Crypto taxation is a subject that many would prefer not to even think about. However, with the EU bringing increased regulation, it is a subject that can’t be avoided.
A Swedish Bitcoin trader recently found out that ignoring this topic can be perilous, after he was hit with a whopping tax bill amounting to almost $1 million, what he claimed was 300% of his total profits.
Whether you agree with paying tax on Bitcoin or not, knowing the basics is essential. Covering the intricacies of changing tax legislation across 28 member states is impossible to do in a 2,000 word article, so instead we will highlight some of the most important information that is circulating, helping you to get a better idea about how your crypto transactions are likely to be taxed.
Bitcoin and Taxes in the EU
Throughout the EU, although there are overall guidelines and regulations regarding cryptocurrencies, regulation and by extension taxation, is still up to individual countries. Recent news from France shows that there is a push to set up a common framework for regulation not only at the EU level, but on an international one. The French minister of the economy Bruno le Maire wants the issue to be discussed at the G20, and although a noble vision, global regulation is unlikely to be agreed upon any time soon.
A more attainable goal has been set out in the European Parliament recently, where ministers overwhelmingly voted for powers to address anonymity issues. This follows on from a report released in the middle of 2018 detailing the use of cryptocurrencies in organised crime, money laundering, terrorism and tax evasion. These practices involve funds worth more than €7 billion worldwide. Even though uniform taxation may eventually follow, at the moment, the main focus is on countries/companies being able to conduct due diligence and apply KYC/AML standards effectively.
The issue of taxation for regular, law abiding citizens won’t be settled until there is a consensus of what cryptocurrencies actually are. There are still debates over some fundamental aspects, such as whether cryptocurrencies are currencies, assets or securities. Then there are differing viewpoints regarding how a person uses these cryptocurrencies. Factors to consider are whether someone bought the asset themselves as an investment, are using it for payment, have received it as a form of payment from an employer, or have received it as a gift, as part of their inheritance etc.
Already, we can start to see the complexity surrounding crypto taxation. A country’s definition of what a cryptocurrency is, coupled with the user’s stated intention regarding usage, have a lot of bearing on what kind of tax the cryptocurrency will attract. For the purposes of this article we will mainly address taxation from the point of view of investment, as this will by and large apply to people who are interacting with the bitFlyer.
Cryptocurrency taxation in Europe
It may seem slow, but individual countries are indeed moving forward and adapting their own tax laws to encompass cryptocurrencies. This process is taking time due to either a lack of political will, a lack of understanding, or other pressing matters that have taken precedence in recent times.
Overall, due to the variance and convoluted nature of cryptocurrency taxation in the EU, we can’t give an in depth description of each country, but we will address England and Germany in more depth, as many of bitFlyer’s users come from these two countries. Regarding other countries, or if you want to stay on top of any developments that are occurring, it is best to regularly do a quick search online, as there are many changes rapidly taking place.
- Cryptocurrencies, if they are taxed, are usually done so under capital gains tax, income tax, or VAT (upon conversion to fiat currencies).
- Cryptocurrencies can attract anywhere from 0-50% tax, depending on their use and what tax bracket you fall into from your other work or investments. Portugal, Malta, Slovenia and Germany are seen as some of the best places within the EU for Bitcoin holders to save on their tax bill.
Cryptocurrency taxation in Malta
Malta is aiming to be Europe’s crypto haven with BitBay, Binance (after a Chinese crackdown) and OKEx establishing themselves there, due to concessions afforded by Joseph Muscat’s government.
Cryptocurrency taxation in Slovenia
Slovenia charges 0% income tax on profits made from cryptocurrencies and in the capital Ljubljana, there is the ability to pay in some shops with Bitcoin! However, new guidelines from the Slovenian Financial Administration explain that companies issuing crypto tokens must deduct (VAT). The same applies to crypto tokens that act as a security and bring investors income. For example, dividend payments or business profit sharing.
Cryptocurrency taxation in Portugal
Portugal has no formal taxation laws and (along with Malta and 5 other European countries) recently released a declaration stating that they wish to promote blockchain use in the region.
Cryptocurrency taxation in Romania
Romania has recently implemented a 10% tax on gains made from cryptocurrencies. Only earnings, not revenues are taxed, and only if they are above 600 leu (≈€126) per year.
Cryptocurrency taxation in the UK
The fast rate of change regarding crypto taxation is acknowledged by HMRC (Her Majesty’s Revenue & Customs) who say:
“The cryptoassets sector is fast-moving and developing all the time. The terminology, types of coins, tokens and transactions can vary. The tax treatment of cryptoassets continues to develop due to the evolving nature of the underlying technology and the areas in which cryptoassets are used...our views may evolve further as the sector develops.”
Despite this claim, there is enough detailed information to see exactly how cryptocurrencies are taxed now, and what may be changed in the future.
Key points:
- HMRC does not consider crypto assets to be currency or money. Rather, Bitcoin is classified as an exchange token.
- Similar to other countries, HMRC taxes cryptocurrencies based on the activity of the holder. In the vast majority of cases, individuals hold cryptocurrencies as a personal investment, (as is the case with most bitFlyer users). These personal investors are liable to pay Capital Gains Tax (a tax levied on profit from the sale of property or an investment) when they sell or give away their assets. Capital Gains are either 10% or 20% on profits, depending on which income tax bracket you fall into.
- On a side note, if you happen to be trading with the frequency and sophistication that you are considered a “trader”, then you will instead need to pay Income Tax. If you are not a day trader who is working with cryptocurrencies for a living, you needn’t worry about this tax. Income tax rates range from 0-46% depending on your income and where you live; Income rates from Scotland differ from the rest of the UK.
- There are some extra costs that can be allowed as deductions when calculating gains or losses made on cryptocurrencies. These can include fluctuations in the pound sterling from the time the asset was bought, or any transaction or contracts fees. Others costs that can be used as deductions can be found here.
- Importantly, keep in mind that an individual who is trading may be able to reduce their Income Tax liability by offsetting any losses from their trade against future profits or other income.
Cryptocurrency taxation in Germany
It may come as a bit of a surprise, but one of the lowest tax areas for crypto in the European Union is right at the heart of it. Germany still upholds their decision to charge 0% on Bitcoin transactions, although similar to Slovenia VAT may apply in some circumstances. Despite the surprisingly relaxed tax stance, Germany is supporting France’s efforts to create a European wide regulatory framework.
Germany, one of the countries frequently championing rule of law and uniformity across the European Union, is one of the more "laissez-faire" countries when it comes to crypto taxation. So what do we know?
Key points:
- Unlike the Euro, Bitcoin and other cryptocurrencies are not defined in Germany as legal tender, which means that businesses are not obliged to accept cryptocurrencies in their day to day dealings. However, if a seller wants to accept a cryptocurrency for the exchange of good or services, they may do so under private law.
- When Bitcoins are mined, there is technically no “issuer” so they cannot be classified as e-money. Rather, Bitcoin and other cryptocurrencies are seen as private money, which is handy because this distinction comes with tax exemptions.
- If capital gains are no more than 600 Euro, or if you have held any amount of currency for more than year, your investment is tax exempt!
- If you are exchanging crypto to fiat currency (or vice versa) you are exempt from VAT.
- However, similar to the income/capital gains distinction made in the UK, if cryptocurrencies are held as business assets, rather than private assets, they can be subject to Trade Tax.
As shown in this article, crypto taxation law in the EU can be complex and subject to interpretation. While member states are still grappling with issues of anonymity, tax evasion and money laundering, the issue of taxes regarding small scale cryptocurrency gains will continue to take a back seat. So far the situation is positive, due to the fact that for many users, cryptocurrencies can be traded quite freely, and with a low tax rate. In some cases, cryptocurrency losses can even offset other gains on an individuals tax bill.
Despite the positives, clarity is definitely needed so that people don’t end up inadvertently breaking the law or racking up huge bills that they can’t afford to pay.
Things are changing quickly, so to keep up to date make sure you consult your specific country’s tax guide. Happy trading!
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