Andorra’s Official Gazette published Law 24/2022. Digital Assets Act – the legislation that governs the use of Blockchain Technology and Digital Assets was approved by the General Council of the Principality of Andorra. It is scheduled to go into effect on the 20th of October 2022.
The Act provides a comprehensive regulatory framework for digital assets and blockchain technology in the country, including provisions governing the taxation of digital assets or digital currencies.
The implementation of blockchain and cryptocurrencies in Andorra will ultimately occur in two parts:
The following is a summary of some of the main points of the Digital Assets Act:
Digital currencies or cryptocurrencies are considered intangible fixed assets for accounting and tax reasons for legal persons, according to the law.
Their classification as fixed assets or stock will be decided by their purpose in relation to the company’s normal operations. They will be regarded as stock if they are intended for sale in the regular course of their holder’s business. Otherwise, they will be classified as fixed assets.
The legislation requires natural persons to disclose income earned via the use of cryptocurrency for personal income tax reasons. The exchange of cryptocurrencies for fiat money or other cryptocurrencies is regarded a transfer of goods for consideration, resulting in a capital gain or loss that must be imputed at the moment the transaction, which is the transfer of the digital asset, occurs using the First-in, first-out (FIFO) method.
In this respect, the identification of users is the responsibility of exchange service providers, wallet and custodial service providers, as well as merchants that take cryptocurrencies or other digital assets and conduct transactions worth at least EUR 10,000. Such intermediaries must record all cryptocurrency transactions as well as the quantity of cryptocurrency placed in virtual wallets.
The application of VAT (general indirect tax/ l’impost general indirecte or IGI), to bitcoin mining operations is covered by the Bill. This means that mining activity will not be subject to VAT as long as it is not performed in an onerous manner and there is no legal link between the person providing the service and the receiver.
The law also addresses the determination of capital gains or losses derived from digital assets or cryptocurrencies, including the general rule that the capital gain or loss is equal to the difference between the asset’s acquisition and transfer (sale) value, with the transfer value equal to the actual amount paid, unless it is less than its normal market value, in which case the market value is used.
The value is calculated in assessing the gain or loss based on the asset’s worth in euros at the time of purchase and transfer. If a transfer results in a loss, it may be adjusted against other capital income, and any remaining loss can be carried forward for deduction in the next five years.
Andorra’s Minister of Economy and Enterprise, Jordi Gallardo, said in a May interview that blockchain was one of the top areas of investment for the country. It is also one of the few nations in Europe that are not under the jurisdiction of the European Parliament.
Despite the fact that it is uncertain which digital assets the government plans to control via the Digital Assets Act, the economically driven movement may assist in diversifying the Andorran economy and luring blockchain- and crypto-based businesses.