Because of the relative newness of cryptocurrency, there is still a great deal of confusion regarding its taxation. As with any other type of taxation, the regulations vary by country. Some countries have not explicitly laid out crypto taxation guidelines, but most already have some regulations in place.
Why It Matters
The initial developers of cryptocurrency wanted it to serve as a borderless currency without government control. Crypto purists are in search of decentralization without any reliance on a central authority or need to follow the rules of a government.
Despite these lofty goals, those who own cryptocurrency must follow the rules of their countries. Many governments want to regulate cryptocurrency. This includes charging taxes on crypto as a way to increase government profits. A government does not want people to avoid paying taxes via cryptocurrency. After all, this would reduce the government’s budget.
If you hold cryptocurrency, you should be aware of the crypto tax regulations in your home country. You can also use knowledge about countries with no crypto taxes to your advantage. Interestingly, there are sometimes significant variations in taxation policies across European Union member countries.
The most recent guidance framework from the Australian Tax Office indicates that digital assets, including Bitcoin and other major cryptos, are “forms of property.” These forms of property are taxable.
Based on information from an ATO spokesperson, financial gains from selling cryptocurrencies must be reported. Residents must pay capital gains taxes on those gains. The ATO also sees transactions based on Bitcoin as “barter arrangements” without any goods and services tax. Even so, the capital gains tax applies.
In early 2018, Belarus passed a law that would legalize cryptocurrency activities. It also made digital currencies exempt from the tax schemes that existed at the time. That same law also exempts investment- and mining-related activities involving cryptocurrency from taxes until 2023 ends. As such, Belarus is currently very appealing for cryptocurrency investors.
Canada treats cryptocurrency similarly to investment commodities. As such, half of all the acquired gains are deductible from the taxes. These get automatically added to your individual annual income.
It is important to keep in mind that the Canadian Revenue Agency may consider day traders with high transaction volumes to be business entities. In this case, those day traders would need to use different forms to file their taxes.
Canadian tax law also requires you to maintain accurate records of crypto-trading activities. These records are for the capital gains tax. If a Canadian does not keep these records, they may face penalties and other financial impositions by the Canadian Revenue Agency.
Germany appeals to cryptocurrency investors by not subjecting Bitcoin to the capital gains tax. This means that investors will not have to pay taxes on their holdings, even if the Bitcoin value appreciates. This obviously appeals to those who want to invest in cryptocurrency in Germany.
There is an important caveat, however. For the lack of capital gains taxes to apply, the owner must hold the crypto for a minimum of one year. Additionally, crypto business owners must pay taxes on gains from personal crypto-related possessions, including corporate income taxes.
There is also rule 23 EStG, which indicates that cryptocurrency holders in Germany can trade tokens without paying taxes. This tax-free status of trades applies when the capital gains for trading are not over 600 Euros annually.
Because Germany is part of the EU, there are some additional complications. Specifically, those within the European Union can move throughout the member countries as they wish. To be a tax resident of Germany, several factors play a role. These include whether the person has a private residence within Germany and whether they were physically in Germany for more than six months at a time. For dual citizens, individual German tax status depends on the state where the person has economic and personal interests.
Japan has a reputation for being a leader in the cryptocurrency landscape. In Japan, it is legal to make daily payments with cryptocurrencies. Japan treats digital currencies as commodities, including subjecting them to corporate, capital gains, and income taxes.
The country is working to streamline the process of filing taxes for cryptocurrencies, but it is still cumbersome, leaving much to be desired. The issue is that taxes are on asset and conversion gains.
Late last year, Japan also announced the development of a tracking system that will give the National Tax Agency information from transaction intermediaries, including altcoin trading portals and digital currency exchanges. This means that those who make profits from cryptocurrencies will not be able to hide their crypto-related income. As such, crypto holders in Japan will have to pay some niche taxes.
Malaysia does not charge any capital gains tax, something that also applies to cryptocurrencies. Even in the most recent 2019 budget, there was no proposal for capital gains taxes in the country. As such, anyone currently holding cryptocurrency or completing crypto transactions in Malaysia does not have to pay taxes on them.
Malta is among the world’s most popular havens for cryptocurrency. Therefore, it should come as no surprise that the country is favorable to cryptos in terms of taxation. There is no tax on digital assets in Malta. The important caveat is that making money through day trading or related activities is business income in Malta. As such, you must pay regular taxes on that type of income.
Those who are citizens of Switzerland, the European Economic Area, or the EU can move and run businesses in Malta. However, this does not automatically give them the benefit of the Malta crypto regulations for taxes. To qualify for those taxes, crypto owners must either buy a property that is valued at a minimum of 275,000 euros (around $300,000) or pay the local government rent of up to 9,600 euros (around $10,600) annually.
In Portugal, cryptocurrencies are not subject to personal income taxes or VAT taxes. However, businesses must pay taxes on the profits they make due to crypto gains. To be a tax resident of Portugal, you must reside in the country more than 183 days a year or own a house there.
Singapore is a world leader in cryptocurrency taxation. The Singaporean government only taxes profits that you earn via trading activities from your crypto holdings. If you have held your crypto for a long period, including as a long-term investment, you do not have to pay taxes on it. This lack of taxation includes individuals and businesses.
Singapore’s corporate tax residency only applies if you physically run the business within the country. To be a tax resident of the country, you must have spent at least 183 days in the country.
Slovenia is a tax haven for cryptocurrency investors as there are no capital gains on Bitcoin. Additionally, cryptocurrency is not part of your income in Slovenia. However, if you receive your income in cryptocurrency, this will be taxed. Businesses also face taxation.
In South Korea, the Initial Coin Offering industry and the digital currency market are both taxed. As of about two years ago, the Korean National Tax Service indicated plans to tax Bitcoin use. This came following the rise in Bitcoin trading volume. The same announcement indicated that the country was looking into how to improve the relationship between Bitcoin and the capital gains tax, gift tax, and value-added tax structures.
Switzerland is among the best jurisdictions in the world to hold cryptocurrencies. The country is so crypto-friendly that big names in the industry have their headquarters there, such as the Libra Association and Ethereum Foundation. Although Switzerland is very crypto-friendly, its regulations are slightly complicated, varying based on the type of crypto activity.
If you earn income by mining cryptocurrency in Switzerland, this qualifies as self-employment income. If you earn crypto via the professional trading of cryptocurrency, this counts as business tax. If you earn your main wage in the form of cryptocurrency, then you must declare your assets on your income taxes.
Investors in cryptocurrency are those who only trade from their personal accounts. In this case, crypto gains are tax-exempt capital gains. This means you should report them to the Swiss government but will not need to pay taxes on them.
Switzerland also follows the canton tax structure. This means that there is regional variation, as each region can have its own taxes on crypto holdings.
The United States
In the United States, the Internal Revenue Service classifies digital currencies as property liable to taxation. The liability of a digital currency depends on the annual depreciation or appreciation in value, according to the IRS.
Despite viewing cryptocurrencies as liable for taxation, the U.S. government does not classify them as legitimate money. As such, there are tax incentives based on currency conversions, of which some exist for fiat-to-fiat conversions.
The United States has one of the strongest taxation policies on cryptocurrency. Those within the United States who hold cryptocurrency must pay taxes on digital assets that experienced an appreciation in value over the financial year. They must also pay taxes on crypto they received via trade activities or mining, provided the activities in question are taxable.
To pay their taxes, crypto holders in the United States must determine their coins’ fair market worth at the time of purchase, based on the published exchange rates. Crypto holders are responsible for completing the relevant calculations for the value of their crypto, including the value of appreciation and depreciation.
The taxation of cryptocurrency in the United States is incredibly cumbersome, one of the most complicated and time-consuming digital currency taxation schemes. Because of this, crypto accounting programs offering tax-friendly reports are now available. These will automatically create the records that include conversions and are auditable, making it easier to complete taxes.
A Worldwide View
If you look at the above countries’ regulations on cryptocurrency taxation, you will see some trends. They may take one of a few common stances.
Crypto as Taxable Income
One of the common stances is to view cryptocurrency as personal income (or corporate income) and taxing it just like other personal (or corporate) income. Most countries in this category will only qualify cryptocurrencies as profits if the person receives it as payment to make a profit. Trading crypto or mining it would be an “other activity.”
Crypto on Capital Gains Taxes
Another common approach is to treat the profits from cryptocurrencies as the country would treat capital gains. Those countries make these regulations based on the fact that many people with crypto do so to hold or trade it. This is the same type of activity as with real estate, bonds, stocks, and other personal property types. Those types of personal property and crypto can depreciate or appreciate over time. The capital gains are defined as when the cryptos sell at a higher price than they were purchased.
Capital gains taxes and property taxes tend to receive better tax treatment than income. In some cases, countries will even give these types of gains tax exemption.
Other countries take a more complicated approach. They either have unique definitions of cryptocurrencies or deal with them in varying ways, depending on the situation. One example is Singapore, where trading digital currencies results in taxes on the profits, but there are no taxes on long-term investments in crypto.
Every country around the world has its own regulations on cryptocurrencies. Countries may take numerous approaches, including some jurisdictions where there are no taxes on cryptocurrencies. If you want to make the most of your cryptocurrency investments, you could try to get tax residency in one of the countries with favorable regulations. Of course, this may be easier said than done, depending on the country.
The common theme is that you should always pay attention to the taxation regulations in your country of residence. You do not want to get into legal trouble or have to pay back-taxes with fines for a lack of payment.