Tax Treatment of Cryptocurrency Staking Rewards in Spain

Strictly speaking, “staking” is a consensus mechanism used to validate and create blocks, as an alternative to mining. It is used on some blockchain networks and is known as “proof of stake” or, more commonly, “staking.”

Staking involves locking cryptoassets in a digital wallet for a period of time through a smart contract. The more cryptoassets that are locked, the greater the system’s likelihood of selecting the holder to validate blocks and receive a reward, generally in the same type of cryptoasset.

The term “staking” is commonly used both for the validator’s activity—locking cryptoassets and maintaining the software used to validate blocks—and for an investment option in which cryptoassets are locked and made available to a particular validator. This increases the validator’s chances of being selected and rewarded, with the reward then shared with those who locked their cryptoassets.

Most participants do not act as validators. They participate as investors by locking cryptoassets for a validator in exchange for a return.

According to the Directorate General for Taxation’s interpretation in binding ruling V1766-22, returns from staking are classified as gross income from movable capital arising from the provision of a taxpayer’s own capital to third parties, paid in kind, under Article 25(2) of the Personal Income Tax Act (LIRPF).

Returns paid in kind are valued at their euro market value on the date they are received, in accordance with Article 43(1) LIRPF. They are included in the recipient’s savings tax base for Personal Income Tax under Articles 46 and 49 LIRPF.

In some cases, earning staking returns involves paying validators a fixed fee calculated on their returns and linked to the creation of new cryptoassets on the network. If cryptoassets are unlocked before the predetermined lock-up period ends, a penalty may also apply, reducing the taxpayer’s return.

Deductible expenses

Article 26(1) LIRPF provides the following rules for calculating net income from movable capital:

“1. In calculating net income, only the following expenses may be deducted from gross income:

(a) Administration and custody expenses for marketable securities. These include amounts charged by investment service firms, credit institutions or other financial institutions, under Law 24/1988 of 28 July on the Securities Market, for providing account holders with a custody service for securities represented by certificates or for administering securities represented by book entries.

Amounts paid for discretionary, individually tailored investment portfolio management are not deductible where investments are disposed of on behalf of account holders in accordance with the instructions they have given.

(b) For income from technical assistance, the leasing of movable property, businesses or mines, or subletting, the necessary expenses incurred to obtain the income may be deducted from gross income, together, where applicable, with any impairment suffered by the assets or rights from which the income arises.”

As a general rule, because cryptoassets used in staking are not marketable securities, the expenses referred to in Article 26(1)(a) LIRPF are not deductible.

A minting fee is also not deductible because it is not included in Article 26 LIRPF. However, where the fee is paid in kind through receipt of newly created cryptoassets and is directly related to acquiring those assets, it forms part of their acquisition value for subsequent transfers, in accordance with Article 35(1) LIRPF.

An early-unlocking penalty deducted from the cryptoassets paid as staking returns reduces the gross income received for the purposes of Article 25(2) LIRPF.