Cryptocurrencies have been a hot subject in recent years in Polish and global media. They are referred to in the context of investment, speculative fluctuations in value and use in business as an alternative means of payment.
Poland cannot be called a pioneer in the process of legalization and regulation of cryptocurrencies, but since the end of last year there has been an intensified discussion on this subject. This was to some extent initiated by changes on the cryptomarket at the end of the year (significant increases in value of cryptocurrencies) and approaching tax settlements period.
Firstly, the Polish financial supervision committee (KNF) and the Ministry of Finance undertook actions aimed at explaining what cryptocurrencies are and informing about the risks associated with cryptocurrencies’ trade. The committee also started to verify the legality of entities dealing with the intermediation of the virtual currencies.
On 1 March 2018, the lower chamber of the Polish parliament adopted a new law on counteracting money laundering and financing of terrorism. This Act implements the provisions of the Directive of the European Parliament and of the Council (EU) 2015/849 of May 20, 2015. This is the first legal act in Poland that notices the existence of virtual currencies and provides some sort of a definition.
Due to the fact that it seems to be different than the standpoint presented so far by the Polish tax authorities and administrative courts (which treated the virtual currencies as property rights), there may be some disputes in this respect in the future.
Current tax regulations
Turnover taxes VAT
The Polish VAT Law does not regulate directly the subject of cryptocurrencies. Generally, approach of Polish tax authorities in terms of VAT follows the judgement of the European Court of Justice in case C-264/14 Daniel Hedqvist vs. Skatteverket.
Therefore, the sale and exchange of cryptocurrency into traditional currency and vice versa, as well as the exchange of one cryptocurrency for another is subject to VAT and benefits from VAT exemption. This means that
the taxpayer has no right to deduct VAT on purchased goods and services related to the extraction and purchase / sale of cryptocurrencies.
According to the standpoint of the tax authorities the tax point for VAT purposes occurs at the moment of exchange.
Civil Law Activities Tax
Assuming that the cryptocurrencies are treated as property rights, the contract for the sale and conversion of cryptocurrencies, if not traded within professional activities subject to VAT (if at least one of the parties of
the transaction is exempt from VAT) is subject to tax on civil law transactions (at the rate of 1%).
In practice, it is crucial to determine whether the cryptocurrency trade in a given case is subject to VAT (if one of the parties acts as a VAT taxpayer) or a tax on civil law transactions is payable (which in practice means
that cryptocurrency trading may become completely unprofitable) .
The above created a lot of uncertainty among taxpayers as well as caused many negative comments from the tax experts. Therefore, the Polish Ministry of Finance in ordinance dated 11.07.18 stated that TCLT collection
from cryptocurrencies trade should be abandoned for the period between 13 July 2018 and 30 June 2019. As explained by the Ministry of Finance, this is a “temporary” solution that will allow “to make in-depth analysis and
prepare solutions that regulate this issue”.
Generally income derived from cryptocurrencies trading is subject to PIT and CIT taxation. Revenues can be generated, among others by: sale of cryptocurrencies for traditional currencies and its conversion to another
cryptocurrencies, goods or services.
In the issued binding rulings the tax authorities claim that income is created when the cryptocurrency is put at the disposal. No later than the date of invoice or settlement of the claim. In other words, every event of exchange should be treated as a separate moment for income taxation.
Depending on the classification, income of natural persons from activities related to cryptocurrencies may be subject to a flat rate of 19% or taxed according to the scale (currently in Poland – 18% and 32%).
In case of legal entities, cryptocurrency trading would also fall within the scope of taxation – current basic rate is 19% (in certain cases 15%).
Costs deductibility – practice
One of the main issues when dealing with cryptocurrencies trading is securing the right to recognize tax deductible costs. The Polish tax authorities typically require a standard set of documents proving that the tax deductible costs were in fact borne and for the benefit of the taxpayer. In case of cryptocurrencies, apart from difficulties related to matching a given cost to relevant revenue a serious issue is related to the documentation of the tax deductible costs. In some cases the tax authorities question the available proofs, such as print screens claiming that the do not provide a sufficient document for recognizing the tax deductible costs. On the other hand, in many cases it as accepted to treat CSV files as basis for tax costs’ recognition” should be in many cases it is accepted to treat CSV files as basis for tax costs’ recognition.
Cryptocurrency’s markets and exchanges
According to the latest announcement of the financial supervision committee, since July 13, 2018, the entities that run cryptocurrencies markets and exchanges will should be treated as so-called obligated institutions” should be “since July 13, 2018, the entities that run cryptocurrencies markets and exchanges should be treated as so-called obligated institutions. This means that they will be subject to additional obligations set out in the Anti Money Laundering Act and if there is a suspicion that they violate the law, they will be placed on the list of public warnings – the committee observes.
Nevertheless, the financial supervision committee emphasizes that cryptocurrencies markets and exchanges are legal in Poland, but acting as one of them “may involve activities covered by relevant regulations regulating the activity of entities on the financial market, and thus the obligation to obtain appropriate KNF approvals, for example, the authorization to perform payment services in the scope of keeping payment accounts (so-called virtual purses) and executing payment transactions”.
In this context, the committee reminds that entities that act as cryptocurrencies markets and exchanges, which were included on its list of public warnings, “in the belief of the financial supervision committee, might have provided payment services to customers without the required permission from the committee.”
How about ICO?
The legal status of ICO (initial coin offering) is not uniform in the world. The Polish legislator has not decided to take any legislative steps that would regulate this matter so far. In November 2017 KNF issued an official statement regarding the sale of tokens. It does not refer to the legal qualification of this process, but only indicates the risks associated with it.
The committee’s publication was a response to a similar statement by the European Securities and Markets Authority (ESMA) addressed to potential investors and entities interested in organizing ICO.
Due to the growing importance of blockchain and cryptocurrencies – in terms of trade, investment as well as usage as a tool in business or everyday tasks, the Polish government seems to have interest in regulating the issue of cryptocurrencies. Therefore, on 24 August 2018, the new draft bill amending Polish CIT and PIT law has been published (supposed to enter into force starting from 1 January 2019). It provides a definition of cryptocurrencies as well as outlines the rules for taxation of income derived from dealing with cryptocurrencies. But although there might be some doubts or ambiguities in terms of regulations of cryptocurrencies, the market in Poland is growing and dealing with blockchain technologies and cryptocurrencies in Poland should not be interrupted in any near future.