Technology does not stop evolving, and the Treasury has to evolve with it. The appearance and popularization of this new type of ‘currencies’ has meant that, as of 2023, cryptocurrencies deposited abroad will have to be declared through form 721. This change has come about after the approval of the Law on anti-fraud measures of 2021, in which the Treasury modified the Tax Law.
Before the model 721 there was the 720, but it did not contemplate anything related to cryptos abroad. Hence, it was necessary to create a clause only for these cases. As we know that this issue is relatively new, we are going to explain what it entails and the steps you will have to take from now on if you are a holder of cryptocurrencies abroad.
What is Form 721?
The 721 model arises with the approval of the Law of anti-fraud measures of July 2021, which was a reform of the Spanish Tax Law. It established the obligation to declare cryptocurrencies held abroad. Let us pause briefly to explain what these new ‘digital currencies’ are.
A cryptocurrency is a digital asset, a currency that exists only in the virtual world. They are stored in the digital wallet and use cryptographic encryption to make it impossible to copy a coin like a photo. This encryption also guarantees ownership, ensures the integrity of transactions and controls the creation of additional units.
With the appearance of a new currency and all that it entails, it was necessary to create a model that would make it compulsory to declare it, since, whether physical or virtual, it generates money for the person who owns it. It is therefore necessary to declare it. The 720 model regulates assets abroad, such as real estate, and the 721 is specifically designed for cryptocurrencies.
In theory, this model should have started to be used this year, but due to the latest tax developments its application has been delayed to 2024. From then on, individuals will have to file it during the first quarter of the year following the year in which it is declared (from January 1 to March 31).
Those who have or deal with cryptocurrencies will not only have to remember this form, but also the 172 and 173 will appear soon, aimed at companies with tax residence in Spain that participate in the cryptocurrency sector (creating them, developing safeguard activities for cryptographic keys, etc.).
Let’s get down to business: who is obliged to file this form? All individuals owning cryptocurrencies with a portfolio of at least €50,000. The 721 does not cancel or clash with the old 720, which will continue to be mandatory. We remind you that, this year, the income tax campaign requires reporting assets abroad and gains and losses in cryptocurrencies. If the legislation is not complied with, there are penalties imposed by the Tax Agency.
The fines are €200 if not filed and €150 if the data is incorrect. The statute of limitations for the tax authorities to impose penalties is 4 years. If a tax offense is being committed, the statute of limitations will be 5 years, which will increase to 10 years if it is an aggravated tax offense.
The positive side is that there is no fee to pay for filing the model, as it is simply an informative declaration. It simply serves the Treasury to know how much money you have and what you do with it. This type of model already exists for physical goods or possessions, so it makes sense that one should also be created for the new digital money.
How do I fill out form 721?
Although the model is not yet in force, it is necessary to become familiar with it in order to file it when necessary without any problem or complication. It seems that the 721 will be very similar to the already existing 720, so it will be necessary to provide the same information:
- The personal data (NIF or NIE for foreigners, name and surname, address and telephone number).
- The amount of cryptocurrencies at the beginning of the year and those remaining in the balance sheet on December 31, both received and sent coins must be reflected.
- The average quotation (as of December 31).
- The data of the platform that holds the assets.
- The code of the country of tax residence.
- The country code of the person safeguarding the virtual currencies.
- The public keys linked to the cryptocurrency.
- The identification of the electronic wallet of the declarant in which the digital currencies are stored.
Specific information will also be requested, such as:
- The type of cryptocurrency purchased.
- The value in euros of the virtual currencies.
- The commissions
- The public addresses of origin and destination associated with the virtual currencies.
Surely of the requirements we have told you about there are some that you do not know what they mean, specifically those of ‘public key’ and ‘public address’. This is completely normal, since nowadays all these data do not exist. A supplier cannot give its customer, for the moment, a public address by default, so there are still some things to be solved with the 721 model. Perhaps this is one of the reasons why its application has been delayed.
Who is obliged to file Form 721?
Any individual or natural person who holds or works with cryptocurrencies abroad, their beneficiaries, authorized and/or proxies will have to file this model, but it is necessary to clarify one aspect of digital currencies: being virtual, ‘being abroad’ is understood as the situation in which the person or entity that offers the cryptographic key protection services on behalf of third parties and holds and stores the coins is not obliged to declare IRPF, wealth tax and non-resident income taxes.
Therefore, this obligation will affect individuals and entities with virtual assets, purchase and exchange companies and companies that store the keys or create new coins. Of course, it also extends to holders, beneficiaries and authorized persons.
We have already commented before, related to the data to be submitted, that there are some contradictions in the 721 model, which is not free of controversy. In theory, the Treasury will ask for information on movements, transaction dates and public addresses of origin and destination associated with cryptocurrencies. It will also be required to attach information on the type of virtual currency acquired and the equivalent value in euros, as well as the associated commissions.
Undoubtedly, the Tax Agency will demand very specific information for issues related to cryptocurrencies, although there is an exception: if you own small amounts (less than €50,000) you will not have to report your digital money when it has to be declared on December 31.
How to file?
As most of the current operations, the 721 form will be filed telematically from the AEAT website. You will need to have a digital certificate or PIN code to identify yourself.
When it comes to filing the form as such, there will be 2 options: you can use the Hacienda’s help program and do it yourself or hire the services of a tax consultancy such as Blegal and forget about any kind of bureaucracy.
What has become of Form 720?
Model 720 will continue to be in force and must be filed by those who are obliged to do so. Each model serves a purpose and they are not mutually exclusive: the 720 reports on assets abroad (shares, accounts, real estate…) and the 721 on cryptocurrencies, also from outside Spain.
One of the differences between both forms is the penalty applied if it is not filed. In model 720 the fine is a minimum of €10,000. The increase of cases in which all the required data is not presented forced the EU to increase the sanctions and inspections to avoid these cases. Remember to be very attentive and submit everything required if you have possessions abroad.
However, a change of behavior was observed in 2022, year in which the Supreme Court withdrew several fines related to this model, something that generates jurisprudence and hints that the 720 seems to have its days numbered.
What will the models 172 and 173 be?
Although we do not have all the necessary information, we can advance some data about the future models 172 and 173, intended for cryptocurrency service providers:
- Form 172 will oblige service providers that hold balances on charge and/or offer key exchange and custody services to declare cryptocurrency balances, both their own and those of customers.
- Form 173 must be filed by those taxpayers who obtain profits in Spain or abroad thanks to cryptocurrencies (mining activities, exchange, custody, etc.).
The deadline for filing both forms will be in January of the following year to which the information refers. The 3 models we have talked about today (721, 172, 173) will be purely informative and will not require any payment for filing them. They simply collect the obligation to report in the IRPF, in the wealth tax or in the new temporary solidarity tax of any holding or yield obtained by cryptocurrencies.
Remember that there is still no obligation and, in fact, it is not possible to file any of these models due to the postponement by the Ministry of Finance until 2024. However, it is important to start taking the necessary steps and to be properly informed if you have cryptocurrencies abroad, since soon it will be necessary to declare them.
If you need help on this or other issues or simply want a team of experts to take care of these matters for you, at Blegal we have the team you need. At the forefront of all tax developments, our firm has over 30 years of experience helping clients achieve their goals and solve problems in their business and personal lives. If you want to be part of this project do not hesitate and contact us. We will advise you according to your personal and exclusive case.
Image extracted from Unsplash by Moneyphotos
