Tax Treatment of Cryptocurrencies in Slovenia
Together with Estonia, Lithuania, and Finland, Slovenia is one of the countries-to-be in Europe for businesses dealing with cryptocurrencies. The Slovenian government aims to represent the country as a leading EU member state in the field of blockchain technology. This is done by maintaining publicity about the potential of the technology, encouraging entrepreneurship and investment in the field, and applying a preferential tax regime to cryptocurrency transactions.
The status of cryptocurrencies in Slovenia
At present, Slovenia treats cryptocurrencies as virtual currencies, meaning that they are neither financial instruments nor monetary assets under the Slovenian Law on Payment Services and Systems.
In order to comply with the latest tax transparency requirements, Slovenia also updated its anti-money laundering law by explicitly referring to cryptocurrencies. The law defines all crypto-exchanges and brokers engaged in trade with cryptocurrencies as financial institutions for anti-money laundering purposes. Thus, such entities have to follow the transparency rules and compliance procedures applicable to financial institutions.
Taxation of cryptocurrencies in Slovenia
In its guidelines issued in 2017, the Financial Administration of Slovenia (FURS) addressed the issue of taxation related to capital gains obtained from cryptocurrencies. Taxation of transactions involving Bitcoin and other virtual currencies depends on several factors, such as the status of the trader, the type of the transaction, and other individual circumstances.
The income obtained by individuals in the form of Bitcoin and other virtual currencies (e.g., employment income) is subject to personal income tax. The taxable value of such income is calculated on the basis of the exchange rate between the virtual currency and euro on the date of receipt. The same strategy is used in taxing individual income resulting from mining cryptocurrencies.
However, the FURS clarifies that the profit received by individuals from trading Bitcoin (as a result of fluctuation in the cryptocurrency market) is not subject to any income taxation. This is because, according to the Slovenian Income Tax Act, capital gains are generally not taxable if they are derived from movable property or disposal of derivative financial instruments. Taking into account that cryptocurrencies are not defined as financial instruments or shares, they do not fall within the scope of capital gains taxation applicable to natural persons.
Taxation of individuals carrying business activities
Individuals who trade or mine cryptocurrencies in the course of their business activities (e.g., sole traders and consultants) are liable to pay income tax on profits derived from such professional activities. The profits are taxable on the basis of applicable corporate tax schemes.
There is less clarity regarding the taxation of companies that own and trade cryptocurrencies in Slovenia. The FURS states that the taxation of such business activities depends on individual treatment of each tax return submitted by the company and the revenue and expenses indicated therein. More precisely, the FURS points out that: “The accounting treatment in the described trade/business or in such a form depends on the circumstances of the particular case.” When assessing corporate tax liability, the status of the recipient of the income should be taken into account as well as the type of the income. Thus, mining of cryptocurrencies, trading in cryptocurrencies, or accepting payment and paying in cryptocurrencies may be treated differently for tax purposes. If profits from cryptocurrency-related activities are deemed to be capital gains for corporate law purposes, the capital gains are treated as ordinary income and the full amount of the realised gain is subject to tax at 19%.
It is important to note that the current Slovenian corporate legislation does not permit business operations relying solely on cryptocurrencies (e.g., accepting Bitcoin as a sole payment option for goods and services). Companies are required to maintain a bank account for monetary transactions and comply with all regulations applicable to companies in Slovenia.
In Slovenia, mining of cryptocurrencies does not constitute a VAT transaction. Consequently, VAT deductions are not permitted on purchases of software and hardware for cryptocurrency mining.
Taxation of ICO ( Initial Coin Offerings)
In Slovenia, tokens (cryptographic chips) used in ICO are treated for tax purposes according to the standard accountancy rules and general provisions of the Corporate Income Tax Act. The taxable base is determined by removing business expenses from the revenues received by the company.