VAT in custody, buying and selling and Crypto Stacking Services

Within the European Union, VAT is regulated by the EU itself, and member states must update their legislation to this regulation.

Today, continuing with the series on VAT in the EU and cryptocurrencies, I would like to analyse several cases:

1. - Custody of cryptocurrencies

2. - Purchase and sale of digital assets with over the counter clients.

3. - Staking service or profitability for the fact of depositing them in a Smart contract.

We will see, with a few surprises, whether or not they are subject to tax.

1.- Custody of Cryptocurrencies

The custody of cryptocurrencies through a platform not connected to the Internet that provides better security to its customers is a deposit service similar to the rental of safe deposit boxes. Therefore, this service is not of a financial nature and will be subject to and not exempt from Value Added Tax.

2.- Buying and selling of digital assets with over the counter clients

The services provided for the sale and purchase of cryptocurrencies "over the counter" (in an over-the-counter market, or in general in an unorganised market), are currency transactions which, in accordance with the provisions of Article 20.1.18.j) of Law 37/1992, are subject to and exempt from tax.

3.- Staking service or profitability for the fact of depositing them in a Smart contract.

Staking is an alternative to mining for the generation and validation of blocks. Instead of generating these blocks through computation, staking requires validators who leave their coins locked in deposits so that they can be randomly selected by the protocol, at specific intervals, to create a block, which generates profitability for them.

In this type of investment, cryptocurrency holders use their own digital coins to update the blockchain and in return receive a fee. The investor uses their cryptocurrencies to make them available to the system and contribute to the functioning of a blockchain network.

The deposited coins are stored in a digital wallet. In this way, cryptocurrencies support the security and functioning of a blockchain network.

In short, the staking process allows the owner of the cryptocurrencies to keep them locked in a digital wallet in order to receive earnings. The balances are locked and cannot be used freely by the investor. At the same time, it contributes to the operation and functioning of the blockchain of the same cryptocurrency.

In this way, stored cryptocurrencies are used as a way of verifying transactions within the blockchain.

In this sense, the profitability obtained by staking by the holders of the cryptocurrencies who are entrepreneurs or professionals constitutes a transaction subject to but exempt from Value Added Tax, in accordance with the provisions of Article 20.1.18 of Law 37/1992, given that this profitability is the result of the transfer of the cryptocurrencies themselves.

For its part, the service by means of the subscription of a "smart contract" to the holders of the cryptocurrencies so that they can carry out the staking activity. These smart contracts will allow cryptocurrency investors to engage in staking transactions with other investors in a reliable manner and without the need for a trusted intermediary. In addition, the software will automate the fulfilment of contractual promises. The consultant will charge for its service as a staking provider a percentage of the return obtained by each client.

In these circumstances, it can be noted that the services provided to its clients as a staking provider are not of a financial nature, but that these platforms enable cryptocurrency holders to use their digital assets to obtain rewards from the staking process.

Consequently, the aforementioned service will be subject to and not exempt from Value Added Tax.