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Romanian authorities conduct harsh controls on crypto tax evasion of $50 million in value

Published by CryptoNinjas.net
04/27/2023
Romanian authorities conduct harsh controls on crypto tax evasion of $50 million in value

A few raids were conducted by the Romanian authorities recently after some traders were suspected of failing to report cryptocurrencies for more than $50 million in value. Seventeen controls have been carried out in the areas of the capital Bucharest, but also in the counties of Dâmbovița, Ilfov, and Olt. It is believed that in the past years, a certain group of individuals have formed an organization with the purpose of crypto tax evasion. It has been estimated the organization’s illicit activities resulted in almost $650,000 in state budget losses (three million Romanian lei). 

There’s still no clearance in Romania regarding cryptocurrency usage and taxable income, and the Government Emergency Ordinance no. 111/2020 on digital assets only seems to discourage potential crypto investors. However, the regulation has also been made with the intent to protect legal investors and traders against scams and frauds. And since crypto adoption has been welcomed due to providing a new category of taxable income, Romanians could make some passive income by seeking the best way to buy Bitcoin that suits their needs in the future. Up to that point, the Romanian government has still to find a way to regulate crypto transactions. 

What does the law say?

In Romania, cryptocurrencies are not considered legal tender, meaning that people don’t have the possibility to use them for shopping or making other internal transactions. However, anyone holding such digital assets must pay a 10% income tax if their total yearly earnings exceed around $150 (600 Romanian lei). The Romanian fiscal service has yet to release a comprehensive guide on how crypto taxation works, although they are able to track cryptocurrency.

In Article 116(1) of Law 227/2015, it is, however, stated that crypto incomes fall under the category of income from alternative sources, meaning that profits are taxable. The issue is that investors have to calculate their own crypto profits and report to the Romanian fiscal service. They also need to determine if the transactions can be considered capital gain or income.

So, can you make a profit from cryptocurrencies?

Depending on how much money you want to make and the type of transactions performed, people can gain some profit. For example, some crypto activities are tax-free, such as the following:

  • Buying crypto with Romanian lei or euros;
  • Holding cryptocurrencies;
  • Transferring crypto between owned wallets;
  • Gifting crypto could also be tax-free, but this is yet to be confirmed;

At the same time, the following transactions are taxable:

  • Selling crypto for fiat money;
  • Swapping cryptocurrencies;
  • Sending crypto on goods and services;

Any time people sell, swap, or send crypto, they must calculate loss or gain because if there’s a gain, the tax must be paid, but not in the case of loss. In general, losses are tax deductible. At the same time, there’s no tax included for a transaction less than $50 (200 Romanian lei), but only when the total yearly earnings are less than $150 (600 Romanian lei). Moreover, people must pay social security contributions if the gain from crypto investments exceeds 12 times the gross national minimum wage (30,600 lei in 2022).

Calculating gains and losses

There are two simplified steps for calculating crypto gains and losses:

  • Identifying and calculating cost basis, or the total cost of buying or acquiring cryptocurrencies, along with exchange or network fees;
  • Subtracting the final amount from the sale price;

If the result is a gain, 10% of that must be paid, but if it’s a loss, investors can use this to their advantage by reducing their overall tax bill.

On crypto income

According to the Romanian fiscal entity, few investment activities can be considered and earning additional income, such as the following:

  • Crypto mining;
  • Crypto staking;
  • Earning tokens through DeFi protocols;
  • Earning tokens through third-party products;

In the case of income, investors need to pay tax upon receipt and another 10% on gains in the case of disposing of coins after selling, swapping or sending them. Calculating crypto income is more straightforward because people only need to identify the fair market value of the coins earned in Romanian lei on the receiving day and apply the 10% tax. All these details must be reported by the 25th of May every year.

The problem with crypto acceptance

Although Romania may not be ready yet to adopt cryptocurrencies fully, the real issue stands in the country’s conflict with money laundering. Although there’s a strict law regarding this problem, authorities still struggle to prevent and even catch organizations from laundering money, and now it seems like cryptocurrencies are their next target.

At the same time, corruption is still firmly embedded in Romania’s systems, which makes it more difficult for the law to fight against illicit activities. According to Statista, Romania was the second most corrupt country within the European Union, after Bulgaria. And given the fact that cryptocurrency regulation is still not clearly defined, it may be easier for scammers to get what they want without being affected by laws.

Up to this point, around 2% of Romania’s population is known to be trading in crypto markets, which is not that promising regarding crypto adoption. It may be that Romanian people are still not ready to make investments since the betting sector is legal, and many people prefer the old way of getting money, although dangerous. However, the country has a high potential of becoming an investor’s country since the younger generation started to become more interested in having a passive income or “side hustle” given the country’s decreasing economic condition and the questionable pension regulations for the future. At the same time, they are more educated on financial aspects. 

Final thoughts

Although Romania hasn’t made explicit statements regarding cryptocurrency investments and trading, the country has already started controlling illicit crypto tax evasion activities. Consequently, the state’s budget is losing considerable amounts of money, and in the absence of proper laws, it may be possible that these occurrences will continue until the crypto sector starts developing in Romania too.

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