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.
What is cryptocurrency?
Cryptocurrency is a type of digital or virtual currency that uses cryptography for security and operates on decentralized networks based on blockchain technology. Unlike traditional currencies issued by governments and central banks, cryptocurrencies are typically decentralized and rely on a distributed ledger to record and verify transactions.
Cryptocurrencies: accounting treatment
According to the Latvian tax authority’s opinion cryptocurrency is not considered a financial instrument since it is not recognized as an arrangement that creates their owner a financial asset but for the issuer a financial liability or equity. It is not considered a currency or payment tool, since it has no 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 “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 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 the same way it trades 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.
Cryptocurrencies and VAT
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 for VAT on dealings with cryptocurrencies.
Cryptocurrency in Latvia: conclusion
This favorable tax environment positions Latvia as an attractive jurisdiction for companies looking to venture into cryptocurrency trading. The absence of immediate corporate income tax on gains and the VAT exemption create a conducive environment for businesses to explore the potential benefits of this evolving asset class. As the cryptocurrency market continues to evolve, staying abreast of regulatory developments and tax considerations is crucial for companies engaged in cryptocurrency-related activities.
