skatteverket v Hedqvist decision held that bitcoin virtual currency exchange services transactions are exempt from VAT taxation under Article 135(1)(e) of the EU VAT Directive (2006/112/EC) on the common system of VAT. Subsequently, the Croatian Tax Authority issued an opinion on 3 April 2017, aligning its view with the ECJ's Skatteverket decision.
Income tax and capital gains tax
In addition to the above, the Croatian Tax Authority issued two opinions regarding the trading of virtual currencies. In its 14 July 2017 opinion,(3) the authority established that, from a tax perspective, the income derived from virtual currency trading will be subject to the capital gains tax regime, since income derived from such trading is considered a gain on the basis of currency sale. Thus, such transactions are considered to be financial transactions, with an equivalent to gains from the instruments of money markets. Such taxpayers are under an obligation to pay 12% capital gains tax, which is calculated as a difference between the purchase and sale price minus trading costs, and applicable surtax depending on their residency. Further, the Croatian Tax Authority issued another opinion on 19 March 2018 to further explain the details regarding the payment and calculation of capital gains tax based on capital gains derived from virtual currency trading. This opinion also established that the mining of virtual currencies will be considered taxable under the regime of so-called 'other income'. However, further details on payment and calculation are still expected.
In its opinion dated 3 April 2017,(4) the Croatian Tax Authority also provided its view regarding the taxation of payments made in virtual currencies (eg, bitcoin). Regarding cash payments made to natural persons and payments subject to fiscalisation provisions, the authority noted that payments in bitcoin should be considered, pursuant to the currently applicable Income Tax Act and the Income Tax Ordinance, as a direct delivery of cash, since payments which are not made directly on a bank account are considered as a direct delivery of cash. Consequently, pursuant to income tax law, a minority of cash payments with virtual currencies could be eligible for such payments since, in general, most payments between a business entity and a natural person must be made through bank accounts.
Further, regarding cash payments made between legal persons and following the foregoing conclusion, the Croatian Tax Authority concluded that, pursuant to the currently applicable General Tax Act, cash payments are considered to be payments undertaken without paying to the account of taxpayers with the bank, and therefore such payments are allowed. However, for such payments, the taxpayers should establish a particular record regarding transactions made with a virtual account. If not, such payments will be considered as cash payments and will be subject to all applicable provisions regarding cash payments.
Since 2015 the Croatian Tax Authority, in line with the ECJ's Skatteverket decision, has:
- exempted virtual currency exchange services from VAT taxation;
- established relevant tax treatments for the mining and trading of virtual currencies; and
- provided its opinion on payment in virtual currencies.
Endnotes
(1) This article is part of a series that examines digital currencies and the relevant legislation. For other articles in the series, please see "Virtual currencies – EU legal overview", "Virtual currencies under Anti-money Laundering Act" and "Overview of acts and warnings regarding virtual currencies").
(2) www.porezna-uprava.hr/HR_publikacije/Lists/mislenje33/Display.aspx?id=19252.
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