If you are the owner of a business that provides services or sells products, you have probably wondered whether it is possible to invest in cryptocurrency with your company. An increasing number of companies worldwide are using bitcoin and other crypto assets for operational and transactional purposes, so why not use it for investment purposes as well? From a tax perspective, it is preferable to invest your cash surplus, rather than paying it out as salary or keeping it in the company’s savings account.
Corporate investing in crypto will bring certain tax and accounting challenges. Due to the lack of specific tax or accounting regulations, we need to completely rely on the existing general principles. Regulation is in the making, but we are not quite there yet.
The high volatility of crypto plays a significant role in determining its value as a digital asset, which creates an additional difficulty compared to regular business assets.
In 2019, the Belgian Accounting Standards Commission (CBN/CNC) already published a draft guideline awaiting new legislation. This provides some guidance on how crypto assets should be processed in the company’s accounting records. The Commission states that they should not be qualified as a cash asset or cash equivalent, because they are not kept on a traditional bank account and cannot be used to repay just any creditor. Crypto assets cannot be considered monetary assets either. They do not qualify as claims on credit institutions from long-term deposits, securities, or precious metals. Instead, the Commission recommends to book cryptocurrency as ‘other receivables‘. This indicates that they do not concern a claim on, for example, a bank, but on a limited number of parties.
If on the balance date, the crypto price is lower than their book value, a book depreciation must be recorded in the accounts. In the opposite case, no further action is required, because from an accounting perspective, unrealized gains on claims should not be recorded. From a tax point of view, depreciations are always fully tax-deductible. The exchange from one crypto to another crypto asset will have certain accounting and tax implications as well.
When a company invests in crypto, the goal is obviously to make a profit. While individuals can still avoid income taxation if they can demonstrate the gain was realized as a result of a normal management of their privately held assets. A company does not have this option. For a company, any gain will automatically be considered taxable income. For Belgian companies, a taxable event will occur when crypto is sold against fiat currency at the standard tax rate of 25% (lowered to 20% under certain conditions for SMEs). Losses can be fully offset against other taxable income and may also be carried forward.
TAXPATRIA® can help you to assess the tax and accounting consequences of corporate investing in crypto and in other digital assets.