Latvian company for trading with cryptocurrencies
Similarly, as for stocks, the gains from the sale of cryptocurrencies (e.g. bitcoin) are not taxed until distributed as dividends. This creates an opportunity to trade with them without taxing the income while the funds stay within the company.
Cryptocurrencies: accounting treatment
Cryptocurrencies are not considered a financial instrument since it is not recognized as an arrangement that creates its owner a financial asset but for issuer a financial liability or equity. It is not considered a currency or payment tool, since it does not have such legal status and is not regulated (except for AML issues) and supervised by public bodies.
The Latvian tax authorities have explained that cryptocurrencies should be considered as a “the reflection of the digital value” and in accounting, it should be reflected within the current assets as current assets acquired for cash (but not in cash equivalents or financial instruments). The value of the purchased cryptocurrency should be accounted for in euros.
Using cryptocurrency as a payment for buying goods/services is considered as a transaction where the cryptocurrency as an asset is exchanged for other assets (also if a cryptocurrency is exchanged for the other one). Therefore, such dealing is valued in euros and reflected in the books accordingly.
Corporate income tax
A Latvian company trading with cryptocurrencies applies corporate income tax in the same way as it traded with goods or stocks. Since the corporate income tax is payable only when the profits are distributed as dividends and as notionally distributed profit (e.g. in dealings with related parties), the gain from the trading of cryptocurrencies is not taxable until distributed.
Therefore, the Latvia company may trade with the cryptocurrencies or invest and hold them without paying corporate income tax.
Trade with the currencies is considered a VAT-exempt transaction. Therefore a Latvian company is not requested to register as a VAT payer and account VAT on dealings with cryptocurrencies.