Modelo 721 – Informative declaration on virtual currencies located abroad
What is it?
Form 721 is a new annual informational declaration to report the holding of cryptocurrencies abroad through exchanges, trading platforms, wallet services, or others.
Who is required to file the first declaration?
The following are required to submit Form 721:
- Individuals and legal entities residing in Spain.
- Permanent establishments in Spain of non-resident persons or entities.
- Inheritances, joint ownerships, and other entities without legal personality that constitute an economic unit or separate assets subject to taxation, provided they meet the following conditions:
- They are holders, beneficiaries, or authorized users or otherwise have disposal rights, or are the real owners of virtual currencies held abroad.
- These virtual currencies are safeguarded by individuals or entities providing services to safeguard private cryptographic keys on behalf of third parties to hold, store, and transfer virtual currencies.
- The individuals or entities referenced above are not residents in Spain or are not permanent establishments in Spain of residents abroad.
- The combined value of these assets equals or exceeds €50,000 as of December 31.
What is cryptocurrency custody (and why is it relevant for Form 721)?
Cryptocurrency custody refers to the act of storing and securing private keys that control access to cryptocurrency addresses. Traditionally, financial institutions have acted as custodians, but cryptocurrency holders now have the option to act as their own custodians. The two main types are:
- Self-Custody:
- Users retain full control over their private cryptographic keys.
- Cryptocurrencies are stored physically (e.g., hardware wallets, paper, or devices not connected to the internet). Even if the wallet is hosted abroad, such cryptocurrencies are considered held in Spain and are not required to be declared under Form 721.
- Third-Party Custody:
- Custodians are registered and regulated financial institutions authorized to safeguard digital assets, such as wallet services or exchanges (e.g., Binance, Coinbase, KuCoin).
- Online Custody (Hot Wallet): Keys are stored online through cryptocurrency exchanges, online wallet platforms, or web-based services.
- Offline Custody (Cold Wallet): Keys are stored physically, such as in hardware wallets, on paper, or in devices disconnected from the internet.
According to the DGT Binding Resolution (V2929-23, July 28, 2023), cryptocurrencies stored in wallets where the holder controls the private cryptographic keys are not included in the calculation of balances under Articles 42 quater 3(c) and 5(d). Thus, they do not need to be declared under the obligation to report on assets and rights abroad.
On the other hand, fiat currencies (e.g., USD, EUR) deposited in a foreign exchange are not subject to Form 721 but must be considered in Form 720.
Important Note: Forms 720 and 721 are informational declarations and do not involve tax payments. However, failure to comply can result in penalties.
What information must be provided in Form 721?
- Full name, tax identification number (if applicable), and fiscal residence of the individual or entity safeguarding private cryptographic keys on behalf of third parties, as well as their address or website.
- Complete identification of each type of virtual currency.
- Balances of each type of virtual currency as of December 31, expressed in units of cryptocurrency and their valuation in euros. The value must reflect the December 31 rate from major trading platforms or price tracking websites or, if unavailable, a reasonable market value estimate in euros.
Who must file it in subsequent years?
- If the total balance of cryptocurrencies abroad increases by more than €20,000 compared to the last declared balance.
- If the balance of cryptocurrencies is partially or fully liquidated before December 31.
How is it submitted?
- Electronically via the internet.
What is the filing deadline?
- January 1 to March 31 of the year following the fiscal year for which the information pertains.
Legal Reference: Order HFP/886/2023 (Official Gazette of July 29, 2023).