In line with the Law on Corporate Income Tax and the Law on Personal Income Tax, digital assets, in particular, cryptocurrency, are considered negotiable assets that can be applied as a form of payment for certain products and services. From the perspective of taxes on crypto in Lithuania, the crypto assets are regarded as the same currency as the fiat money: USD or EUR, etc.
As the official Lithuanian currency is EUR, all payment operations in cryptocurrency in bookkeeping are converted into EUR and recorded in EUR. Given the fact that the legal mechanisms of the country do not oversee the exchange rate of the virtual currency against the EUR, the source of the published cryptocurrency rate applied in bookkeeping should be recorded in the internal accounting rules. Thus, in line with the main peculiarities of cryptocurrency taxation in Lithuania, as the exchange rate of a cryptocoin, can substantially rise or drop in a nick of time, a crypto company’s accounting policy must record not only the source but also the time of such financial operation.
Extraction and trading of cryptocurrency
According to Lithuanian legislation, cryptocurrency mining is not taxed. It is effected when a coin is sold. Taxable income is estimated by subtracting the value of mining/purchase of cryptocoin from the sale price.
The cost of mining/purchase may cover all actual costs incurred, for instance:
- Specialty equipment;
- Software programs;
- Value of equipment and software;
- Communication ecosystem;
- Electricity price.
The documentation proving the pricing on which the costs are grounded should contain all the required accountancy data.
As stipulated by the Court of Justice in case C-264/14, the sale of a cryptocoin is treated as a sale of services for a fee, meaning that the exchange of cryptocurrency falls within value-added tax. It is important to remember that when crypto units are exchanged for government-issued money or other crypto assets, the taxable amount is identical to the margin, that is, the dissimilarity between the purchase/production cost and the sale cost.
Paying for products and services in cryptocurrency
Regardless of how the products or services were paid (in cash, bank transfer, or in crypto), accountancy for each transfer is obligatory. The payment must be recorded: both the payment of the bought product or service and the purchase/sale of cryptocoins at the rate of exchange at the time of the paying for products and services. No matter what the currency in which the account will be paid, all amounts must be in EUR, as the cryptocurrency must be converted to government-issued money at the market exchange rate prevailing at the time of accrual.
Payroll in cryptocurrency
By Article 139(3) of the Labor Code of the Republic of Lithuania, the payroll must be paid in fiat money. Products and services delivered by employees are not deemed to constitute part of the salary. Accordingly, all benefits paid to the specialist in crypto are accounted to be work-related profit from which the employer must calculate, pay and declare income tax.
A cryptocurrency can be purchased at a virtual exchange. From the legal perspective, the dissimilarity between the sale price and the purchase price of a cryptocoin is the income from the sale of a cryptocoin. The purchase price may also cover prices incurred in acquiring assets such as commissions and fees.
If a VAT payer sells a crypto asset via a Lithuanian exchange through anonymous transactions, the VAT considers that the crypto asset has been sold to the exchange, and in that case, the exchange must be listed as the purchaser in the invoicing. If the crypto is sold outside the territory of the country, the sale of such currency in Lithuania is not confirmed by the account.
Taxation of private person’s crypto earnings in Lithuania
According to Lithuania’s cryptocurrency regulation, cryptocurrency is deemed property, therefore income from the sale of cryptocurrency is charged identically as other income from the sale of assets. This means that taxable income is the change between acquisition and sale.
If you are interested in virtual currency and ICO taxation in Lithuania, or personal income tax on cryptocurrency trade in Lithuania, our specialists will be happy to assist you with accounting services for your Lithuanian crypto company.