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How are Bitcoin and other cryptocurrencies taxed?

There are many people who invest in cryptocurrencies today. However, The Norwegian Tax Administration states that very few people declare their crypto investments in their tax returns.

Assets gained through purchases and sales of cryptocurrencies are not automatically reported to the Norwegian Tax Administration. 

Therefore, you are obligated to declare any assets correctly. It is important that you correct previous years’ tax returns if you have failed to report assets gained from crypto exchange. You can also do a tax amnesty. 

What is Bitcoin? 

The term, Bitcoin, means both the digital network of payments as well as the currency in that network. The unit of value referred to as Bitcoin works as a currency and is often called a virtual currency or cryptocurrency. Besides Bitcoin, there are many other cryptocurrencies. As of today, there are 300,000 Norwegian citizens who own Bitcoin or similar cryptocurrencies, and it is possible to use these values for purchases of products and services several places. Bitcoin’s value is controlled by supply and demand, meaning the value can both increase and decrease. 

There are endless cryptocurrencies like Bitcoin; they are affected by supply and demand and have the same tax consequences.   

How is income made from Bitcoin taxed? 

You are obligated to calculate profits or losses when you realize Bitcoin investments. Profits have tax consequences while losses are tax deductible. Every Bitcoin transaction is a tax-obligated transaction.  

The tax consequence is based on the difference between what you paid (input value) and what you sold it for (output value). You can add any additional costs of the purchase to the input value. Expenses can be subtracted from the output value, reducing the taxable obligation. As all values should be declared in NOK, you must convert the values based on the exchange rate at the time of the purchase and sale.  

Payments of crypto transactions with other cryptocurrencies will also count as a taxable truncation. Any gains or losses made from this realization must also be declared in the tax return.  

Also read: Tax Amnesty 

What is the tax consequence for any assets held in crypto currencies? 

If you own Bitcoin or any other cryptocurrency at the end of the income year, you must declare them as assets in your tax return. Normally, Bitcoin is stated in the currencies USD or EUR, therefore remember to convert the value to NOK based on the Norwegian Bank’s exchange rate as of January 1st of the new year. 

Whether or not the assets have tax consequences depend on you net wealth, i.e. your wealth less any debt. In 2022, any net wealth below 1.70 million NOK is tax deductible. Any net wealth exceeding the deductible amount is taxed at 0.95%.  

How to complete your tax return?

If you have any assets or gains from Bitcoin, you must fill in form RF-1159. You can upload this form in your tax return in Altinn. When you have filled out the relevant items on the form, the tax return will automatically calculate to the right item in Altinn.  

Gains are transferred to item 3.1.13, losses are transferred to item 3.3.13, and assets to item 4.1.10.  

It is important to keep records of any of crypto transactions as The Norwegian Tax Administration might want to review the documentation at a later point.  

What do you do if you have failed to declare assets/income in previous years? 

Many people fail to declare assets in Bitcoin or similar currencies, meaning those people have unrecorded assets. The same applies to any gains made from Bitcoin sales.  

You are obliged to provide complete and correct records to the Norwegian Tax Administration. If you fail to do so and the Tax Administration finds out, the Tax Administration may open an inspection and alter your previous declarations. In addition, you might receive a penalty tax. 

As a result, it is important for you to go back and change your declaration before the Norwegian Tax Administration opens an inspection. If you are declaring assets for between 4 and 10 years prior, you must apply for a voluntary disclosure 

Also read: Avoid sanctions and penalty charges 

Do you have questions about taxation of Bitcoin or other cryptocurrencies? Give us a call! 

 

You are welcome to contact us if you have any questions.

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