Cryptocurrencies, with Bitcoin at the forefront, have revolutionized the financial world since their inception in 2009. Initially seen as a technical curiosity, they quickly gained popularity due to their decentralization, anonymity of transactions and potential for high returns. In just over a decade, cryptocurrencies have become not only an investment tool, but also a way to transfer funds quickly and securely around the world.
The donation of a cryptocurrency, despite its digital nature, is treated for tax purposes like the donation of other assets (such as stocks, shares, a car, real estate), which means that it must be reported to the tax office and a possible tax liability arises on the part of the recipient.
Tax liability and donation tax rates
At the outset, it is worth noting that the issue of taxation and declaration of a cryptocurrency donation is not clear-cut. According to Polish tax regulations, donations of property rights (which include cryptocurrencies) are taxed if their place of exercise is the territory of the Republic of Poland. However, it is worth noting that the cryptocurrency and the “wallet” in which it is stored are not physically located in the territory of the Republic of Poland only part of a decentralized global network. Nevertheless, in the case of receipt of such a donation by a citizen of the Republic of Poland, failure to tax and declare it may lead to the risk of questioning this action by the tax authorities. Therefore, to be safe, it is advisable to document the receipt of such a donation.
Tax on cryptocurrency donations depends on the degree of relatedness between the donor and the recipient, which determines which tax group they belong to. It is calculated according to three tax groups, which depend on the degree of kinship between the donor and the recipient:
Group I – includes the immediate family, such as spouses, children, parents. For donations up to PLN 36,120, no tax is paid. Taxation of any excess should be taxed as follows:
- 3% (up to PLN 11,833),
- PLN 355 and 5% (from 11,833 PLN to 23,665 PLN),
- PLN 946.60 and 7% (above PLN 23,665).
Group II – includes further relatives, such as siblings, aunts, uncles. Here the tax-free amount is PLN 27,090. For Group II, the taxation of the excess is higher than for Group I and the tax is as follows:
- 7% (up to PLN 11,833),
- PLN 828.40 and 9% (from PLN 11,833 to PLN 23,665), and
- PLN 1893.30 and 12% (above PLN 23,665).
Group III – applies to unrelated persons. The free amount is PLN 5733, and the tax to be paid on the excess is respectively:
- 12% (up to PLN 11,833),
- PLN 1420 and 16% (from PLN 11,833 to PLN 23,665),
- PLN 3313.20 and 20% (above PLN 23,665).
Notification of a donation vs. no tax obligation arising
At this point it is worth mentioning that some of the people included in the aforementioned Group 1, at the same time belong to what is commonly known as “Group 0”. If the recipient receives a donation from a person in this group, which includes a spouse, descendants, ascendants, stepchildren, step-siblings, stepfather and stepmother, he can take advantage of the entity exemption. Such a person, if he or she reports the acquisition of ownership of a cryptocurrency within 6 months of the tax liability date on form SD-Z2, will not be required to pay tax on the donation, even if the statutory thresholds are exceeded. If this obligation is not fulfilled, the recipient loses the right to tax exemption and may be charged a sanctioning tax, which is 20%.
What should be done if the donation is taxable?
If cryptocurrencies are received with a value exceeding the thresholds of the tax-free amount, recipient is obliged to report the receipt of the donation on the SD-3 return. If the obligation is not fulfilled, the sanctions in case of irregularities detected by the tax authority look the same as in case of failure to report the donation on the SD-Z2.
Valuation and sale of virtual currency
In the case of donations of virtual currency, its market value on the date of receipt of the donation is crucial for calculating the amount of tax due. This value should be determined by the purchaser based on the market price as of the tax liability date. An example valuation of a cryptocurrency could involve calculating the average value from the sum of the highest and lowest price of that cryptocurrency on the date of donation.
When later selling cryptocurrencies received by way of donation, it is worth remembering that according to Polish tax law, the tax on the income received is 19%. The income is the difference between the sum of income and the costs incurred. Costs in this case are documented expenses directly related to the acquisition of cryptocurrencies and their sale. However, at the time of sale of donated cryptocurrencies, due to the absence of purchase costs on the part of the recipient (these costs were incurred by the person who bought the cryptocurrency), it will not be possible to include them when calculating taxable income.
Summary
The donation of virtual currency is subject to the same tax rules as the donation of traditional assets. However, proper reporting and proper valuation of the donated currency is key to avoid negative tax consequences. As the popularity of cryptocurrencies grows, it is likely that the regulations regarding their taxation will continue to change, so it is worth keeping abreast of current regulations.
