With the rapid advancement of technology, cryptocurrencies have become a key topic in the global economic and financial landscape. Initially designed as a decentralized payment system, cryptocurrencies have evolved into a significant tool for investment, trading, and storing value. Given their growing popularity and expanding use, the issue of taxation has gained increasing importance, particularly within the context of local regulatory frameworks. Below, we provide a detailed overview of the tax treatment of cryptocurrencies in the Republic of Croatia, focusing on income tax and capital gains.
Taxation of Income Earned Through Cryptocurrencies
Trading cryptocurrencies is often compared to trading stocks, resulting in a similar tax treatment. The Croatian Income Tax Act (ZPDOH) classifies cryptocurrency trading as capital income from capital gains (Article 67 of ZPDOH). The law imposes a 12% tax rate on this type of income.
Taxable Events
A taxable event occurs when cryptocurrency is sold or exchanged for fiat currency, such as euros or dollars. The difference between the proceeds from the sale (i.e., the value at which the taxpayer sold the cryptocurrency in a fiat currency) and the acquisition cost of the cryptocurrency (i.e., the value at which the taxpayer purchased the cryptocurrency, expressed in the same fiat currency), minus any trading expenses, is subject to taxation at a rate of 12%.
It is important to note that exchanging one cryptocurrency for another is not considered a taxable event and is not subject to capital gains tax. Similarly, the mere purchase or holding of cryptocurrency does not create a tax liability. Tax liability arises only upon the sale of the cryptocurrency.
Benefits for Long-Term Investors
Long-term investors benefit from a notable tax exemption under the Croatian Income Tax Act: they avoid capital gains tax if they hold cryptocurrency for more than two years (Article 67, Paragraph 8). This provision is particularly advantageous for individuals using cryptocurrencies as a value store.
Cryptocurrency Mining
If you sell mined cryptocurrencies within two years of acquisition, the government taxes the resulting capital gain at 12%. However, you owe no income tax if you sell them after holding them for over two years.
The treatment of mining activities can vary depending on how they are classified—either as a side job or a full-time business. This classification may lead to different tax obligations, including the potential requirement to register as a self-employed individual or business entity.
Record-Keeping of Transactions
Accurate record-keeping of all cryptocurrency transactions is essential for determining tax obligations. According to the Income Tax Act (ZPDOH, Article 70, Paragraph 5), taxpayers must use the First In, First Out (FIFO) method to record the acquisition and disposal of cryptocurrencies.
The records should include:
• Purchase and sale dates
• Quantities and types of cryptocurrencies
• Purchase and sale values
• Exchange rates of the cryptocurrency on the transaction date
These records are the basis for filing tax returns and ensuring compliance with tax regulations.
Tax Reporting and Deadlines
You must report income tax on capital gains from cryptocurrencies using the JOPPD form and submit it to the relevant Tax Administration by the end of February for all transactions conducted in the previous year.
The form should include:
• Total capital gains
• Capital losses
• Expenses related to cryptocurrency trading
If a taxpayer holds cryptocurrencies for more than two years before selling, they are not required to submit the JOPPD form. However, supporting documentation should be kept as evidence in case of a tax audit.
Conclusion
The taxation of cryptocurrencies in Croatia is well-defined but requires careful planning and record-keeping. It is essential to understand when a taxable event occurs, take advantage of available exemptions, and ensure timely and accurate tax reporting. Holding cryptocurrencies long-term, accompanied by proper documentation, can significantly reduce tax liability.
For further information or professional advice, contact our team at Confida Croatia.
