Cryptocurrency Taxation is a hot topic in the country. Just this month, the Bureau of Internal Revenue (BIR) and the Department of Finance (DOF) both released statements on taxing cryptocurrencies. And, of course, this caused quite a stir in the crypto community. Hopefully, with the webinar and the article, we’re able to ease those concerns.
Taxumo is the Philippines’ #1 online tax app that allows you to easily and seamlessly file your taxes online without an accountant or bookkeeper!
All information presented in this article and in the webinar are by crypto expert and lawyer Atty. Mike David.
- Watch The Webinar Here
- Definition of Terms
- What Is Taxable In the Philippines
- Who Are Taxable Under The Philippine Tax Code
- Where Is It Taxed?
- How Much Is the Income Tax?
- Applying Existing Tax Laws and Regulations to Crypto Activities
- On Conclusions and Expectations
- The Most Important Takeaway
Watch The Webinar Here
Definition of Terms
Before we begin our discussion on taxation and cryptocurrency, let’s define some key terms for people who might be out of the loop with crypto.
There are three things we can define currency with:
First, it is a unit of account. Therefore, it is a measure where prices, bank balances, and other things are reported or measured with.
Second, it is a medium of exchange. This means that currency is considered as money because it is widely accepted by people as payment of debts, obligations, or balances.
And last, it is a store of value. This means that currency should be able to hold to its value for a reasonable amount of time. The reason why this is important as there will be no rush to convert currency to goods, services, and other things.
Now, let’s discuss one of the more important concepts in this discussion, fiat currency. Fiat currency is a legal tender that is backed by the government. A great example of this is the Philippine Peso which is minted and regulated by the Bangko Sentral ng Pilipinas.
Keep in mind that when we talk about currency in the later sections of this article, we will be referring to fiat to prevent any confusion.
We’re entering the digital space with e-money. It’s just a digital representation of fiat currency. As such, it is considered legal tender and can easily be converted to physical currency.
While many may mistake e-money as cryptocurrency, that is simply not the case.
Virtual currency is a currency that is created by an online community. It’s stored in an e-wallet and can be used for a variety of functions such as payment for the exchange of goods.
One good example of a virtual currency is in-game currencies used in online games such as World of Warcraft. While they have no connection to the real world, they serve a transactional purpose within the game.
Virtual currency is the bigger umbrella term of what most cryptocurrencies are. And so, you should keep in mind that while all cryptocurrencies are virtual currency, not all virtual currencies are cryptocurrencies.
Cryptocurrency is a virtual currency that utilizes cryptography and is a product of blockchain technology.
What Is Taxable In the Philippines
To give you a quick overview of what taxation is, there are two terms that we must be familiar with: revenue and income.
While these terms may be used interchangeably, they are separate and distinct
Revenue is the gross inflow of economic benefits during the period arising from the course of the ordinary activities of an entity. (IFRS 15)
To make it simpler, revenue is what’s in our heads when we think of sales. It is the total amount of payment we receive from any economic activity without considering the expenses.
To give you an example, when you receive Php 500 as payment for a service, that Php 500 is your revenue.
But revenue is not taxable. Income is what gets taxed.
Income is any gain derived and realized from capital, labor, or both. And, we will need to emphasize two important words for income: gain and realized.
Gain occurs when there is a return on your capital and/or labor. This means that when you receive a return that is greater than what you have invested, that is gain.
On the other hand, the realization of that income or gain is what triggers taxation. Realization in this context is when there is a reasonable possibility that the income will be received by the income-earner.
In short, if the income-earner receives the income from his labor or capital, then that is already taxable.
Who Are Taxable Under The Philippine Tax Code
Now that we’ve learned what can be taxed, let’s discuss who can be taxed under Philippine laws.
We typically classify taxpayers into two: individuals and corporations. For a majority of those earning with cryptocurrency, they are most likely to be considered as Resident Citizens and can be taxed on earnings from both the Philippines and abroad.
This is why, as an example, Manny Pacquiao gets taxed on his income from his boxing matches outside the Philippines.
However, it’s also good for cryptocurrency earners to be familiar with other taxpayer types just in case they may move to another type in the future.
The table below summarizes the different taxpayer types and if they are taxable.
|Taxpayer Type||Earnings Inside PH||Earnings Outside PH|
|Resident Citizen (RC)||Yes||Yes|
|Non-Resident Citizen (NRC)||Yes||No|
|Resident Alien (RA)||Yes||No|
|Non-Resident Alien Engaged in Trade or Business (NRA-ETB)||Yes||No|
|Non-Resident Aliens Not Engaged in Trade or Business (NRA-NETB)||Yes||No|
|Domestic Corporation (DC)||Yes||Yes|
|Resident Foreign Corporation (RFC)||Yes||No|
|Non-Resident Foreign Corp (NRFC)||Yes||No|
Where Is It Taxed?
It is also important to consider where the place of taxation occurs as this will determine which country’s tax laws should be applied.
To determine that, when it comes to income, it is where the income-generating activity is conducted or completed. So, wherever an income is earned, that is where the place of taxation should be. And, the income should follow the corresponding tax laws of that place.
It is a possibility in the future that the government will push a law that is able to tax the intangible nature of cryptocurrency.
If that happens, then the tax laws that will apply will be based on the domicile or residence of the owner.
But right now, this hasn’t happened yet or isn’t happening. So what we should be concerned about is the income side of cryptocurrency earnings. This is just to highlight what may be possible in the future.
How Much Is the Income Tax?
For individuals, the threshold for income tax is PHP is 250,000. So, if your income is less than Php 250,000 annually, you are exempted from income tax.
Inversely, anything over the threshold for individuals is subject to the income tax table below:
However, just because you’re earning less than Php 250,000 annually, doesn’t mean that you’re also exempted from filing income tax returns. Note that income tax is not just filed and paid on the April 15 annual deadline but is also filed every quarter.
Corporations are taxed differently from individuals. With the recent implementation of the CREATE Law, you can refer to the updated corporate income tax rates below:
Applying Existing Tax Laws and Regulations to Crypto Activities
According to Atty. Mike, cryptocurrencies can only be taxed if the income or gain is realized. When we say realized, it is when cryptocurrency is converted to fiat or something or measurable in fiat.
Common Cryptocurrency Revenue Streams
Let’s apply current tax laws to the three common revenue streams of cryptocurrency in the Philippines: trading, mining, and play-to-earn.
Cryptocurrency trading, similar to stock trading, is buying and selling cryptocurrencies to take advantage of the market’s price fluctuations. Traders aim to profit off of the short-term buying and selling of a cryptocurrency.
So, when is income from trading taxable? Only when it is converted to fiat. This means that only when you sell it for actual currency, such as Pesos, will tax laws apply.
To put it simply, mining is the generation of cryptocurrency coins through blockchain.
And, like trading, income from mining will only be taxable when it too is converted into fiat.
Play-To-Earn has risen to popularity in recent months with platforms like Axie Infinity. P2E, as the name implies, is when players are rewarded with cryptocurrency as they progress through the game.
According to Atty. Mike, when you sell or exchange your P2E crypto for money, that is when the income gained becomes taxable.
Summary of Taxable Activities
|Income Generating Activity||Trigger (when income becomes taxable)|
|Trading and Gain||Upon conversion to fiat|
|Mining and Generating Coin||When sold for fiat|
|Play-To-Earn Manager: Cut, Gain on breeding, and trading||When converted to fiat|
|Play-To-Earn Scholar: HODL, sale, cut, or compensation||When converted to fiat|
Philippine Tax Classifications and Cryptocurrency
Any gain that is realized from cryptocurrency (i.e. conversion to fiat), becomes taxable.
So, once you’ve converted your crypto into actual money, you should now begin to file your income tax returns.
But remember as we mentioned earlier, income tax is not just filed and paid on the April 15 annual deadline but is also filed every quarter.
Note: The next three types of taxes are just a presumption of what may happen in the future as the current rules and regulations are still unclear of its treatment of cryptocurrencies.
Capital Gains Tax
A capital gains tax may be imposed if and only if the Securities and Exchange Commission classifies certain cryptocurrencies as securities or something that has speculative value.
And so, should the government treat cryptocurrencies similar to stocks, then it will trigger a capital gains tax. And, Atty. Mike, presumes that it will be taxed in the same way as stocks and other securities.
VAT occurs when there is an exchange in goods and services. So, if it’s the business of the taxpayer to trade and sell cryptocurrencies, most likely that the taxpayer will be imposed Value-Added Tax.
However, VAT is only required if a taxpayer has gross earnings exceeds Php 3 million pesos. Otherwise, if it’s less than that, they will be required to pay percentage tax.
If you’re not a VAT taxable individual, you are most likely to be assessed for percentage tax.
And, if you consider percentage tax in its bare essence, it is a set of activities that the government deems taxable. So, what does this tell us? The government can easily pass a law that states that cryptocurrency earnings can be taxed at a certain rate.
As a result, cryptocurrencies can be easily taxed under percentage tax.
Accepting Cryptocurrency as Payment
What if you start accepting say SLPs for your business? Won’t that be taxable since there’s no conversion to fiat?
Yes, it will be taxable and here’s an example to illustrate.
Let’s assume the normal charge for your product is Php 500, then the amount you accept in SLPs is, therefore, measurable in Fiat. That is also realized gain. So when you start accepting crypto in exchange for assets, goods, or services (which have a monetary value), the gain is realized.
Crypto for Crypto
What happens when cryptocurrency is exchanged for another cryptocurrency? Well, as it stands, according to Atty. Mike, you’re not liable for taxes on that.
With the way Philippine laws and regulations are set up, they do not recognize income despite a gain from the increase of value or exchange of cryptocurrencies. Taxation will only be triggered if there’s a conversion to fiat or money.
Atty. Mike sums it very well:
“Taxes are payable in money. Taxes are based on money. And money should be a currency. The problem is cryptocurrencies are not yet recognized as currencies. Therefore, they’re not fiat. Therefore, they’re not taxable in their raw state.”
On Conclusions and Expectations
Here are Atty. Mike’s conclusions and expectations on the cryptocurrency taxation landscape in the Philippines:
- Regulation is still “ambiguous” but progressing. There have been advances when it comes to cryptocurrency in the legal space over the past 3 years and we can expect more clarity over the next few years.
- The tax power of the government is vast and supreme. Taxation is the most powerful attribute of the government. And so, they are able to enact tax laws on cryptocurrencies as they see fit.
- Tax laws and regulations provide that any income is taxable, but taxable income should be realized into something recognizable or as measured in money.
- Always be updated with detailed and correct information
- Seek help from professionals (like Taxumo)
The Most Important Takeaway
Here’s the key takeaway from the webinar: if you convert your crypto into fiat or exchange it for something that has monetary value, then those earnings are taxable.
Keep that in mind and you’re good with crypto taxes… for now.
With the attention the government seems to be giving to cryptocurrencies now, it may not be far off that they may enact laws that will change the tax landscape for crypto. This is overall a good thing, however, because if crypto starts getting taxed, then crypto (and all activities associated with it) also becomes recognized and legitimized.