With the growing number and use of cryptocurrencies (Bitcoin, Ethereum, Lightcoin, Ripple etc.) Revenue issued ac manual in May 2018, setting out the tax implications.
For business which accept payment for goods or services in cryptocurrencies there is no change to when revenue is recognised or how taxable profits are calculated. No special rules apply.
The profits and losses of a non-incorporated business on cryptocurrency transactions must be reflected in their accounts and will be taxable on normal income tax rules.
The profits and losses of a company entering into transactions involving cryptocurrency would be reflected in accounts and taxable under normal CT rules. As cryptocurrencies are not a functional currency (as defined), company accounts cannot be prepared in cryptocurrencies.
If a profit or loss on a currency contract is not within trading profits, it would normally be taxable as a chargeable gain or allowable loss for CGT purposes.
Cryptocurrencies are regarded for VAT purposes as “negotiable instruments” and exempt from VAT.
Financial services consisting of the exchange of bitcoins for traditional currency are generally exempt from VAT
Income received from cryptocurrency mining activities will generally be outside the scope of VAT.
VAT is due in the normal way from suppliers of any goods or services sold in exchange for bitcoin or other similar cryptocurrencies. The taxable amount for VAT purposes will be the Euro value of the cryptocurrency at the time of the supply.
Where wages/salaries are paid using cryptocurrency, the value of the emolument for the purposes of calculating payroll taxes is the Euro amount attaching to the cryptocurrency at the payment date.
The value of cryptocurrencies may vary as between different exchanges. Therefore there may be more than one exchange rate. A reasonable effort should be made to use an appropriate valuation for the transaction in question.
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Errors in the preparation and submission of VAT returns can be very expensive for businesses. It is important that businesses review their VAT returns regularly and have sound internal procedures in place to ensure that VAT returns are completed correctly.
One common item that businesses overlook is the requirement to repay VAT reclaimed in respect of creditors outstanding for more than six months.
If within six months of the end of the VAT return in which the VAT was repaid, the invoice has not been repaid there is a requirement for the VAT to be repaid to Revenue.
As part of a Revenue aspect query / audit, Revenue will routinely review the creditors ledger to ensure that the appropriate adjustment has been made. If the adjustment has not been made the VAT will be need to be repaid. Interest on the late payment of VAT and a penalty may also be levied by Revenue.
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What approach to use: A valuation approach is the method used to determine the fair market value of a business.
The most common approaches are:
The market approach is based on finding prices for comparable businesses or transactions in the public or private markets and using them to infer the value of the business or transaction. Two methods to determine the market value of a business are:
The income approach is based on determining future earnings and calculating the present value. Two common approaches are:
This is based on the value of business being equal to the sum of all the parts of the business. Adjusting book value of each asset or liability to fair market value.
So, which do you use: it depends on the specific circumstances of the business being valued.
We are happy to help. Please post your comment below or call Lisa Byrne, Audit Manager at Cooney Carey, on 01 677 9000. Alternatively, send her an email: email@example.com