Taxation

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It is very easy to think about your LETS community as a local matter and forgetting about everything else. One such thing that is often overlooked it the taxation of LETS communities. The rules and regulations differ between different countries but almost all countries want to tax the money that people earn within the LETS community. Some countries also want to tax each transaction with a value added tax.

As a citizen is most countries your are required to tax all your income over a certain level. It does not matter if that income is generated by offering services within an LETS community. The money you earn should still be taxed. It is usually up to each member of the community to declare their income to the tax agency. The local tax office will be happy to help you with more info about the regulations in your area.

The reality is that the members will most likely never experience any problem regardless of whether the choose to follow the law and declare their income or if they forget to do so. It is extremely rare (unheard of) for a tax agency to investigate income from LETS community. This does however not change the fact that they are legally required to do so. Any member who have not declared their income from the community will be found guilty of tax evasion IF the government for whatever reason choose to investigate your LETS community. The punishment for this will most likely be a retroactively raised tax and a fine. However the punishment might be more severe if the government decides that they want to make an example.

The community itself need to pay tax on any assets that the community has provided that the value surpasses a certain value. This is true whether the community have their assets in money, stock, property, certificates for difference, warrants, options or anything else.  Local laws might make exceptions for certain types of investments.

IT IS THEREFOR STRONGLY RECOMMENDED TO INFORM YOUR MEMBERS ABOUT THEIR TAX RESPONSIBILITIES!!

Low currency value does not eliminate tax

I regularly get asked the question if it isn’t possible to give the LETS currency a very low value and thereby eliminate the need to pay tax on your transactions. If you lower the value of the currency then you will end up earning very little real world money for your services.  I am sorry to say that it does not work this way and you can not game the system in this way.  You should pay tax on the fair market value of the services you sell. The fair market value of the LETS currency.  If it is obvious that the exchange rate between the LETS currency and your nationally currency is unbalanced than the tax agency can choose to give the currency a higher valuation in regards to the tax you should pay.

One seller is allowed to be cheap but if it is obvious that the value of all transactions are kept virtually low than the tax agency can ignore the specified price and instead choose to tax what they consider is fair market value.