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Estonia bucks trend with VAT on Bitcoin virtual currency

  • Apr 12, 2014 | Richard Asquith

Estonia bucks trend with VAT on Bitcoin virtual currency

Estonia is the latest country to issue tax guidance on the treatment of digital currencies, including Bitcoin. Whilst it has followed a similar route to other countries such as the UK and Germany, it has still left the currency open to a Value Added Tax liability.

Taxes on Bitcoin

The Estonian government has categorised Bitcoin as an alternative means of exchange – essentially ‘private money’ – and as an asset. This means any gains on its exchange are subject to a liability – Capital Gains Tax for individuals or Corporate Income Tax for companies. However, it is not being given the status of a security or financial service. This means it is still liable to VAT at 20% Estonian VAT.

In the UK, the local tax office, HMRC, initially categorised Bitcoins as a voucher and therefore subject to VAT. However, following intensive lobbying from the industry, the UK classified Bitcoin as private money. This meant there was not VAT, only capital gains tax to worry about.  Singapore also exempted Bitcoin from GST, but also capital gains tax.

Whilst this type of clarification is welcome, and helps the fledgling Bitcoin market plan, it does put the currency at a tax disadvantage to sovereign (fiat) money. Anyone using Bitcoin should be keeping a careful record of purchases and sales of the currency so that they can report their tax affairs fully.

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He is part of the European leadership team which won International Tax Review's 2020 Tax Technology Firm of the Year. Richard trained as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.