Cryptocurrencies – meaning and tax treatment of income from this activity

Income from cryptocurrencies is taxed only when it is sold and a profit is made. Buying and holding cryptocurrency is not subject to tax. In the case of a profit sale, tax is paid on the capital gain, which represents the positive difference between the selling price and the purchase price.

Every resident of the Republic of Kosovo who earns income from the sale of cryptocurrencies at a profit is obliged to pay tax.

According to Law No. 08/L-257 on the Administration of Tax Procedures, a person is considered a resident of the Republic of Kosovo when he/she meets one of the following criteria:

• Has permanent, main or usual residence in Kosovo; or
• Stays in the Republic of Kosovo for at least 183 days within the tax year; or
• Has the centre of vital interests in Kosovo, which includes personal, economic or social relations (such as family, economic activity, property, etc.); or
• Is a citizen of Kosovo who works abroad in the service of the institutions of the Republic of Kosovo; or
• Is a personal business enterprise, partnership or company of persons, established in accordance with the laws of the Republic of Kosovo;
• Is a legal person or enterprise established under the laws of the Republic of Kosovo; or
• Is a foreign legal person that has its effective place of management in Kosovo.

In the case of natural persons, resident status begins to apply from the date of arrival in Kosovo, if any of the above conditions are met.

The purchase price of a cryptocurrency is determined by how it was acquired. In general, cryptocurrencies can be acquired in two ways: through purchase on the market or through the mining process.

• When cryptocurrency is purchased, the purchase price is considered the amount paid at the time of the transaction.
• When cryptocurrency is obtained through mining, for taxpayers subject to real income tax, the purchase price is considered to be the real costs incurred during the mining process, including: equipment, electricity, maintenance and other expenses related to the activity.

It is essential that all expenses related to the purchase or mining of cryptocurrency are supported by proper documentation (such as invoices, proof of payment, contracts, etc.). If these expenses are not documented with valid evidence, then the tax will be calculated and paid on the full sale price of the cryptocurrency, without deduction of expenses.

Illustrative example:

• A person buys a cryptocurrency for €300.
• Later, he/she sells it for €1,000.
• The capital gain is €1,000 – €300 = €700.
• Tax is calculated on this profit (€700), according to the applicable tax rate.

If the cryptocurrency is sold for a lower price than it was purchased for, then a capital loss is realized. In this case, there is no tax liability on that transaction, but the loss may affect the calculation of taxes on other gains.

Currently, there are no tax exemptions defined in tax legislation for income generated from cryptocurrency trading. Any profits realized from these activities are taxable.

Yes, legal persons that generate income from the sale of cryptocurrencies are also subject to tax, just like natural persons. Profits generated from the sale of cryptocurrencies are treated as capital gains and are taxable at the current Corporate Income Tax (CIT) rate, which is 10%.

In this way, every legal person that operates in the cryptocurrency market and makes a profit is obliged to declare and pay the relevant tax, in accordance with the tax legislation in force in the Republic of Kosovo.