Tax Regulations On Cryptocurrencies From Around The World
Regulating cryptocurrencies has been a priority for world governments in 2018. Needless, to say financial regulators treat taxation as a burning issue. Yet it seems as though many policymakers cannot make their minds up how to tax digital currency.
Having said that, we are talking about taxes here, and tax laws are deliberately confusing. According to some philosophical theories taxes are immoral and amount to slavery.
Subsequently, there are divisions from one country to the next, and in some cases, within the same country. Not only that, but many jurisdictions have yet to decide how their laws will be applied to cryptocurrencies.
General Taxation Policies on Digital Tokens
To date, countries around the world have implemented one of four taxation models in relation to cryptocurrencies.
- Personal Income Tax: Applies to individuals that are not considered a company, but receive digital currency as a form of payment — e.g you sell something on eBay.
- Company Tax: Companies that accept digital currency as payment, or make a profit from cryptocurrency activities.
- Capital Gains Tax: Investors that purchased cryptocurrencies with the intention of making a profit.
- Tax Exemptions: People that have purchased cryptocurrencies with a fiat currency that has already been taxed (by the above taxation laws) cannot be considered as taxable assets again.
The debate over taxation is how the government of a particular country deem cryptocurrencies. Some policymakers class them as assets thus are subject to tax with certain conditions, whereas other countries class digital currency as private money — like if your Dad gives you a $1000 as a gift for your birthday.
Cryptocurrency Taxation in Germany
The Ministry of Finance in Germany has said it will not tax residents for using cryptocurrency as a means of payment, nor will there be any capital gains tax on the first year. After the first year, capital gains tax is applied on holdings above €600. Taxation does apply when you convert digital tokens to fiat currencies.
Parties acting as an intermediary for the exchange of cryptocurrencies (i.e a bank) will not be taxed, but payments sent to digital wallet providers (exchanges) can be taxed. Mining is considered a voluntary service and will not be taxed.
Switzerland — Crypto Central?
Switzerland has designs on becoming the global capital for cryptocurrencies, but there is no official regulation for taxation that is honoured nationwide. In Zug, a hub for major financial companies and nicknamed “Crypto Valley”, there are tax exemptions on digital tokens. The Italian-speaking town of Chiasso accepts bitcoin as a payment but adds a tax percentage.
However, it is generally regarded that cryptocurrencies can be used as a trading currency throughout the country. Bitcoin ATM’s are becoming fairly established.
As far as the regulatory consensus is concerned, cryptocurrencies are neither money, nor foreign currency. They are therefore classed as capital gains and exempt from VAT. However, there is a tax on mining profits, and digital currencies are subject to a conversion charge if Swiss residents convert the holdings into a fiat currency.
The British government has declared VAT is payable on Bitcoin transactions. Capital gains tax is payable when you sell cryptocurrencies, but only if the assets have increased in value. Tax is only payable on gains, so you must keep a record of how much you purchased digital currencies for.
Miners are charged a 20% capital tax rate. The only tax exemption on cryptocurrencies in the UK is when you receive tokens as a gift.
The US class crypto-related assets as commodities and not as currency. This means traders are subject to capital gains tax when you sell the assets — regardless of the time span in which you hold the assets. Businesses that trade in Bitcoin must declare transactions to the IRS.
Failing to declare gains on cryptocurrencies in the US carries extremely harsh penalties. If you sell digital assets for a gain, you must report to the IRS or risk a $250,000 fine and imprisonment.
The Japanese government has been a leader in regulating cryptocurrencies and officially accept digital tokens as a form of payment. The Tax Agency in Japan ruled that crypto-related assets are “miscellaneous income” and thus subject to tax obligations.
Taxes ion crypto-assets in Japan are only applied to capital gains, but the levies can be high, running from 15% to as high as 55%.
Indecision in India
The Indian government is still deciding how they will apply taxation in cryptocurrencies, but the rules being floated are that an 18% levy will be applied for digital tokens that are considered goods or commodities. Digital currencies that are held as securities or used as a currency will not be taxed.
Australia is quite clear that cryptocurrencies are not regarded as currency, but are classed as assets that are subject to capital gains tax. When you sell, trade or exchange cryptocurrencies for fiat money, a tax levy will be applied.
CGT is also applied to cryptocurrencies that are purchased as an investment, although there is tax discount on digital assets that are held for more than one year. Losses on digital currencies can be deducted from your tax obligations.
Countries With Tax Exemptions On Cryptocurrency
There is also a cluster of countries that, at the time of writing, are tax havens. Bitcoins and other cryptocurrencies are considered as private money, and this not subject to any taxation. 100% exemptions on cryptocurrencies are available in the following countries:
- South Korea
- The Netherlands
- Several States in the US (Wyoming, Arizona, Georgia
What are the tax laws in your country? Are there any other countries that offer tax exemptions on cryptocurrencies that we can add to our list? Leave you comments below.