Welcome back dear loyal readers of Money Beng, we are very happy and honored by the affection you show us on a daily basis. In today’s article, we will talk about finance and investments, specifically we will deal with taxation CFDs.
We will see what CFDs are, how they work and how much tax is paid on these financial instruments.
What are CFDs?
First of all, let’s see what CFDs are (which in English means Contracts For Difference).
Basically, these are contracts for difference, in practice, derivative financial instruments, with the price calculated from the value of other types of instruments.
As such, the latter are generally shares, bonds, currencies or physical products such as metals and precious stones, which are defined as underlying.
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In practice, it is as if they were bets on the performance of financial assets and fluctuations in the reference markets.
How do CFDs work?
In fact, they do nothing but copy the performance of the underlying assets, and for this reason they are used by sellers and buyers to exchange money, instead of using the physical exchange of the economic activities themselves.
On the other hand, these types of CFD contracts allow you to trade shares, Forex, indices and bonds, without actually having to buy or sell the assets or invest the capital needed to purchase the underlying.
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Basically, the purchase of a CFD does not involve the use of physical money, but it is a contract that obliges those who want to buy to pay or collect, at the expiry of the contract itself, an active or passive differential linked to the price of the latter .
Now let’s talk about the tax aspect regarding CFD taxation.
It must be said immediately that the first declarative obligation from buying CFDs is to fill in the tax tables of RW, RT, RL and RM and the Unico Persons Fisiche.
Capital Gains Tax
As previously mentioned, these CFDs create financial capital gains and losses, which are capital gains.
Consequently, they must be declared in the RT framework.
Moreover, this type of instruments also provides a wealth tax, which comes from holding financial instruments abroad.
As far as taxation on capital gains is concerned, those who invest in taxed CFDs are subject to the substitute tax of 26%:
Based on the difference between the total considerations and that of the purchase costs and values, in the aforementioned period
For IVAFE (Tax on the Value of Financial Assets Held Abroad) you are subject to a tax of 0.2% on total economic activities, always for the same tax period.
On the other hand, capital losses, in the event that in the tax period there are more expenditures than revenues (compared to the total of the considerations), fiscal neutrality is achieved.
In that circumstance, it is obvious that no 26% tax should be paid on the capital gain generated; rather, there will be the possibility of deducting the capital losses on the possible gains accrued over 4 years, effectively canceling the CFD taxation.
Obviously, CFD losses must also always be declared and certified, within the RT framework.
Therefore, the second obligation undoubtedly derives from the first and the calculation of the taxes due to the payment of the same.
Lastly, dear readers of MoneyBeng, we remind you that CFDs have a quoted price equal to the value of the underlying, but the market value or asset value of the contract is initially null, given that the initial contract provides for a payout of the differential.
Money Beng, The Editor
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