The burgeoning cryptocurrency market has experienced impressive growth in recent years, with Bitcoin alone increasing its annual profitability by 160%. However, despite these striking capital gains, investors in Spain are facing mounting concerns regarding their obligations for crypto taxation. The introduction of new reporting requirements, including Form 721, is driving fears of significant penalties for non-compliance, causing hesitation among potential investors.
Experts such as Eduardo Armenteros, a tax specialist at TaxDown, caution that the Spanish tax authorities are tightening their focus on cryptocurrency investments. “Through models 172 and 173, the Treasury will already know the balance that you have, the operations that have been carried out, and what type of cryptocurrencies you own,” he explains. “Failure to declare correctly could lead to penalties for each omitted registration.”
The new Form 721, effective from January 2025, mandates that cryptocurrency holders report any assets stored in exchanges or custodians outside Spain that exceed €50,000 in market value as of December 31. José Antonio Bravo, Head of Crypto Assets Taxation at Fiscal Crypto, emphasizes the necessity of compliance, noting, “The declaration in Form 721 is required for cryptocurrencies held in foreign exchanges that meet the specified value criteria.”
This expanded reporting responsibility underscores the increasing pressure on investors to accurately declare all crypto-related income. Tax experts note that capital gains, as well as rewards such as airdrops and staking profits, will be scrutinized in the upcoming income tax filings. “All the profits we have obtained must be included, as well as the airdrops received or rewards obtained through staking,” says Armenteros.
As cryptocurrency becomes more mainstream, these obligations extend beyond simple capital gains tax. Experts such as Paula Gámez, a partner at Ceca Magán Abogados, explain that the FIFO (First In, First Out) method will be applied when calculating gains or losses from crypto transactions. This means older cryptocurrencies are considered sold first, which may impact tax outcomes for long-term holders.
With capital gains tax rates ranging from 19% for profits up to €6,000 to 28% for gains over €300,000, experts are warning that these taxes could dampen the enthusiasm around crypto investment. “It is important to keep in mind that this is not a bad year for individuals to declare their crypto earnings,” says Gámez, suggesting that those with substantial gains should be mindful of the forthcoming tax increases in 2025.
Sergi Cebrián, a tax expert, adds that there could be an opportunity to delay tax payments by deferring capital gains into the 2025 fiscal year. This strategy would shift the tax payment to 2026, providing investors with a temporary reprieve. “If the winnings are made in 2024, the payment should be made in April-June 2025,” he explains, “but if they are postponed until 2025, the tax payment will be due in 2026.”
Furthermore, there are strategies for offsetting taxable gains with previous losses. Experts such as José Antonio Bravo encourage investors to consider compensating gains with capital losses carried forward from prior years. “The net capital gains from the transmission of cryptocurrencies can be compensated both with losses from previous years and from other assets such as stocks,” says Bravo.
However, investors must be cautious of regulations that restrict how these losses can be applied. As Cebrián notes, only up to 25% of the positive balance from profits can be offset with losses from movable capital.
Despite the bullish market cycle for cryptocurrencies, not all portfolios are seeing positive results. For those with losses, Armenteros highlights that December 31 is the last opportunity to realize those losses and potentially offset other taxable gains.
In light of the evolving regulatory landscape and the tax obligations tied to cryptocurrency investments, potential investors are growing wary. The combination of complex reporting requirements and looming tax hikes is steering many away from making new investments, particularly in the Socimi sector. As the regulatory environment continues to develop, stakeholders will need to adapt quickly to ensure compliance while protecting their investments.