Latvian Company for Cryptocurrency Trading
Similar to stock trading, gains from cryptocurrency sales (e.g., Bitcoin) in Latvia are not taxed until they are distributed as dividends. This allows companies to trade cryptocurrencies without incurring income tax, as long as the funds remain within the company.
What is Cryptocurrency?
Cryptocurrency is a digital or virtual currency that uses cryptography for security and operates on decentralized networks based on blockchain technology. Unlike traditional currencies issued by governments and central banks, cryptocurrencies are typically decentralized and rely on a distributed ledger to record and verify transactions.Unlike traditional currencies issued by governments and central banks, cryptocurrencies are typically decentralized and rely on a distributed ledger to record and verify transactions.
Cryptocurrencies: Accounting Treatment
According to the Latvian tax authority, cryptocurrency is not considered a financial instrument because it does not create a financial asset for the owner or a financial liability or equity for the issuer. It is also not recognized as a currency or payment tool due to its lack of legal status and regulation (except for AML issues) and lack of supervision by public bodies. The Latvian tax authorities classify cryptocurrencies as “the reflection of digital value.” In accounting, cryptocurrencies should be recorded within current assets as assets acquired for cash (but not as cash equivalents or financial instruments). The value of purchased cryptocurrency should be accounted for in euros. Using cryptocurrency to pay for goods or services is considered an asset exchange transaction (this includes exchanging one cryptocurrency for another). These transactions are valued in euros and recorded in the books accordingly.
Corporate Income Tax
A Latvian company trading cryptocurrencies applies corporate income tax similarly to trading goods or stocks. Corporate income tax is only payable when profits are distributed as dividends or as notionally distributed profit (e.g., dealings with related parties). Thus, gains from cryptocurrency trading are not taxable until distributed. Therefore, a Latvian company can trade, invest in, and hold cryptocurrencies without paying corporate income tax.
Cryptocurrencies and VAT
Trading cryptocurrencies is considered a VAT-exempt transaction. Consequently, a Latvian company is not required to register as a VAT payer or account for VAT on cryptocurrency dealings.
Cryptocurrency in Latvia: Conclusion
This favorable tax environment makes Latvia an attractive jurisdiction for companies interested in cryptocurrency trading. The absence of immediate corporate income tax on gains and the VAT exemption creates a conducive environment for businesses to explore the potential benefits of this evolving asset class. As the cryptocurrency market continues to develop, staying informed about regulatory developments and tax considerations is crucial for companies engaged in cryptocurrency-related activities.
