Cryptocurrencies have become a fascinating topic in Colombia, especially when it comes to taxes. Are you wondering whether you need to pay taxes on your cryptocurrencies? The short answer is yes. However, let’s delve into the essentials to help you navigate this topic with clarity and confidence.

 

To simplify the process, you can rely on LedgiFi, an app that allows you to manage your cryptocurrency portfolio. It tracks your holdings and calculates your gains or losses based on your transactions, helping you plan and file your taxes.

 

How Are Cryptocurrencies Classified in Colombia?

First, it’s essential to know that cryptocurrencies in Colombia are not considered legal tender. Instead, they are treated as intangible assets. This classification means that profits from selling or exchanging cryptocurrencies can be taxable, especially if you’re earning a return on your initial investment.

 

Under Colombia’s tax system, any increase in the value of your cryptocurrencies is subject to Income Tax and Complementary Taxes. If you sell crypto at a profit or engage in frequent trading, you are likely required to report it as part of your annual income. Additionally, you may be liable for Wealth Tax if the total value of your assets exceeds certain thresholds.

 

Colombian tax authorities are meticulous about the source and movement of funds. Keeping a detailed record of all transactions, including any conversions to Colombian pesos, is crucial. This practice not only simplifies tax filing but also provides security in case of an audit.

 

From this point on, we’ll refer to cryptocurrency gains or losses as taxable income. These gains, along with your income from other sources such as employment, business, or stock investments, contribute to your annual tax declaration. Depending on your income bracket, you’ll pay a specific percentage in taxes on your total income and assets.

 

When Should You Calculate Your Gains or Losses?

A common misconception is that if you haven’t withdrawn your funds to a bank account, you don’t need to report anything. This is incorrect. Determining whether you need to declare is simple: if you’ve disposed of cryptocurrency—whether by purchasing goods or services, exchanging it for another cryptocurrency (including swaps), selling it for fiat currency, or even paying fees with it—you need to calculate the result of the transaction.

 

This process is known as alienation, and whenever you alienate a cryptocurrency, you must assess whether you’ve gained or lost.

 

Some examples of this include:

• Buying a coffee.
• Paying a bill.
• Swapping one cryptocurrency for another.
• Selling it for a fiat currency like the Colombian peso or the US dollar.
• Using it to pay fees for a service.

 

Who Should Be Concerned About This?

If you’ve ever conducted any transaction involving cryptocurrencies, this applies to you, regardless of whether you’ve sold all your holdings, closed your accounts, or moved away from crypto entirely. For active traders, knowing your gains or losses helps you plan more effectively.

 

Maintaining a detailed record of your transactions is critical. A clear history—from sales to exchanges and any conversions to pesos or other currencies—will make tax filing more straightforward and protect you if the DIAN (Colombian tax authority) requests proof of your activities. Think of it as safeguarding your earnings and avoiding unpleasant surprises.

 

What Happens If You Don’t Declare?

Many people believe that the decentralized nature of cryptocurrencies exempts them from taxes. This is incorrect. Any movement that affects your wealth must be declared, especially if it results in an increase.

 

In Colombia, failing to pay taxes can lead to various penalties, including fines for non-compliance and inaccuracies, depending on the severity of the violation and the specific laws broken.

 

In summary, you must declare any gains or income from cryptocurrencies, as well as your total wealth. Tax evasion penalties can be substantial.

 

How Are Gains or Losses Calculated?

Each transaction must be reviewed to determine its Acquisition Cost and compare it with the Benefit to calculate whether you’ve made a gain or loss.

 

The formula is straightforward:

 

Gain or Loss = Benefit - Acquisition Cost

• The Acquisition Cost represents what it cost you to acquire the cryptocurrency being disposed of. This depends on valuation or inventory methods.
• The Benefit is the value you received from selling your cryptocurrency, whether in cash, another cryptocurrency, goods, or services.

 

Valuation Methods

If you’ve purchased cryptocurrencies at different times and sold only a portion, you might wonder which purchase price to use—the first, the last, or an average. These are known as valuation or inventory methods, with the most common being FIFO, LIFO, and CPP.

 

• FIFO (First In, First Out): The oldest purchase is sold first.
• LIFO (Last In, First Out): The most recent purchase is sold first.
• CPP (Weighted Average Cost): The average cost of all purchases is used.

 

In Colombia, only FIFO and CPP are allowed. This means that the sold cryptocurrencies are assumed to be either the oldest ones you acquired or an average of all your acquisition costs.

 

Example Calculation

Let’s assume the following scenario for 2022:

 

• On January 4, you deposit COP 11,500,000 into an exchange to buy BTC.
• On January 5, you buy 1 BTC for COP 4,550,000.
• In February, you buy another 1 BTC for COP 5,300,000.

 

By August, you decide to sell 1.5 BTC for COP 9,000,000. What’s the acquisition cost of the 1.5 BTC?

• You sell the first BTC entirely at its cost of COP 4,550,000.
• For the remaining 0.5 BTC, you use the February purchase price, costing COP 2,650,000.

 

Thus, the total acquisition cost for the 1.5 BTC is:

COP 7,200,000 = COP 4,550,000 + COP 2,650,000

 

Your gain from the sale is:

COP 1,800,000 = COP 9,000,000 - COP 7,200,000

 

This gain must be reported in Form 210 under taxable income since less than two years have passed, making it ineligible for classification as a long-term gain.

 

Declaring Wealth

At the end of the year, let’s say you still hold 0.5 BTC as of December 31, 2022. To report this as wealth, you must use its market value.

 

If the market value of BTC on December 31 is USD 16,547.50 and the exchange rate is 1 USD = COP 4,810.20, the value of 0.5 BTC would be:

COP 39,798,392 = (USD 16,547.50 x 0.5 BTC) x COP 4,810.20

 

 

To make this process easier, LedgiFi allows you to sync and organize your transactions, manage your cryptocurrency portfolio, and stay updated on your taxes. With real-time updates on your gains and losses, you can declare confidently.

 

For more information, visit learn.ledgifi.com/colombia, and register with LedgiFi to stay informed and compliant with your taxes.

 

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