Estonia stands out as one of the countries that has provided clear guidelines for categorizing and taxing cryptocurrencies, even though it doesn't have a specific tax system dedicated to them. In 2021, crypto adoption in Estonia was at 2.4%, and this number has been on the rise in recent years. The growing interest in crypto has prompted Estonian authorities to explore creative ways to handle crypto taxes.

As a result, the authorities responsible for crypto taxation are currently in the process of creating new rules and guidelines. This ongoing development indicates that the crypto tax landscape in Estonia is set to undergo changes. The responsibility for adapting to these evolving tax structures lies with investors, a task that is more challenging than it may seem. That's precisely why we've put together a comprehensive tax guide on crypto taxation. This guide covers essential topics in Crypto Taxation in Estonia, Tax rates, How to file crypto taxes in Estonia, Taxes on De-Fi and NFT transactions ,Calculations on crypto gains and losses, and more..

How does Crypto Tax work in Estonia?

For everyday taxpayers like us, Estonia taxes crypto based on the income we earn from different cryptocurrency activities. This includes taxable transactions like trading, converting crypto into regular money or other digital currencies, and using it to buy stuff or services. If you're into crypto mining, the income you make is seen as business income. And, any taxable earnings received in crypto, such as rent, interest, or business profits, are subject to income tax.

The European Union's Court of Justice has decided that swapping virtual currency for regular money (and the other way around) is seen as offering a service and is free from Value Added Tax (VAT). But, if folks agree to use non-traditional currencies as alternatives to official money, those transactions are treated like financial dealings (Legal Tender).

You can make money through various ways like price changes during sales or exchanges, using crypto for payments, mining, and even renting out computer data. On the flip side, activities like donating, buying crypto with regular money, transferring between wallets, and giving crypto as a gift won't be taxed.

Profits from moving cryptocurrency around, like when you trade or exchange, are under the income tax radar and get a flat 20% tax rate. The gain is calculated out by looking at the difference between what you sold it for and what you paid or the value of the property you received compared to what you initially paid for the cryptocurrency. Unfortunately, if you lose money in a crypto exchange, you can't use that to lower your taxes.

Think of cryptocurrency as your property, and any money you make needs to be reported when you do your income tax return. Each time you move crypto around, whether it's a trade or an exchange, is treated separately for taxation. Also, if you're swapping crypto for regular money, make sure to convert it to euros based on the market rate on the day you received it.

Is Crypto Tracking Possible by the Tax Authorities (MTA)?

As an EU member state, Estonia has the ability to track crypto activities through KYC details and transaction records from all exchanges and companies providing crypto services in the region. Regulations like AMLD-6 and DAC-8 play a crucial role in ensuring that crypto companies comply better, report transactions, and protect investors while combating money laundering.

Additionally, if you're using a local bank account, all the funds used to buy or sell crypto assets are right there in your bank statement. The tax authorities can cross-reference this information with public ledgers to spot any inconsistencies in your tax reports. In simple terms, the Tax Authority (MTA) is well aware of all your crypto transactions and can easily identify if you're not fully reporting your gains. To steer clear of any issues with the tax authorities, it's wise to report all your crypto transactions to the MTA and fulfill your tax obligations diligently.

Capital Gains Tax in Estonia

In Estonia, there's no specific capital gains tax, but gains from various activities are treated as regular income. So, when you participate in actions like trading crypto, converting it into regular money, or swapping one type of cryptocurrency for another, any gains you make is subject to taxation.

Here's how different transactions lead to a capital gain in Estonia:

• If you buy crypto and later sell it at a higher price, the profit you earn (the difference between selling price and the purchase price) is considered a gain, and you'll need to pay income tax on that profit.

• If you exchange one cryptocurrency for another and end up with more value in the new one, the difference in value is seen as a gain and is subject to income tax.

• Even if you mine cryptocurrency and make money from it, that income is viewed as business income and is also taxable in Estonia.

Moreover, it's not just about earning crypto; any income received in cryptocurrency, such as rent, interest, or business earnings, is also subject to income tax. Keep this in mind to ensure you're covering all your tax bases.

Capital Gain Tax Rate in Estonia

In Estonia, we don't have a specific capital gains tax. 

Instead, any gains from crypto are considered regular income and get taxed at a simple flat rate of 20%.

How to Calculate Your Crypto Profits and Losses?

Determining your crypto gains and losses is quite simple. You can use the following formula:

Capital Gain/Loss = Disposal Amount - Cost Basis

For those not familiar with the term "cost basis," it's simply the price you paid to get the asset (initial Cost).

Let's break it down with a couple of examples:

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Example 1:

Imagine you buy 2 BTC at €15,000 each, and after 6 months, you decide to sell 1 BTC for €20,000. Since the value of the token has gone up since you bought it, this transaction results in a gain. You can figure out the gain by subtracting the cost basis from the selling amount. In this case, it's €20,000 - €15,000, giving you a gain of €5,000.

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Example 2:

Now, let's say someone purchases 5 Ethereum for €1,000 each, spending a total of €5,000. Later on, they exchange 3 Ethereum for 0.3 Bitcoin, and that Bitcoin is worth €4,500. This makes the value of each ETH token €1,500, showing an increase of €500. So, the transaction results in a gain of €1,500 (for the 3 ETH tokens).

Crypto Losses in Estonia

When it comes to losses from cryptocurrency transactions in Estonia, they're treated differently compared to gains. Unlike gains, if you experience losses from crypto exchanges, you can't use them to reduce your tax bill.

If you happen to incur a loss on a cryptocurrency transaction, you can't offset that loss against your taxable income. Essentially, you're not allowed to subtract your crypto losses from your overall income to decrease the amount of income tax you have to pay.

For instance, let's say you bought 1 Bitcoin for €18,000 and later sold it for €12,000, resulting in a loss of €6,000. Unfortunately, you can't use that €6,000 loss to reduce the income tax you owe on your other sources of income.

Lost or Stolen Crypto in Estonia

When it comes to how lost or stolen crypto assets are handled from a tax perspective in Estonia, there aren't specific guidelines in place. The Tax Authority (MTA) is likely to assess each case individually and determine how transactions involving lost or stolen crypto will be treated. If you need more details on this matter, we recommend reaching out directly to the MTA for specific information.

Crypto Tax Breaks (Perks)

In Estonia, unfortunately, you can't use tax-loss harvesting to trim down your tax bill since losses aren't tax-deductible. However, here's a silver lining – the Estonian government provides a basic exemption for all taxpayers. In 2023, individuals get a basic exemption of up to €654 per month, totaling a yearly allowance of €7,848.

And for those in the golden years or reaching that milestone, the basic exemption sneaks up a bit to €704 per month, giving a yearly total of €8,448. It's a little something to make navigating the tax landscape a tad friendlier!

Choosing the Right Crypto Cost Method

The examples we've used so far to explain how to calculate capital gains are pretty basic and don't mirror actual transactions. In reality, investors buy multiple assets of the same kind at different prices, making the calculations a bit tricky. The big question is, how do you decide which acquisition price to use as the cost basis?

That's where using a specialized accounting method for cost-basis calculations comes in handy to avoid any confusion. In Estonia, the Tax Authority (MTA) allows the use of two methods: FIFO and Weighted Average Accounting.

FIFO (First-In-First-Out):

This method follows a simple rule - the acquisition price of the first asset you buy is what you use as the cost basis for the latest disposal. In other words, the first asset you purchase is the first one you sell.

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Weighted Average Method:

This method is a bit more flexible. It says that the cost basis for disposal equals the average acquisition price of all assets in your inventory at the time of disposal. 

Let's Break Down Crypto Accounting with an Exampl

Imagine you've been making some moves in the crypto world, like our friend Mark here:

13/01/23: Mark buys 1 ETH for €1,400

26/03/23: Mark buys another 1 ETH for €1,200

18/05/23: Mark adds 1 more ETH to the collection for €1,800

17/07/23: Deciding it's time, Mark sells 1 ETH for €2,200

Now, let's see how two different accounting methods, FIFO and Weighted Average, would calculate the gains from this sale.

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1. Gain Calculations using FIFO:

If we follow the First-In-First-Out rule, the cost basis is the acquisition price of the first ETH Mark bought, which is €1,400. So, using the formula:

Cost Basis = €1,400

Disposal Amount = €2,200

Capital Gain = €2,200 - €1,400 = €800

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2. Gain Calculations using the Weighted Average Method:

Now, according to the weighted average method, the cost basis is the average of all acquisition prices

Cost Basis = (€1,400 + €1,200 + €1,800)/3 = €1,467

Disposal Amount = €2,200

Capital Gain = €2,200 - €1,467 = €733

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Take note, using the weighted average method gives you slightly lower gains compared to FIFO for this particular transaction. It's a bit like peeking into the magic behind the numbers in your crypto moves!

Crypto Income Tax in Estonia

In Estonia, cryptocurrencies are treated like property according to the Income Tax Act. If you're involved in trading, buying, selling, or exchanging crypto, the gains from these activities fall under income tax regulations specified in sections 15(1) and 37(1) of the Act.

For regular folks like you and me, here's the lowdown:

1. Declaration of Income: Any income received from trading, buying, selling, or exchanging crypto needs to be declared. This is categorized as gains from the transfer of property and should be reported in your income tax return under tables 6.3 or 8.3.

2. Calculating Gains: The gain is figured out by looking at the difference between what you sold the crypto for and what you paid for it. If it's an exchange, it's the difference between the value of the property you received and the initial purchase price of the crypto.

3. Declaration of Transactions: Only transactions that generate income need to be declared. Each transfer transaction, whether it's a sale or an exchange, is treated as a separate taxable event.

4. Losses and Exceptions: Unfortunately, losses incurred from exchanging crypto can't be considered for tax purposes, unless the exchange involves securities under § 39 of the Income Tax Act. These losses can't be used as a deductible cost because crypto isn't classified as a security.

Income Tax Rates in Estonia

In Estonia, things are a bit different when it comes to income tax. Unlike its neighboring countries, Estonia keeps it simple – there's no progressive income tax rate.

So, if you happen to make gains from your crypto transactions, they get taxed at a straightforward flat rate of 20%, no matter where the gains come from.

Crypto Transactions and Taxes in Estonia

In Estonia, the taxman comes knocking for the following crypto activities:

• When you sell crypto for regular money (Fiat)
• Swapping one type of crypto for another
• Using crypto to buy product or services
• Making and staking crypto
• Earning crypto as income. 

On the flip side, you're in the clear with these tax-free crypto moves:

• Donating your crypto 
• Swapping your regular money (like euros or US dollars) for crypto
• Moving your crypto between different electronic wallets
• Giving it as a gift

Crypto Mining Tax in Estonia

In Estonia, when it comes to crypto mining, it's treated as a business activity and has its own set of tax rules. If you're mining crypto, the income from it is taxable when you transfer it – whether you're converting it into regular money, swapping it for another cryptocurrency, or using it to buy stuff. Make sure to declare your mining income in the income tax return Form E.

For individuals doing crypto mining or data processing on their own, there's no income tax withheld, but you need to declare this income as business income. The catch is that you can't deduct any expenses, like equipment and electricity costs, related to your mining ventures.

Now, if you're in it for the long haul and do permanent crypto mining, you'll need to register either as a sole proprietor or a legal entity (company) in the Business register. This opens the door for registered businesses to declare and deduct business-related expenses from their income. The taxman takes a cut in the form of income tax, social tax, and a contribution to a mandatory funded pension, all based on the net income from the business. 

Tax on Staking Crypto 

In Estonia, think of crypto staking like lending out your cryptocurrency. If you're a regular person lending crypto for staking, it's not seen as a taxable event. However, if you end up earning interest from this lending adventure, it's a Taxable event. You need to declare the interest you received in the applicable section of your income tax return (either Part II of Table 5.1 or Table 8.1). Make sure to report this interest income in the tax return for the year when you actually received the interest.

Wondering About Tax on Airdrops and Forks in Estonia?

As of now, there's no clear direction on how airdrops and forks are taxed in Estonia. However, it's expected that tokens received from airdrops and hard forks might be treated as income. Soft forks, on the other hand, are typically not taxable in most places because they don't create new tokens redistributed among participants

Keep in mind that this is just an educated guess, and the Tax Authority (MTA) might have a different stance. It's always a good idea to chat with a tax professional to get a solid grip on the tax implications of these transactions.

Taxes on Crypto Gifts and Donations

When it comes to taxing gifts and donations in the crypto world, we're diving into the Income Tax Act, and there are different rules for two main players: legal persons and natural persons.

Now, legal persons? Those are the big shots in public law, political parties, non-profit crews, foundations, and the like. On the other side of the coin, regular folks like you and me are the natural persons in this scenario.

So, let's decode the tax game. If we treat crypto donations just like regular money donations (fiat donations), here's the scoop: when you, a regular person, generously give crypto as a gift to another person or a registered group, there's no tax baggage attached. It's a tax-free ride.

In Estonia, when private individuals donate to listed non-profit associations and foundations, they can snag tax deductions, maxing out at €1200. This nifty sum includes things like interest on housing loans and training expenses – a win-win for everyone.

Now, the recipients (those awesome non-profits) have a bit of paperwork to do. They need to submit a "Declaration of gifts and donations received" (Form INF 4) to the Tax and Customs Board. But here's the cool part: this info gets automatically filled into the donors' income tax returns.

If you're the chatty type and prefer donating through calls or messages, just toss your details and the donation amount to the non-profit in January. And yes, a phone bill works as your golden ticket for proof. If you ever need to tweak things, donors can easily review and adjust the pre-filled info in their income tax returns.

Here's a sweet bonus: you can even donate your income tax refunds to these eligible associations. Just keep in mind, though, that tax incentives don't kick in if you're donating directly to specific Ukrainian entities.

Crypto Margin Trades, Futures, and CFDs

When it comes to the Tax Authority (MTA) in Estonia, they see margin and leverage trades the same as your everyday trades. Any profits you make from these trades are treated as income and hit with a flat 20% income tax.

Crypto ICO Taxes

ICOs are unique opportunities that let investors acquire tokens from upcoming projects by exchanging popular tokens like BTC and ETH. Think of them as the cryptocurrency version of traditional stock market IPOs.

While there isn't a straightforward rule on how taxes apply to tokens obtained through ICOs, it's probable that these transactions are treated as crypto-to-crypto trades. Any profits made from such trades are likely subject to income tax.

We recommend consulting with knowledgeable tax professionals to gain a clearer understanding of how these transactions are taxed.

NFT Taxes in Estonia

In Estonia, how NFTs are taxed depends on what's happening with the NFT, whether you're the creator or buyer. If the NFT creator gets a cut when it's resold, that's treated like a royalty and needs to be reported as a licensing fee on your income tax return.

If you're an individual buying and selling NFTs to make some extra income, the money you make from those transactions is something the taxman is interested in. Make sure to mention all the profitable NFT deals in either Table 6.3 or 8.3 when you fill out your income tax return.

DAO Tax

DAOs are like cool, member-run clubs where everyone has a say, and there's no big boss calling the shots. They're all about making decisions together and giving people power in the digital world. Think of them as the heart and soul of Web3, where members can earn rewards for contributing. It's like getting paid for your work in a regular job, but in the DAO world, you also get bonuses for special projects, and they even share the profits they make.

Now, here's the tax part: Right now, there aren't clear rules on how you should pay taxes on the money you make from DAOs. Normally, if you get paid in crypto in Estonia, it's not taxed because your boss takes care of that. But with DAOs, there's no boss, and the tax rules aren't set in stone. So, it's a good idea to chat with a tax expert to figure out how to handle the taxes on your DAO earnings.

DeFi Crypto Taxes in Estonia

In Estonia, lending your crypto to others is usually tax-free. When you lend your cryptocurrency to someone, be it a friend, a company, or even a DeFi platform, the actual act of lending doesn't trigger any taxes. But here's the catch: if you make some extra crypto in the form of interest on that loan, Uncle Taxman comes knocking.

So, if you end up getting some interest – whether it's in crypto or any other form – that extra dough needs to be declared on your income tax return for the year you received it. Keep in mind that even though lending your crypto doesn't get taxed, the interest you earn from it is fair game for income tax

When to Declare Crypto Taxes in Estonia

Residents in Estonia have until the 30th of April (or May 2 for the year 2023) of the following year to submit their tax returns. If you prefer the digital route, electronic filing of tax returns opens up on the 15th of February.

For those who are self-employed, there's an extra step. Advance tax payments are part of the game. Here are the deadlines for coughing up those social security contributions in advance: March 15th (for Quarter 1), June 15th (for Quarter 2), September 15th (for Quarter 3), and December 15th (for Quarter 4). Mark your calendars!

How to File Crypto Taxes in Estonia

Filing your taxes on crypto earnings in Estonia can be done in three ways:

1. Utilize the e-MTA portal for electronic filing, but you'll need a government-approved ID card, Mobile-ID, smart ID, or an e-ID from an EU country.
2. Send a physical post to the Tax and Customs Board’s Service Bureau.
3. Use the traditional paper forms for filing.

If you're a bit lost in the e-MTA portal, we've got you covered with a handy video tutorial once you're logged in.

When it comes to reporting your gains from cryptocurrency dealings on your tax return, focus on either table 6.3 or 8.3, labeled "Transfer of other property."

• If your crypto transactions went through a platform registered in Estonia, list them in Table 6.3.
• If the platform is registered outside Estonia, jot down the transactions in Table 8.3.
• Specify "cryptocurrency" as the type of property in the table.
• Input the acquisition cost and any related expenses for the transfer, along with the sales price or market price.
• Acquisition cost is the value of the purchased cryptocurrency in euros at the time of buying.
• Sales price or market price is the value of the cryptocurrency in euros at the time of selling or exchanging.

Which Records Does the MTA Need?

For a hassle-free tax filing, make sure you've got these records in order:

1. Keep a thorough record of all transactions made throughout the tax year, noting the dates and times.
2. Track the acquisition price for each token with detailed records.
3. List all the disposals you made within the tax year.
4. Note the fair market value of tokens when you first got your hands on them.
5. Provide details on the type of asset you bought, sold, exchanged, or traded.

How to Simplify Your Crypto Tax Filing with Kryptos?

Now that you understand the ins and outs of how your crypto transactions are taxed and which forms you need for your tax report, let's break down how Kryptos can streamline this process for you:

1. Head over to Kryptos and sign up using your email or Google/Apple Account.
2. Select your country, currency, time zone, and accounting method.
3. Import all your transactions seamlessly from wallets and crypto exchanges.
4. Choose your preferred report and click on the "generate report" option on the left side of your screen, letting Kryptos handle all the accounting.
5. Once your tax report is ready, download it in a convenient PDF format.

If you need guidance on integrations or generating tax reports, check out our video guide for assistance.

How to Avoid Crypto Taxes in Estonia

Regrettably, dodging crypto taxes in Estonia isn't a walk in the park, mainly because crypto losses don't get you any tax breaks. Yet, fear not! There are a few exemptions and smart moves to help ease the tax burden.

1. General Income Tax Allowance: In 2023, you get a basic exemption ranging from 654 euros per month to 7,848 euros per year, depending on your income. If you're of pensionable age, it's a solid 704 euros per month or 8,448 euros per year.

2. Gifting Crypto: giving crypto as a gift is completely tax-free in Estonia.

3. Donating Crypto: in Estonia, when you, as an individual, donate to registered non-profit associations and foundations, you can snag tax deductions of up to €1200.

FAQs

1. Is Crypto Legal in Estonia?

The question of crypto legality in Estonia is better framed as, "Are crypto investments legal in Estonia?" While crypto is not recognized as legal tender, investing in crypto assets is not considered illegal. The government has specific regulations for taxing crypto-related activities, such as trading, mining, staking, and lending. Estonia treats cryptocurrency as property, subjecting gains from crypto transactions to income tax. The Estonian tax system addresses crypto donations, lending, and staking as well.

2. Are Cryptocurrency Transactions Visible in the Investment Account Statement?

Transactions involving cryptocurrencies purchased through a European bank's investment account are visible on the account statement. However, it's crucial to note that crypto is not classified as a financial asset under the Income Tax Act, and gains are not tax-deferred. When reporting crypto transactions, purchases are declared as withdrawals in Table 6.5, and sales are reported as contributions in the income tax return. Gains from crypto transactions should be declared in Table 6.3 or 8.3.

3. Do You Pay Tax on Crypto in Estonia?

Taxation of crypto in Estonia is based on income derived from various cryptocurrency activities, including trading, converting to fiat or other cryptos, and using it for goods/services. Mining income is considered business income and is taxable. The Court of Justice ruled that crypto-to-fiat exchanges are exempt from VAT, and non-traditional currency transactions are treated as financial if accepted as legal tender alternatives. Gains from crypto transfers are subject to a 20% income tax, calculated based on price differences. Cryptocurrency is considered property, with each transfer treated as a separate taxable object.

4. How Can Kryptos Simplify Crypto Taxes for You?

We've previously discussed the step-by-step process of filing crypto taxes, but we understand it can be complex. That's where Kryptos, a crypto tax software, comes in. By logging into the platform and adding your trading accounts, wallets, and DeFi accounts, Kryptos automates the entire process. The platform can fetch all your transactions from the tax year and generate a legally compliant tax report within minutes. Kryptos also suggests ways to lower your tax bill, making the process easy and efficient. Give it a try, and let the magic of Kryptos simplify your crypto tax experience.

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All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey