The Polish government has announced a new draft of proposals introducing amendments regarding taxation of cryptocurrencies inherent in the country, which differentiate between decentralized cryptocurrencies and centralized virtual money, and clarify the taxation applicable to crypto trading and mining.
The draft, published on the official website of the government legislation center has incorporated laws to cater for the taxation to incomes and profits related to cryptocurrencies and their trade. It has been offered for consultations and its adoption by the council of ministers is expected for the third quarter of this year.
Following are few important measures taken up by the proposed draft.
Groups of digital currencies
In accordance with the act on counteracting money laundering and terrorism financing, the draft defines virtual currencies as “digital representation of value”, which serves as an apt and to the point description of cryptocurrencies.
It also divides virtual currencies into two groups – cryptocurrency and centralized virtual currency. Importantly, it gives virtual currencies the status to be considered as a medium of exchange and accepted as means of payment. The legal text details also sheds light on the storage and electronic transfer of virtual currencies, which is pretty much what the people had been asking for since it was earlier announced to tax all digital money transactions regardless of profit or loss.
Crypto-to-Crypto transactions not to be taxed
The main proposal that new draft makes is to declare revenues from virtual currency transactions as part of the taxable income of individuals and businesses which is implied to both individuals and corporate entities. The taxable revenues are subjected to but not limited to proceeds from the sale of cryptos on exchanges, other trading platforms, over the counter deals on the free market, incomes from the sale of goods and services and property for cryptocurrency.
However, the exchange between cryptocurrencies will not be taxed, which comes as welcome news for all stakeholders in the Polish crypto space.
Moreover, there are proposed changes to taxation on mining as well, on both individual and pool types. Cryptocurrency miners are expected to pay taxes on their profits but the tax base will be determined depending on the nature of their economic activity. When miners work for themselves, they will pay tax on the gains from the sale of the mined cryptocurrency. If they mine on behalf of other entities or individuals, the value of their remuneration will be taxed. However, if they chose to convert the cryptocurrency to fiat before they pay their clients, the whole amount will be considered as revenue and tax will be due on the total.
New proposals suggest backpeddling from earlier ideas
The new proposals come in after a decision had been imposed earlier this year, which suggested to tax all digital transactions, regardless of profit or loss. This decision catered to a great backlash from all corners of the financial community in Poland. Several protests sparked to this tax imposition and online petitions blaming the government for effectively restricting access to the growing cryptocurrency market.
These indications forced the finance ministry to rethink its position and the authorities have since then accepted how inapplicable this decision was.
Deputy finance minister Pawel Gruza told:
The Ministry of Finance has accepted the irrational effect of the PCC (Polish Civil Law Transaction tax) on cryptocurrencies. So far, the Ministry hasn’t done anything about the PCC, except for recognizing cryptocurrencies as property rights, which automatically means obligation to pay the civil law transactions tax.
As a consequence of this realization, plans to tax crypto transactions had been abandoned and a new bid has come about after 3 months of deliberation.
According to the new draft, all these obligations should be reported on the annual tax returns and settled once a year, while taxpayers dealing in crypto will not be required to pay taxes in advance.
Poland currently applies a progressive income tax scale with two brackets – 18% for annual incomes of up to 85,528 zloty (~€20,000), and 32% for those above this limit.