Disclaimer: Before applying these rules to your own circumstances or act upon the information contained here, please seek information from your accountant, tax advisor, legal representative or the Swedish Tax Authority.
The Swedish Tax Authority (Skatteverket) has extended the taxation and regulatory framework to the mining of Bitcoin as well as other decentralised digital currencies in its most recent Guidelines on the Taxation of Mining of Bitcoins and Other Virtual Currencies.
This comes in light of further interpretation of its current regulations and taxation policies for income tax (the Tax Code governing the regulation of income can be found in the Inkomstskattelag (1999:1229)).
- General taxation system – three Types of revenue streams subject to tax
There are three types of revenue streams that are liable to income tax being (i) income from employment, (ii) economic activity or (iii) capital gains [id. 1:8 §].
Income from employment will include salary, director’s fees, pensions, fringe benefits as well as most allowances. Deductible expenses include a varying extent for interest expense, expenses for travel between home and work and for business, payments for pension insurance premiums, and alimony payments.
Income from an economic activity is taxed according to the same rate as employment income and expenses incurred to obtain, secure and maintain business income are deductible with certain exceptions.
Income from capital gains (i.e. investment income) is taxed as income from capital at a flat 30% rate for dividend income from Swedish and foreign shares, net interest income and income from rental activities. However, if such income is earned in connection with the operation of a business, it is taxed at the rates applicable to business income.
- Mining as a hobby deemed ‘income from employment’
The Tax Authority has stated that mining as a hobby will be deemed as income from employment – which is taxed at 20% (progressive). This is due to the fact that in principle in Swedish law all income is taxable and all expenses are deductible. Thus, the new provisions outline that costs related to these activities can be “deducted for up to five years prior to the year the hobby activity generated a surplus” [id. 12:37 §]. The main point here is that the activity is done for leisure purposes without intent to gain rather than economic activity as an intent to gain.
- Some mining operations deemed ‘economic activity’
However, certain types of mining operations will be deemed to be ‘economic activity’ and therefore taxed as the same income from employment with the ability to claim certain expenses related to the running of the business. This is where the operation is being done “professionally and independently” [id. 1:8 §]. Thus, the first test to determine this is if the individual “carries out the mining in a professional and cost efficient manner over a longer period [of time] with appropriate equipment”. Another factual test will be to see whether or not (i) “the activity is expected to create a surplus as measured over the full calculation period” and that (ii) “the computing capacity can be expected to generate more than 25 bitcoins per year (or the equivalent value in form of transactional fees or other virtual currency)”.
- Concluding remarks
As it can be seen, Sweden has adopted a flexible approach when it comes to the taxation of Bitcoin mining. It’s important for the authority to be clear about mining when it has one of the biggest mining operations in the world on its doorstep; KNC. What’s more, is that Skatteverket has also stated that the mining of Bitcoin will not be subject to VAT. This is a significant step forward in ticking another box in the checklist for an attractive Bitcoin domestic market.