How do different countries tax cryptocurrencies in 2023?
Sun Feb 12 2023
Cryptocurrency has been a hot topic in the financial world for the past few years. From making headlines to capturing people's minds worldwide, virtual digital assets, NFTs, and cryptocurrency have been on the rise. However, the taxation of VDAs and cryptocurrencies is a concern for investors due to the restrictive approaches of governments worldwide.
India is one of the latest countries to make a significant decision regarding the taxation of cryptocurrencies with the introduction of section 115BBH. But it's not just India; other countries such as Singapore, and the USA also impose crypto taxes.
How are cryptocurrencies taxed across the globe?
Here is a list of different taxation rules on cryptocurrency in other countries:
The United States:
The IRS considers cryptocurrency a capital asset in the United States, meaning that investors must pay taxes on any gains from selling their crypto holdings. So, for example, if you sell your crypto within a year, you'll be subject to short-term capital gains tax, ranging from 0-37%, depending on your income. On the other hand, if you hold your crypto investment for over a year, you'll be taxed at a lower rate of 0-15% or 20% at most, depending on your marital status and income.
It's important to note that you won't have to pay any taxes on your crypto if you hold it without selling or exchanging it for a gain. And, if you incur losses from selling crypto, you can offset up to $3000 of them against your total tax bill.
The United Kingdom:
In the United Kingdom, the taxation of Bitcoin and other cryptocurrencies falls under either Capital Gains Tax or Income Tax, depending on the nature of the transaction. For example, if you earn an income through cryptocurrency, you will be subject to Income Tax. On the other hand, if you make a capital gain, you will be liable for Capital Gains Tax.
It's worth noting that the UK has a unified Capital Gains Tax rate, unlike some countries that differentiate between short-term and long-term gains. So the amount of tax you pay on your capital gains will depend on your income bracket.
Please refer to the table here for a detailed understanding:
The Canadian government views cryptocurrencies, such as Bitcoin, as commodities rather than fiat currency. As a result, the taxation policies for cryptocurrencies in Canada are similar to those in the United Kingdom. For instance, the individual must pay Income Tax if the cryptocurrency is taxed as income. On the other hand, if it is taxed as a capital gain, the individual will only be required to pay Capital Gains Tax on half of the profit from cryptocurrency transactions.
The following table provides a breakdown of the percentage of taxes required to be paid on cryptocurrency transactions in Canada:
The Australian Taxation Office (ATO) views cryptocurrency as an asset, attracting both Capital Gains Tax (CGT) and Income Tax. Therefore, if you have bought, sold, or earned any income through cryptocurrency transactions, you must be aware that you must file an Income Tax Return on your overall income.
The ATO has a comprehensive system for tracking all cryptocurrency transactions. When you sign up with an Australian wallet or exchange, your Know Your Customer (KYC) data is automatically registered with the ATO. Like in Canada, the Australian government views all cryptocurrencies as property and classifies them under the asset class, thus imposing Capital Gains Tax.
However, it is essential to note that CGT will only be imposed on your cryptocurrency holdings if you dispose of them. This refers to buying, selling, exchanging, gifting, or using cryptocurrency to purchase goods or services. If you hold onto your cryptocurrency and are subject to Australian taxes, you will pay 50% less tax.
The Netherlands's taxation system is distinct from other countries and operates on a wealth tax basis rather than a capital gains tax. At the beginning of each tax year, the government presumes an interest amount on the value of assets, which is calculated by offsetting all liabilities.
If your total assets include crypto worth more than 50,000 EUR, you will be subject to a 31% wealth tax. By understanding the tax policies in different countries, crypto investors and traders can make informed decisions about their investments.
How to classify cryptocurrency events that are taxable from non-taxable ones?
Which country does not have a tax on Cryptocurrency?
There are several countries that do not impose tariffs on cryptocurrency, here is the list:
In Portugal, individuals who profit from cryptocurrency sales are exempt from capital gains taxes. However, companies receiving payment in cryptocurrency are subject to standard capital gains taxes. In addition, if cryptocurrency trading is a professional activity, taxes must be paid on profits, whereas individuals trading as a hobby are not taxed.
Germany classifies cryptocurrency as "other assets," taxed as individual income tax only if sold within a year of purchase. Long-term holdings, including profits up to 600 euros per year, are tax-exempt.
Cryptocurrency remains unregulated, mainly in Cyprus, but the Central Bank has issued warnings about potential losses. ICOs are taxable, but there are currently no mining restrictions or reporting requirements. The SEC is advocating for more oversight. Despite its 12.5% corporate tax rate, the treatment of cryptocurrencies within estates lacks a legal framework.
Singapore's Payment Services Act regulates the crypto industry while promoting growth. Trading profit from digital tokens is taxed, while long-term investment gains are exempt. The classification of gains as trading or capital depends on circumstances, including :
- and holding period
The Monetary Authority of Singapore aims to monitor crypto while fostering innovation.
Swiss Federal Tax Administration considers cryptocurrency an asset, not legal tender. Therefore, capital Gains Tax only applies to self-employed traders or businesses. On the other hand, individual investors are subject to Income Tax and Wealth Tax, with exemptions for holding crypto assets for six months and having a trading turnover smaller than 5x their holdings and a net capital gain smaller than 50% of their total income with no debt financing.
Bermuda's Digital Asset Business Act 2018 regulates digital business activities, including:
- issuing and trading cryptocurrencies
- operating as a payment provider
- and offering wallet and exchange services
The island nation attracts individuals and companies with its zero-tax policy for digital assets.
Malta, a member of the European Union, offers a tax-free environment for crypto investors. Companies like Binance, Revolut, and OKex have established operations there due to their crypto-friendly regulations. Maltese law distinguishes between coins and tokens, with profits from exchanging currencies treated like regular fiat exchange profits and mined coins considered steady income. Increased regulation may come, but non-EU wealthy crypto investors see Malta as a desirable location for now due to its low-tax environment and citizenship offer.
The taxation of cryptocurrencies is a complex and rapidly changing topic, with different countries adopting different approaches. Therefore, cryptocurrency traders must understand the taxation laws in their respective countries to ensure compliance and avoid potential penalties. From the countries we have discussed, it is evident that some countries have taken a more relaxed approach to cryptocurrency taxation, while others have implemented strict regulations.
In either case, it is essential to keep up with the latest developments and seek professional guidance, if necessary, to ensure a clear understanding of the tax implications of cryptocurrency trading. By staying informed and taking appropriate measures, cryptocurrency traders can minimize their tax burden and continue participating in this dynamic and growing market.
Meet Rhea Tripathy, a word wizard with a pen in one hand and a paintbrush in the other. By day, she slays as a content writer and by night, she indulges in her artistic passion. With a keen eye for the markets and a knack for literature, this certified trader brings her sharp mind and creative flair to everything she does. When she's not crafting clever content, you'll find her analyzing the latest market trends or getting lost in a good book.
What is AIS? How to Download AIS?
Income Tax for NRIs - Rules, Exemptions & Deductions
What is 26AS? How to Download 26AS?
What is DeFi and how it is different from CBDC and UPI?
How to Calculate Capital Gains Tax on Crypto Investments?
What's a smart contract and how does it work?
5 Things you should know about Bitcoin and crypto tax
What is NFT? How does it work in Blockchain?
A Simplified beginner’s guide to Crypto
The article covers some of the common terms used in cryptocurrency