Article Estonia: Rules on Taxation of Bitcoin

(Apr. 18, 2014) On March 13, 2014, the Tax and Customs Board of Estonia published on its website a document entitled Taxation of Trade in Bitcoins (Maksustamine Bitcoin’idega Kauplemisel (Mar. 2014)). In this first government statement concerning the official policy in regard to Bitcoin, the Board followed the position of the European Central Bank and the Financial Action Task Force (FATF) and recognized Bitcoin as a decentralized virtual currency (id.).

According to an analysis of this document prepared by the International Bureau of Fiscal Documentation, in terms of its legal status Bitcoin in Estonia can be seen as an alternative means of payment. Bitcoin is not viewed by Estonian financial regulators and tax authorities as any form of security or e-currency. (Marek Herm, Estonia: Taxation of Bitcoin Transactions, International Bureau of Fiscal Documentation online subscription database (Apr. 8, 2014).)

Therefore, all individuals and legal entities conducting Bitcoin transactions are required to be registered as providers of business services (id.). Income generated from Bitcoin transactions is recognized as a capital gain for taxation purposes and is taxed accordingly. Because Bitcoin is not recognized as a financial instrument, transactions involving it do not constitute financial services and therefore are not exempt from the 20% Estonian Value Added Tax or from social security contribution requirements (id.).

Earlier this year the Estonian Public Broadcasting news service reported that the website that sold Bitcoin in the country was closed because the Anti-Money Laundering Bureau of the Police Department requested the business registration of the website. (Stuart Garlick, Bitcoin Trading Faces Increased Police Scrutiny, ESTONIAN PUBLIC BROADCASTING (Feb. 17, 2014)). It was also reported that sellers of Bitcoin in Estonia became subjects of a criminal investigation because money paid for a Bitcoin transaction was stolen from another account. (Anna Gershenzon, First Criminal Case Against Bitcoin Sellers Initiated in Estonia [in Russian], FOREXHM.RU (Mar. 3, 2014).)

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