There are as many different legislations as many countries: that adapts to the legislation relating to any aspect of our life, and that reflects what may or may not be the opening of a State towards certain sectors, especially if it’s new and in part still not very common.
This must be taken into consideration if we’re trying to answer the question: are cryptocurrency profits taxable.
While in many cases the legislative differences are almost minimal and vary above all in the extent of the sanction, in others we can find a much more significant difference, ranging from total prohibitions to complete openings to certain institutes.
The assessment that every government finds itself having to make when it comes to introducing a novelty in the legislative field is always that of a balance between the costs and benefits that derive from it for society, but also that of its concrete level of diffusion.
And it was this type of analysis that led many states to face the issue of cryptocurrencies, or those digital currencies that have begun to spread all over the world since the 2000s.
Foreign to the various centralization mechanisms, cryptocurrencies have required an effort of modernization on the part of institutions.
Also, in this case, the concrete diffusion of their use and the clear will of users to make use of a means of exchange and value creation with undoubted benefits could not be ignored.
Institutional investors first, and then small savers, have come closer and closer to this new and interesting world.
The possibility of using applications such as Bitcoin Prime, which also allows newbies to start approaching cryptocurrencies based on a highly technical and specialized guide, has eliminated what could have been the main obstacle for new investors.
Are cryptocurrency profits taxable? – overview of cryptocurrencies in the world
Are cryptocurrency profits taxable and how are cryptocurrencies regulated in the various countries of the world?
In Italy, cryptocurrencies are regulated above all in terms of fiscal aspects, or in relation to taxation. In this way, the Italian government has indirectly recognized the legality of digital currencies, removing them from the VAT regime.
In any case, any relative losses and profits must be declared in the appropriate office, depending on whether the subject is physical or legal.
Luxembourg, which boasts a refined tradition in investment and finance, is the country that shows a higher propensity in Europe towards digital currencies since they are not regulated but are allowed.
In particular, the Minister of Finance of the Principality clarified the importance of correct information on the risks of this currency, but also declared its absolute usefulness. In fact, it is now undeniable that cryptocurrency has a fundamental function for the payment of goods and services and as a way of creating wealth.
Taxing cryptocurrency profits in the US
In the United States, the rules regarding the taxation of cryptocurrencies are quite defined. The US considers cryptocurrencies not as movable assets, but as property and therefore must be declared as such.
After years of cryptocurrency owners enjoying something of a gray zone, in 2019 the US tax agency, the IRS decided to tax cryptocurrencies as real estate.
Each cryptocurrency owner must declare their possession in the income statement in the properties section as if it were a house or a collection of old paintings or coins.
But this according to many is only an intermediate step, because in 2022 the tax regime for the cryptocurrency market will likely change again.
This is because the rules are still quite confusing especially regarding the calculation of any capital gains, considering the fact that many exchanges do not transmit the data of their users to the American IRS.
Many cryptocurrency operations are still taxed as capital gains on crypto sales, but also any purchases of goods and objects with cryptocurrencies become subject to taxation.
But getting paid in cryptocurrencies also becomes a taxable source of income, as do the rewards and rewards received for example from crypto lending or staking.
Donations to charities or keeping cryptocurrencies in the portfolio without carrying out any speculative operation are not subject to taxation. But as mentioned, the situation will soon be changed.
The Treasury Department’s new “ Greenbook ”, released in May, includes stricter taxation requirements on cryptocurrencies.
For example, a proposed proposal would require companies to report all cryptocurrency transactions worth more than $ 10,000 to the IRS.
President Biden, who has been talking about cryptocurrencies quite critically recently: would like to raise the maximum long-term capital gains tax rate to 43.4%.
Can cryptocurrencies be subject to taxation in Canada?
How are cryptocurrency profits taxable in Canada?
Cryptocurrency is treated as a commodity for Canadian tax purposes. Income from cryptocurrency transactions is classified as holding gain/loss or business income, depending on the individual’s status and intentions.
Generally, users are required to report a transaction in their Canadian personal tax return every time they opt for cryptocurrency divestment.
On one hand, if you are a standard cryptocurrency investor, meaning trading cryptocurrencies as a hobby, your taxable income will be calculated using the revenues minus the adjusted base cost of the cryptocurrency at 50%. Any income from the sale is treated as a capital gain, subject to taxation.
On the other hand, if you are running a cryptocurrency business (not as a hobby), the income from the sale will be treated as business income/loss.
How are cryptocurrencies profits taxable in the UK and the EU?
The UK has been cautious about recognizing cryptocurrencies, although it has refrained from banning them. After leaving the EU on 31 December 2020, the country negotiated a trade and cooperation agreement with the EU and has since adopted a “wait and see” strategy regarding cryptocurrencies.
The European Central Bank was among the first to issue a legal definition of cryptocurrencies in 2012 and subsequently updated it in 2015.
According to its latest guidelines, Bitcoin and other similar cryptocurrencies are defined as: “virtual currency is a representation digital currency, not issued by a central bank, credit institution or electronic money institution, which, in some circumstances, can be used as an alternative to money “, intentionally omitting words such as” digital money “or” unregulated “.
The cryptocurrency market is still in its infancy. Because of this, new regulations are constantly emerging on how governments tax cryptocurrencies. Currently, cryptocurrency concerns and regulations form a colorful landscape in Europe and the UK.
Taxation is based on general principles and individual guidance from the tax authorities. Of course, some countries are stricter than others in how they govern and tax cryptocurrencies, below we take a closer look at the different countries to provide a complete picture of each jurisdiction.
HMRC and UK Crypto Taxation
Her Majestys Revenue and Customs (HMRC) is among the first EU authorities to introduce clear guidelines on cryptocurrency taxation in 2014. According to legal definitions of cryptocurrencies, coins like Bitcoin and Ethereum are classified as exchange tokens. At the moment there are no specific regulations for them, but they fall under the anti-money laundering legislation.
When it comes to earning income, in any way, from any business or asset, including Bitcoin or other cryptocurrencies, the HRMC has marked the following as subject to tax:
- Payment processors
- Other service providers
Mining income is not subject to value-added tax (VAT), but losses and gains from holding and selling cryptocurrencies are treated as realized gains in other commodities or currencies. Businesses and shops should pay VAT when they sell cryptographic services and goods in the UK.
Interestingly, people who buy and store cryptocurrencies for “personal use” (such as investment and long-term holding) and not for speculation, will not see their assets taxed.
Taxation on cryptocurrencies held as a private asset depends on earning from a source of income as defined by legislation. In some cases, they are taxed as income from savings and investments. The tax rate is fixed on the basis of a weighted notional return on equity.
If a company makes money from selling or mining cryptocurrency, it will be subject to corporate income tax.
Similar to the UK, the exchange of cryptocurrencies with foreign currencies is exempt from VAT.
In Spain, holding cryptocurrency as an investment means that it is subject to capital gains tax, which is applied when the cryptocurrency is delivered by the taxpayer.
Profits or losses resulting from exchange movements between cryptocurrencies and other currencies are taxable for all companies. However, the income from cryptocurrency mining is and the associated expenses are deductible.
All cryptocurrency transactions are exempt from VAT and any income from cryptocurrency mining is generally outside the scope of VAT.
Professional investors are required to list any earnings from their cryptocurrency business as professional income. It is then subject to progressive rates from 25% to 50%, plus local taxes and social security contributions.
Companies subject to the ordinary corporate tax regime should include profits on exchange movements between currencies in taxable profits and losses are deductible.
Germany is a pioneer in the cryptocurrency market, although the tax treatment of digital assets is not fully regulated by law. In some cases, profits may be taxable as capital gains, current income, or exempt. In general, cryptocurrencies are considered an asset for tax purposes.
The scope of taxation depends on whether the cryptocurrency is held as a private or corporate asset. For corporations, they are considered part of their corporate assets. In this case, all profits are subject to tax, including the commercial tax.
When held as a private business, the profits from the loans are taxed as income. Capital gains are subject to taxation only if the acquisition and sale take place within one year. In the case of a previous loan, the period is ten years.
Are cryptocurrency profits taxable in Australia?
Australia is preparing to ask to pay tax on earnings on Bitcoin and other cryptocurrencies.
The growing popularity of Bitcoin and Ethereum, but also of new players on the scene, such as Dogecoin, places governments around the world in a position to decide how to consider this particular type of digital asset; the distinctions, in this case, are important because, depending on the point of view, the taxation applied obviously changes.
Australian Tax Bureau (ATO) commissioner Tim Loh recently stated that it is a myth that cryptocurrencies are currencies rather than ordinary assets, as they are considered by the ATO.
Therefore, referring to the hypothesis that the more than 600,000 Australians in possession of cryptocurrencies can be considered exempt from paying taxes or that they can consider as a taxable event only a new, possible exchange in Australian dollars.
the Australian Tax Office will write to more than 100,000 Australians in possession of cryptocurrencies this year, asking them to review their previously reported earnings. Another 300,000 will be encouraged to report any gains or losses always related to Bitcoin and other cryptocurrencies.
In which countries are cryptocurrency investments not taxed?
Malta is the first cryptocurrency-friendly fiscal country to launch a unified regulatory framework for ” Distributed Ledger Technology “, earning it the title of ” Blockchain Island “.
According to these regulations, cryptocurrencies are considered ” a unit of account, medium of exchange or store of value “, making it the country with the highest acceptance of cryptocurrencies as a medium of transaction.
The tax on capital gains realized on long-term investments in virtual currencies is not applied.
Another country that certainly views virtual currencies favorably is Belarus. Indeed, according to the presidential decree on the development of the digital economy of 2018, the mining, buying, and selling of cryptocurrencies are treated as a personal investment and will be tax-free until 2023, for both individuals and businesses.
Slovenia is another country that does not charge capital gains tax for individuals in the sale of cryptocurrencies. However, accepting payments in cryptocurrency attracts income tax or corporation tax for businesses.
Companies involved in cryptocurrency mining are also required to pay corporation tax on the resulting profits. Further clarification needs to be provided by the tax authorities in the near future.
Gibraltar is famous for its low taxation, which is no different when it comes to cryptocurrencies. A flat 10% corporate tax rate has been imposed on cryptocurrency trading and there is no capital gains tax on cryptocurrency investments.
Switzerland is also considered a cryptocurrency-friendly tax haven, which is why I added it to the list. The cryptocurrency exchanged or held as an investment will not be subject to capital gains tax if you are doing trading in your individual account and you qualify as a sole trader. However, buying and selling through qualified professional traders is considered business income and is taxed as such.
In conclusion, Bermuda, a country without a personal income tax, deserves a mention. In fact, Bermuda does not impose direct taxes on the purchase, sale, or holding of cryptocurrencies.
The use of cryptocurrency as a form of payment is also legal and is not subject to any tax. In fact, the government of Bermuda is the first to accept payment of taxes in any recognized cryptocurrency.
Are Cryptocurrency Profits Taxable? – Conclusion
As we have seen, the answer to the question are cryptocurrency profits taxable, mainly depends on where you are located.
Different countries implement different legislations.
One thread that I have noticed is that usually the countries with a highly developed financial system and legislation, are the ones that first started taxing cryptocurrencies.
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To your success!