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The tax rules that apply to companies that invest in cryptocurrency
Investment in cryptocurrency may be relevant for both individuals and companies. However, it works so that these investments are taxed in two different ways.
Tax is a comprehensive topic, and it often works in different ways when the theory is put into practice. In this article, however, we will go into the tax rules that apply to companies that want to invest in cryptocurrency in general.
Therefore, we want to emphasize how important it is that you check with the Tax Administration how it is for your company in practice. These are usually very small margins, so it will be beneficial to do so anyway.
But in this article, we will take a closer look at the tax rules that apply to companies that want to invest in cryptocurrency.
Sole proprietorships or joint stock companies?
Today, one can go ahead and start one’s own business in two ways. Thus, it can be said that today’s companies can be divided into two main groups. These main groups are sole proprietorships and limited companies, which can be abbreviated to ENK and AS, respectively.
What separates a sole proprietorship (ENK) from a joint stock company (AS), is basically the legal aspect of running a business, but also the tax rules .
In today’s modern world, there are many who start for themselves, and they can do so by starting a sole proprietorship. In and of itself, this is free to do, but it is you personally who is legally responsible for the company. You take a big risk, but it is a good alternative if it is to be a livelihood for only yourself.
However, if you have big plans for your business, then sole proprietorships may not be the way to go for you. Maybe your company should invest heavily and try to grow, then a limited company will be a better option. The company is then considered in a way as a separate person.
The company must be defined first
It is not just individuals and companies the tax is calculated in different ways for. How the tax is calculated will also vary based on whether you have a sole proprietorship or limited liability company.
Because of that, you have to define your business before you can proceed to read about the tax rules. With that said, you probably already know which business you have started. It is basically quite simple, and something you have to have control over in your daily operations.
Tax rules for sole proprietorships
If you invest in cryptocurrency, you are often called a cryptocurrency investor. The vast majority of people who invest in cryptocurrencies are private individuals or represent a limited company. But it is not completely black and white, and therefore it may sometimes be relevant to establish a sole proprietorship in connection with such an investment.
It is easy to think of investing in cryptocurrency as a hobby, but the extent to which it is considered according to the legal aspect depends on the extent to which you do it. If you are in doubt, we recommend that you contact the Tax Administration, which can help you find out what the company should be considered.
The vast majority of cryptocurrency investors who set up a sole proprietorship are engaged in mining or staking cryptocurrency. Here it is important to emphasize that if you do this on a very large scale, then the person in question often has a relationship with a limited company. But like I said, it’s not all black and white.
Having your own sole proprietorship means that you submit a tax return as a self-employed person, and that you pay advance tax four times in the course of one year. You are responsible for the calculation of the tax, and it is these rules that apply:
- You are personally considered a taxable person, which means that the Tax Administration is based on your total income when they calculate how much tax you have to pay.
- If your sole proprietorship makes a profit, this is divided into two main groups – income from capital and income from work – and both of these are taxed at 22 per cent. Social security contributions and incremental taxes are in addition, but this naturally increases based on how much you earn through your services.
- The general tax rate for sole proprietorships is between 33.4 and 49.6 per cent.
- With a sole proprietorship, you are considered self-employed, and then you must follow the rules that apply to self-employed persons in connection with the tax return. The sole proprietorship’s income for the previous year must be reported, or submitted, to the Tax Administration by 31. May. This means that revenues for 2021 must be reported within 31. May 2022.
- For sole proprietorships, advance tax is paid four times during an entire calendar year.
Tax rules for joint stock companies
As mentioned earlier in this article, you do not have as much legal responsibility if you have a limited company, in that the company is more or less considered a separate person. Of course, you have some legal responsibility, but it is quite limited. It is also not as risky for you personally.
When you run a limited company, the whole process is a little bigger than it is in connection with a person running a sole proprietorship. If you run a limited company, you may have got other investors to invest in your company, and in that way you are more stable in a possible investment in cryptocurrency.
But having a limited company also means that you have more formalities that you have to deal with than you would, for example, have to connect with investing in cryptocurrency as a sole proprietorship. For limited companies, these rules apply:
- The limited company must relate to 22 percent corporation tax on returns, ie how profitable the company is.
- You have to deal with this percentage regardless of whether you make an investment that you end up losing on.
- If you as a limited company engage in mining or staking and receive income from it, then you have to calculate 22 percent tax on this.
- If the limited company at a later date decides to sell the cryptocurrency in which they invest, the difference between the price at which the cryptocurrency was bought and the price at which the cryptocurrency is sold shall be traded as a return.
- If the limited company has funds in addition to paid-in capital that is taken out in dividends, this must follow the shareholder model. In practice, this means that this must be taxed at 31.68 percent.
- Total tax for companies and shareholders amounts to a total of 46.7 per cent. But this is a tax you do not have to pay until you have taken dividends, and it is very convenient for the parties involved.
- Any reinvestments in other companies made by the limited company in question follow the exemption model. This means that this is a type of investment that is tax-free.
- If the limited company has several shareholders, then each individual shareholder must pay wealth tax where the percentage is calculated on the basis of the value of the shareholding they have in the relevant limited company.
- For limited companies, the tax is distributed over two installments in the year following the relevant income year. That is, the tax for 2021 is paid divided into two installment amounts in 2022, the tax for 2022 is paid in 2023, and so it continues.
If you compare the list of tax rules for sole proprietorships and limited companies, it quickly becomes clear that you as a limited company have much more to deal with – even if you take a personally lower risk.
These pay the most taxes
After looking at the tax rules that apply to companies that want to invest in cryptocurrencies, we can conclude that it is the limited companies that pay the most tax on investing in cryptocurrencies based on limited companies and sole proprietorships.
For this reason, it may not be worthwhile to choose to invest in cryptocurrency through your limited company. Below we will take a look at what is the easiest way to invest in cryptocurrency.
The easiest way to invest in cryptocurrency
In the course of this article, it has become clear that it is limited companies that pay the most tax when they invest in cryptocurrency. In addition, one thing in particular is clear to us, and that is that the easiest way to invest in cryptocurrency is to do so as a private individual.
However, if you want to invest in cryptocurrency as a private individual, it is important to emphasize that there are some tax rules that apply to this group as well. But it is not a topic that we will go into in more detail in this article. You have to check it yourself.
How to get started investing in cryptocurrency
But how do you get started investing in cryptocurrency, if this is something you want to test?
There are several ways to buy and invest in cryptocurrency, but the best way to do it is through a cryptocurrency exchange. There are several crypto exchanges that are popular among Norwegians. An example is the crypto exchange Firi (formerly MiraiEx).
The only thing you need to do before you can start investing is to create an account with the crypto exchange you want to use. In addition, you have to verify your account, which is often done through BankID or by submitting identification such as a passport, etc. Then just get started!