Many Irish businesses are considering either adding cryptocurrency as a payment option for customers, paying employees wages in crypto, or even holding some of their cash reserves in crypto. Before you take such a step it is very important to get up to speed on how cryptocurrencies fit with the Irish tax system. In this blog post, we will take you through some of the important areas you should be aware of.
Before we delve into the tax side of things, its very important to also talk about the security issues when using cryptocurrency. As you probably know, you currently cannot hold cryptocurrencies safely in your current or deposit account like you can do with your cash. This means you will have to prepare security measures to safely store your crypto assets securely.
If you want to have the highest standard of crypto security then you will want to opt for cold storage wallets which will allow you to store your cryptocurrency completely offline and out of reach of hackers.
This method is more suited for long term holdings of crypto, you may need an alternative for your short term crypto needs – but these options will have a slightly higher chance of being compromised. To offset this risk you will have to use all security methods available to you – 2FA, whitelisting addresses, multisig wallets etc.
You can still accept cryptocurrency payments from customers without then having to hold crypto in your business. Service providers like Bitpay and Shopify can integrate crypto payment options onto your ecommerce website, when the customer pays the transaction will be converted to your preferred currency (EUR, USD etc). This gives you the benefit of accepting crypto without the risks of having to hold it.
Tax Treatment of Cryptocurrencies
There is no specific rules for cryptocurrencies transactions in Ireland. Yeah that’s right, all of the traditional rules that we use for business taxes do not have to be modified for crypto.
Whether you are a limited company or a sole trader the regular Corporation and Income Tax rules will apply and work as usual.
When you receive a payment in cryptocurrency for the sale of a good or service then you recognise the revenue the exact same as if it was paid in Euro (converting it at the Euro rate at the time your receive the payment).
Similarly, there is also no change to how you calculate the profits relating to your businesses trade.
One change that you may not be used to is that you will have to keep a detailed record of all crypto transactions in your business. The importance of this is that any profit or losses made on crypto that is not trade related would be considered to be a capital gain/loss, Therefore, to accurately calculate the gains and losses on crypto held by the company a very detailed record will need to be kept.
VAT on Crypto Transactions
VAT is due in the normal way from suppliers of any goods or services sold in exchange for any cryptocurrencies. The taxable amount for VAT purposes will be the Euro value of the cryptocurrency at the time of the supply.
Exchanges: if your business if operating a crypto currency exchange where people buy and sell all types of cryptocurrencies, then these transactions will be exempt from Irish VAT.
Mining: under Irish tax law mining does not constitute economic activity for VAT purposes. VAT does not have to be charged on income generated from mining.
Capital Gains Tax
If you make a profit or a loss on any crypto transactions not within the general trading profits/losses of the business, then this will be treated as a regular capital gain/loss.
Paying Employees Wages in Crypto
What if an employee wants to receive their monthly salary paid in Bitcoin, is it possible for your business to facilitate that?
Yes, this is 100% possible. What you need to do is you take the Euro value of the crypto payment at the time the salary is paid and use this Euro value for calculating taxes that are due to be paid to the Revenue Commissioner. All reporting to Revenue must still be reflected in Euro.
If you are interested in investing in cryptocurrency as an individual, then we have another post that might be worth reading:
Disclaimer: this blog post is for informational and educational purposes only and should not be construed as financial advice. Please contact your financial advisor or accountant on any financial matters.