Crypto Taxes in Slovenia and Luxembourg：the Most Crypto-Obsessed Countries in Europe

Slovenia and Luxembourg, as members of the European Union, have developed economies with highly modern financial, business and service industries, and government policies to encourage corporate research and innovation. The two countries have relatively sound legal systems and independent judiciaries, which highly protect the rights and interests of individuals and enterprises. People in both countries also have a high degree of attention and recognition of crypto assets. In terms of searches for crypto assets as a percentage of the population, Slovenia ranked first in Europe with 4,789 searches per 100,000 people, followed closely by Luxembourg with 2,600 searches per 100,000 people, according to CryptoGambling.tv. The two governments have also established a regulatory framework for crypto assets, established legal crypto asset exchanges, and taken measures to protect investors’ rights and support the innovation and development of crypto assets. This series of advantages has attracted a large number of crypto asset investors to invest in the two countries. Therefore, an in-depth understanding of the tax systems of crypto assets in the two countries and an insight into the regulatory policies of crypto assets in the two countries are of great significance for investors to avoid risks and optimize investment.

1. General tax regimes in Slovenia and Luxembourg

1.1 Tax system of Slovenia

Since Slovenia officially became a member of the European Union in 2004, the tax system has gradually converged with that of the European Union. The main types of taxes in Slovenia include personal income tax, corporate income tax, value-added tax, excise tax, customs duties, etc. In addition to customs duties and value-added tax on imported goods, other taxes are collected by the Slovenian Tax Office.

In terms of personal income tax, Slovenian residents are subject to personal income tax on their worldwide personal income, while non-resident taxpayers are subject to tax on income derived in Slovenia. Slovenia has a five-stage progressive tax system, with rates ranging from 16% to 45%. According to the Slovenian law introduced in 2022, the annual basic deduction for personal income tax will be increased by €1,000 per year from 2022 until 2025. The property tax varies from 0.15% to 1.25% depending on the price and type of property. Gift taxes range from 5% to 39% for immediate family members and gifts worth less than 5,000 euros.

In terms of corporate income tax, the tax rate has risen from 19 percent to 20 percent from 2020. And the government has introduced a preferential policy that investment funds, pension funds and pension insurance companies can enjoy zero tax rates. At the same time, there are certain preferential policies for research and development costs, asset investment and employment of the unemployed. Enterprises can deduct the total amount of R&D activities and R&D service purchases at 100%, but the deduction does not exceed the tax basis. Enterprises can deduct 40% of the total investment in equipment and intangible assets before tax, but the deduction does not exceed the tax basis. If a company employs a person under the age of 26 or over the age of 55 who has been registered with the Employment Service as unemployed for more than six months before joining the company, and has not been employed by the company or its affiliates in the last 24 months, the company can deduct 45% of the wages of the employee within 24 months of employment, but the deduction does not exceed the tax basis.

In terms of capital gains tax, the tax rate is 0% to 25%. Judging the tax rate according to the holding period of capital assets, the longer the holding period, the lower the tax rate. In the case of VAT, taxpayers are required to pay a standard rate of 22% or a preferential rate of 9.5% on goods and services provided in Slovenia or between EU member States. In terms of excise duty, a 22% tax is imposed on certain goods such as tobacco products. The tariff rate is between 0% and 17%. If the value of imported goods does not exceed 150 euros, customs duty is exempted. If the value of the goods does not exceed 22 euros, VAT is exempted.

1.2 Tax system in Luxembourg

Luxembourg’s tax system has a long history, dating back to the early 19th century. At the end of the 19th century, Luxembourg introduced VAT on the consumption of goods and services. In the 20th century, Luxembourg gradually increased taxes, including personal income tax, corporate income tax, and capital gains tax.

In terms of personal income tax, Luxembourg residents are taxed on their worldwide income, while non-resident taxpayers are taxed only on income originating in Luxembourg. Personal income tax in Luxembourg is progressive. The amount of income below 11,265 euros is exempt from tax, and the amount above 11,265 euros is taxed in a tiered tax rate of 8% to 42%. Employees must also contribute an additional 7 to 9 per cent to the employment fund. In terms of gift tax, gifts of immediate family members are completely exempt, and gifts of non-immediate family members are taxed at 0% to 5%.

In terms of corporate income tax, companies legally registered under Luxembourg law or with actual management in Luxembourg are subject to corporate income tax on their worldwide income at rates ranging from 15% to 31%. In addition, the unemployment fund needs to be added to the tax payable on corporate income tax by 7%. Businesses in the capital city of Luxembourg are also subject to a 6.75% municipal business tax. Luxembourg also has some tax incentives for capital investment.

In terms of VAT, 17% VAT is levied on businesses that circulate goods and provide services in Luxembourg and have an annual turnover of more than 30,000 euros. Tax reduction and exemption apply to food, medicine, etc. In Luxembourg, short-term capital gains are treated as ordinary income and taxed at normal income tax rates. Only long-term earnings of 10 years or more are eligible for a €50,000 exemption and a 50% tax reduction. Properties held for more than two years are considered long-term gains and eligible for a deduction. Holding a stock for more than six months can also be considered a long-term gain and is only taxable if the stake is more than 10%. The tax rate on transfers of real property is usually 6%.

By contrast, Luxembourg’s corporate income tax is lower than Slovenia’s. And geographically adjacent to France, Germany and other more developed economies, location is more superior, more attractive.

2. The crypto asset tax regimes in Slovenia and Luxembourg

2.1 Taxation of crypto assets in Slovenia

The history of the development of regulatory policies for crypto assets in Slovenia dates back to 2013. The country’s central bank has issued a guidance document requiring financial institutions to regulate transactions involving crypto assets such as bitcoin. In order to comply with the EU’s anti-money laundering and anti-terrorist financing regulations and ensure the security and transparency of the crypto asset market, Slovenia adopted ZPPDFT-2, announcing real-name authentication for crypto asset transactions and requiring the reporting of relevant transaction information.

In Slovenia, the definition of crypto asset services is broader than in the EU: virtual asset services are services provided by natural or legal persons to third parties for the exchange of fiat currency and virtual assets, for the exchange of one or more virtual assets, for the transfer of virtual assets between different accounts or addresses, for the custody or management of virtual assets, and in connection with the issuance or sale of virtual assets. In defining virtual asset service providers, the bill further expands the scope to also include “other transactions included in these services.” The bill defines a virtual asset as “a digital form of value that is not issued or guaranteed by a central bank or public authority, is not necessarily linked to fiat money, and does not have the legal status of money or monetary assets, but is accepted by natural or legal persons as a medium that can be transmitted, stored and exchanged electronically.”

In 2019, Slovenia introduced a source tax regime, which only taxes the proceeds of crypto assets, rather than the crypto assets themselves. The source tax rate depends on the nature and source of the proceeds and can be as high as 25 percent. In addition to the source tax, Slovenia also imposes a transaction tax on transactions of crypto assets. The transaction tax is set at a rate of 0.25% and applies to all crypto asset transactions. For losses on crypto assets, Slovenia allows taxpayers to use the losses against taxes on other income.

In 2020, the Slovenian government began exploring the possibility of imposing a capital gains tax on crypto asset transactions. The government believes that a capital gains tax on crypto assets will help balance the difference in tax treatment between traditional financial markets and crypto asset markets. In 2021, the Slovenian Ministry of Finance published a consultation document to seek public opinion on tax policies for crypto assets. The document discusses the taxation scope, tax rate, tax relief and other issues of crypto assets, and proposes several possible tax schemes. In 2022, the Slovenian legislature officially adopted the bill entitled Debureaucratization of the Taxation of the Redemption of Virtual Currencies. It introduced a 5% uniform crypto asset tax and worked on “de-bureaucratization” as well as streamlining crypto asset trading processes in the country.

With strong government support, the adoption rate of crypto assets has grown rapidly. Slovenia has become the country with the most locations in the world to support crypto-asset payments. More than a thousand locations, including hotels, cafes and hospitals, support transactions using cryptocurrencies. Ljubljana is considered the most crypto-friendly city in Europe, with more than 137 companies and 584 different locations in the city accepting crypto assets.

2.2 Luxembourg crypto asset taxation

In 2013, Luxembourg issued the Directive on the Taxation of Income Tax on crypto Asset Trading Income, which regulates the taxation of personal income tax and corporate income tax on income derived from crypto asset trading. In 2014, the newly amended Monetary and Fiscal Law added a definition related to crypto assets, which states that a crypto asset is “a form of electronic or digital representation that can be used as an exchange store of value and can be transferred.”

In 2017, the Luxembourg government issued the Directive on the Imposition of VAT on Transactions and Holdings of Virtual Currencies, which defines crypto assets as “virtual goods” and regulates matters related to the imposition of VAT. The directive treats the purchase or sale of crypto assets as a taxable event and specifies the tax treatment of crypto asset transactions. For the purchase or sale of crypto assets, VAT is levied at a rate of 17% if held for less than one year, and VAT is exempted if held for more than one year. For the provision of crypto-asset-related services such as mining and trading, VAT is levied at a rate of 17%.

In 2018, the Luxembourg Tax Authority issued the Directive on the imposition of Capital Gains Tax on cryptocurrency transactions and Holdings. The bill defines a crypto asset as “a form of electronic or digital representation that serves as an exchange store of value and can be transferred, including, but not limited to, Bitcoin, Ethereum, and other similar virtual currencies.” The bill also provides for the imposition of capital gains tax, including crypto assets as property, and the imposition of capital gains tax on gains from crypto asset trading. If individuals hold crypto assets for less than one year, capital gains tax is levied at a rate of 26%, and more than one year is exempt from capital gains tax. Crypto assets held by companies are subject to a capital gains tax of 26%. At the same time, the directive stipulates that the Luxembourg Financial Intelligence Unit, established in 2009, is responsible for the regulation of the crypto asset market. Responsibilities include reviewing and approving license applications for crypto asset-related businesses, monitoring their operations, and requiring relevant agencies to strengthen regulation and reporting.

In the same year, Luxembourg’s Financial Supervisory Commission issued a warning about virtual assets. The warning states that the provision of any related services requires authorization from the Ministry of Finance, and stipulates that regulated funds targeting non-professional clients and pension funds are not allowed to invest directly or indirectly in virtual assets through ICOs.

In 2021, the Luxembourg government amended the General Anti-Avoidance Rules to add regulatory and reporting requirements for crypto-asset-related transactions. The rules aim to prevent the use of crypto assets for illegal activities such as tax avoidance and money laundering, and require the relevant agencies to strengthen supervision and reporting.

In 2022, the Luxembourg government worked with the European Commission to develop the Crypto Asset Markets Directive (MiCA), which harmonizes and regulates crypto asset trading and regulation between member states. MiCA aims to protect consumer rights, strengthen market integrity, combat activities such as money laundering and terrorist financing, and provide a clear legal framework for crypto asset markets.

In the same year, Luxembourg’s Financial Supervisory Commission announced that credit institutions could invest directly in virtual assets, subject to relevant accounting and capital-related considerations. Credit institutions can open accounts that allow customers to deposit virtual assets, but cannot accept virtual currency deposits, nor can they facilitate or perform virtual asset payment settlements. Credit institutions are required to submit a detailed business case to the Financial Supervisory Commission before offering virtual asset services on behalf of their clients. Virtual assets are not considered financial instruments within the meaning of the Financial Sector Act and therefore do not fall within the scope of the investor protection rules. Nevertheless, given the strong similarities between investment in virtual assets and investment in financial instruments, the Financial Supervisory Commission expects credit institutions that promote investment in virtual assets to establish an effective investor protection framework. Credit institutions should take adequate measures to ensure the best execution, appropriateness and appropriateness of investments and inform investors accordingly of potential risks through educational materials and transparent reporting on virtual asset holdings. If the tokens in question qualify as financial instruments within the meaning of the Financial Sector Act, the provision of investment and ancillary services in or from Luxembourg may require prior written authorization from the Financial Supervisory Commission. If tokens qualify as securities within the meaning of MiFIDII and are offered to the public or permitted to be traded on a regulated market, such tokens will not be allowed to be issued without the issuance of a prospectus approved by the Financial Regulatory Commission in accordance with the prospectus calligraphy.

In addition to the regulation of sales arising from the Luxembourg financial regulatory framework, there are also draft legislation on general advertising, online/distance selling and consumer protection that may apply to the sale of crypto assets or the provision of crypto-related services. For example, the law of 14 August 2000 on electronic commerce, which imposes requirements on business establishments in Luxembourg that offer or provide goods and services digitally, is of more general application. The application of such legislation may also depend on whether the business carried out is subject to Luxembourg’s financial regulation.

In general, as members of the European Union, Slovenia and Luxembourg have gradually improved their regulatory systems and strengthened international cooperation in crypto assets to promote the development of the crypto asset industry and protect the legitimate rights and interests of investors. At present, the two countries are at the forefront of the crypto asset industry, with a good foundation and high potential, and have also attracted the attention of a large number of investors. In the future, investors need to pay close attention to the implementation of relevant EU policies and adjust their investment strategies accordingly.

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