The authorities of different countries are making efforts to fully and profitably use the potential of blockchain technologies, but first, they need to draw up a specific set of regulatory requirements. It is not clear, whether such rules will work at the level of particular countries or if the legislation will be extended to the whole world.
The issue of the legal nature of digital currency and transactions is treated differently in each country. In this regard, various jurisdictions view digital currency as a means of payment or, broadly speaking, as a medium of exchange. The lack of formal certainty in the field regarding the general legal status of cryptocurrency entails a broad debate on more specific issues concerning the need for licensing the activities of exchanges, cryptocurrency taxation, and so on. The situation is constantly changing. We will present the attitude of the political class towards cryptocurrencies in countries that have been the focus of attention and also determine their current status.
- Cryptocurrency Tax Regulation
- Natural Persons
- Cryptocurrency Regulation in the European Union
- Cryptocurrency Regulation – Non-EU
- Cryptocurrency Regulation – Americas
- Cryptocurrency Regulation in Asia and the Pacific region
- Cryptocurrency Regulation in other regions
- Tax-Free Cryptocurrency Countries
Cryptocurrency Tax Regulation
Ordinary users often fear that if they encounter problems with crypto exchanges or the ICO, or directly with the circulation of cryptocurrencies, they might not receive the help and support of the law. Miners and traders also remain at risk, and they are concerned about the uncertainty of crypto-generated revenues. At this point, we should remember that mining, as a type of activity, requires initial investments and experiences constant difficulties with the supply of new components that currently cannot be legally protected. A large business that is connected with cryptocurrencies, in one way or another, is not interested only in general legal certainty but also the presence of a favorable government position on the legal regulation of crypto economics.
Many approve of measures to bring cryptocurrency out of the legal shadow through:
- active market participants and regulators
- international financial institutions
- banking institutions that indirectly participate in events in this market.
Cryptocurrency taxes across the world can be broadly applied to two categories: natural persons and legal entities. Further breaking down the two categories, “natural persons” are individuals who trade or hold cryptocurrencies, while “legal entities” refers to cryptocurrency companies and exchanges.
Income received in cryptocurrency (profits from the transfer of property, income from employment, business income) is taxed on the same legal grounds as income received in fiat currency. Overall, income can be generated in different ways, for example:
- price fluctuations of cryptocurrency when purchasing and selling
- mining of crypto
- renting out storage capacity
- receiving wages in cryptocurrency.
Trading in crypto assets would be similar in nature to trading in shares, securities, and other financial products. Therefore, the approach to be taken in determining whether a trade is being conducted or not would also be similar, and guidance can be drawn from the existing case law on trading shares and securities. However, investors aren’t supposed to file taxes for just purchasing and keeping cryptocurrency. In other words, you have to sell or engage in trading in order to be subject to taxes on cryptocurrency.
More extensively, capital gains tax for crypto operates as it does for other assets: if you experience a loss on your trades, you can claim a loss and save on capital gains taxes. There are two different types of capital gains taxes: long-term and short-term. Long-term means that you kept the currency for over a year before selling or trading it, while short-term is applicable to cryptocurrencies you’ve kept for less than a year. These rates vary across the world and according to your tax bracket, although long-term capital gains tax is generally lower.
It is advisable for natural persons to keep records of each crypto-asset transaction, and these must include:
- the type of crypto-asset
- the date of the transaction
- whether they were bought or sold
- the number of units
- the value of the transaction in fiat currency
- bank statements and wallet addresses, if needed for accounting or review.
Mining qualifies as self-employment, and cryptocurrency miners have to pay taxes on their earnings, meaning that their cryptocurrency is subject to self-employment income taxes. As self-employed individuals, miners can also deduct expenses, such as electricity and storage costs.
Fees or rewards received in return for mining (for transaction confirmation) are also chargeable either as trading or miscellaneous income depending on the:
- degree of activity
In contrast to private investors, commercial entities and enterprises cannot make transactions on the implementation of cryptocurrency for private purposes. Bitcoin transactions that are in the property of an enterprise often lead to their characterization as income from commercial activities. In this case, there is no minimum term of ownership after which the taxpayer is exempt from paying taxes on cryptocurrency. Depending on the organizational and legal structure of the company, the profits thus obtained are subject to income tax (for individual entrepreneurs and partnerships) or corporate income tax (for limited liability companies, joint-stock companies, etc.).
In addition to taxing the sales of cryptocurrencies on the stock market, the question arises of taxing income associated with the ICO. In particular, the development of the Ethereum blockchain has provided companies with new opportunities for the use of so-called smart contracts and the withdrawal of digital tokens. The growth rate of many cryptocurrencies has greatly increased interest in ICO. However, ICO raises numerous tax issues for both token buyers and startups that issue tokens.
Along with the tax on profits from BTC transactions for entrepreneurs, the question of paying VAT is still an important issue. In any transaction, it is always recommended to check the company’s activities in order to clarify the nature of the services provided and, thus, clarify the issue of the obligation to pay VAT.
|Country||Classification||Type of tax||Tax rate|
|Australia||Property||Progressive income tax
|Brazil||Asset||Capital gains tax||15%|
|Canada||Asset||Progressive income tax||15-33%|
|China||Virtual commodity||Progressive income tax (for international trading)||3-45%|
|France||Property||Capital gains tax||30-34%|
|Germany||Private money||Progressive income tax||0%-45%|
|India||Digital asset||Progressive income tax
|Israel||Digital asset||Progressive income tax
|Japan||Property||Progressive income tax
|Russia||Digital asset||Income tax||13%|
|South Africa||Intangible asset||Progressive income tax||18-45%|
|South Korea||Property||Income tax
|Sweden||Digital asset||Progressive income tax||0-57%|
|Switzerland||Movable property||Progressive wealth tax
Progressive income tax
|Turkey||Commodity||Progressive income tax||15-35%|
|UK||Private money or Asset||Corporation tax
Progressive income tax
Progressive income tax
Cryptocurrency Regulation in the European Union
The EU does not have a single tax regulator. The ability to levy taxes, including cryptocurrency taxes, is crucial to the sovereignty of EU member states, over which the EU has only limited competence. Therefore, the EU Antitrust Commission controls aggressive tax planning with the help of multinational cryptologists. The commission is also responsible for the state police assistance that impedes competition in the EU.
Back in 2015, the Court of Justice of the European Union (CJEU), the chief judicial authority of the European Union, established that activities with BTC are exempt from consumption tax under the section on activities with currencies and coins of legal tender. Although the sale of BTC does not involve consumption tax, cryptocurrency transactions may qualify for other tax categories, i.e., capital gains or income tax. The tax management of cryptocurrency for tax purposes varies depending on the EU country.
According to the Vice President of the European Commission, Valdis Dombrovskis, whether you like it or not, cryptocurrencies are here to stay and represent an emerging form of alternative financing. Based on this statement, accepting bitcoins and their derivatives may be called upon to play an important role in the financial system. Brussels has set to work to prepare measures that regulate innovative elements that come with opportunities and risks.
Cryptocurrency and Taxes in Germany
BTC is not considered a means of payment or e-money in Germany; rather, the Federal Ministry of Finance (BMF) classifies bitcoins as private money and thus treats it as a foreign currency. No value-added tax is charged when exchanging or trading cryptocurrency. Bitcoin is also not an investment, such as stocks, that are subject to a 25% withholding tax if sold at a profit.
Instead, bitcoin trading is a private sale activity, which means that any profits are taxable under §23 EStG. However, if bitcoins are sold after a holding period of at least one year, any profits from the trade in bitcoins are generally tax-free.
Bitcoin as an investment – when the profit must be taxed
Is Bitcoin taxable in Germany and if so, under what conditions? Taxes are incurred when Bitcoin investors hold the cryptocurrency for just a few months and then sell it at a profit.
Example 1: A Bitcoin investor bought cryptocurrency in mid-August when the price was €500. At the beginning of May next year, the investor will sell it for €1,300. The resulting price gain of €800 must be declared in full in the income tax return under Other Investment Income and will be taxed at the individual’s tax rate.
Example 2: A Bitcoin investor sells their currency within half a year, with a price gain of €500. Thus, this profit would be below the exemption limit of €600, so these profits would remain tax-free.
Important to know: The exemption limit of €600 does not apply only to Bitcoin price gains but also to profit from all other private sale transactions, which would have to be added to this price gain.
Cryptocurrency trading – FIFO or LIFO method?
Practically speaking, bitcoins, in most cases, are bought into, and the price can continue to rise in the future. Then the determination of profit becomes a bit more difficult. The FIFO practice (first-in-first-out) is preferable for the German tax declaration. It means that bitcoins that were purchased first are sold first. Theoretically, the LIFO practice (last-in-first-out) is also possible. If the investor has opted for this procedure, no later change is possible.
Taxation of cryptocurrencies in France
The Council of State has canceled a tax instruction on cryptocurrencies and redefined how to file crypto taxes in France. The definition of the crypto asset given by the general tax code might not include some particular cryptocurrencies, especially anonymous ones. Nevertheless, this is more of an editorial oversight rather than a deliberate exclusion from the definition. Capital gains realized from 1 January 2019 will be taxed at a single rate of 30%, including social security contributions.
Simplicity in the flat tax regime
The 2019 Finance Act defines surplus value, which roughly corresponds to the following calculation: transfer price – purchase price – possible depreciation. For example, a sale price of €10,000, a purchase price of €4,000 and no capital loss equals a capital gain of €6,000, which makes it €1,800 in taxes.
There are two exceptions to this rate. A tax exemption is given on capital gains of less than or equal to €305, but the state, nevertheless, requires a declaration. The rate is increased to 33 or 34% if a taxpayer receives an exceptional high-income contribution (CEHR). An increased rate is applicable for a taxable income of over €250,000 for an individual.
Specific regime claimed for mining
Earnings corresponding to a usual activity used to be taxable in the category of industrial and commercial profits (BIC), while those corresponding to an occasional activity were reported as non-commercial profits (NBC). Mining is currently taxed as a non-commercial profit (NBC).
The crypto community has requested specific tax measures regarding mining, as well as the eligibility of Blockchain projects, namely that they should have the status of “young innovative enterprise” (JEI) and the benefit of CIR (credit of research tax). These are included in the next draft budget law.
Cryptocurrency Taxes in the Netherlands
If you receive payment in BTC, this is counted as salary or income, which belongs in box 1 in the declaration. To report crypto taxes in the Netherlands, record all of your cryptocurrency income in your accounting in the respective value in euros. If the tax authorities believe that you have spent so much time and/or effort on mining or trading that it has a positive effect on your revenue, this can be viewed as income. In that case, you pay tax at a rate of 30%.
Dutch regulation in favor of cryptocurrency
The tax authorities see bitcoins, or other cryptocurrencies that you own, as assets. You must, therefore, pay tax on the total value of all cryptocurrencies that you own. The capital from cryptocurrency falls under “other equity” in box 3, which is about saving and investing. The tax to be paid is calculated per bracket, based on a notional return on which you, again, ultimately pay 30% tax. Keep a good record of the value of your possessions and how much goes in and out. This can be valuable if you have to calculate your tax at the end of the year, or you might have to defend yourself in order to avoid being taxed up to 51%.
|Bracket||Amount||Fictional return||Effective tax rate|
|1||0 to 70,800 euros (the first 30,000 exempt)||2.017%||0.655%|
|2||70,801 – 978,000 euros||4,226%||1,298%|
|3||> 978,000 euros||5.38%||1.614%|
Cryptocurrency Tax Liabilities in Sweden
Three scenarios determine how to do crypto taxes in Sweden. If you bought or sold your bitcoin, your expense amount is the amount you paid for the bitcoin, converted to Swedish kronor. You are taxed for the entire profit at a rate of 30%. If you have made a loss, it is deductible by 70%.
If you have received bitcoin as a payment on a one-time basis, the expense amount is the value that you report as turnover, including any VAT.
If you have received bitcoin as a salary for work in employment, the expense amount is the value that you report as income from service. There are four tiers for income tax, depending on the income.
|0%||0 kronor to 18,800 kronor|
|Circa 32% (ca. 11% county and 20% municipality tax)||18,800 kronor to 468,700 kronor|
|32% + 20%||468,700 kronor to 675,700 kronor|
|32% + 25%||675,700 kronor|
You need to be able to prove the cost amount with, for example, receipts or original account statements. If there are wallet addresses, the blockchain transactions must be in line with the accounting for the purchase, sale or mining of the bitcoin.
Cryptocurrency Regulation – Non-EU
How cryptocurrency is taxed in the United Kingdom
The UK does not tax activities that are generally not considered business income, but there may be circumstances where factors such as the degree of skill and organization would make the activity more likely to be taxable.
Why using crypto may become unprofitable for a company
If a UK company uses Bitcoin or any other cryptocurrency, whether as an investment (SOV) or payment method (Payment Rail), the cryptocurrency must be considered as a currency. That means that at the end of the year, the balances must be converted into pounds, with the tax impact that it generates. It can be a significant problem when dealing with such a volatile instrument as Bitcoin. Indeed, a company that has positive cryptocurrency balances at the end of the year will have to pay a tax in pounds on the latent gain of these balances in the UK. If the accounts are drawn up six months later and the currency in question has lost much of its value, the tax due in pounds may even be greater than the added value.
|Buying 10 BTC||BTC value||GBP value|
|Purchase of BTC||£2,000||£20,000|
|Value at Year-End||£19,000||£190,000|
|Tax rate 19%||£32,300|
|Value when tax is due||£5,000||£50,000|
|Actual tax rate||107.67%|
It is, therefore, extremely risky to use these virtual currencies for anything other than payments, and in this case, it is advisable to convert the transactions into local currency as quickly as possible to avoid any currency risk.
Two tax regimes for natural persons
HM Revenue & Customs expects citizens to treat virtual currencies as financial assets and not as a currency. This means that as long as the asset is not sold, there is no tax to pay. And since the asset is financial, it is not subject to VAT, either. But this poses a significant problem for those who want to use the cryptocurrency as a means of payment. In fact, every transaction, no matter how innocuous, generates a capital gain or loss.
The tax treatment is different for miners or active traders. In this case, the gains are not subject to capital gains tax but to income tax. However, this is not really different from what happens with stock traders, or real estate developers, or any activity that is considered a trade and not a passive investment activity.
|Tax Rate||Taxable Income||Tax Rate|
|Personal allowance||Up to £12,500||0%|
|Basic rate||£12,501 to £50,000||20%|
|Higher rate||£50,001 to £150,000||40%|
|Additional rate||Over £150,000||45%|
Cryptocurrency Taxes – Switzerland
In recent years, the Federal Tax Administration has been calculating a reference rate for BTC. Bitcoin and other cryptocurrencies are regulated by current financial, criminal and contract laws, with no need for specific regulation. A three-tier system has been put in place to categorize cryptocurrencies, based on their use and the rights attached to them: payment, utility, and asset tokens.
How to file a wealth tax on crypto assets in Switzerland
Cryptocurrencies are inherently recognizable and identifiable. As such, they must be treated as assessable movable property, like cash. Cryptocurrency ownership is subject to wealth tax and must be reported in the statement of securities. The rate at which the tax must be imposed is not clearly defined. Cantonal tax administrations calculate the average prices of several trading centers at the end of the year.
Cryptocurrencies which are not yet on the Swiss Federal Tax Administration rate list and don’t have a clear way to determine the price must be declared at the buying price. This may need to be done because of the absence of transactions made in this cryptocurrency.
Embracing cryptocurrency with the income tax policy
Profits or losses resulting from transactions with cryptocurrencies are non-taxable capital gains or non-deductible losses. However, when a person uses cryptocurrencies in a professional setting (e.g., persons specialized in professional trading), the profits earned are taxable in the form of independent income, when appropriate; losses can be made an object of a tax deduction.
If a natural person is paid in a cryptocurrency for rendering a service, the income generated is subject to income tax. The amount to be reported is the rate on the date of settlement, converted into Swiss francs. If the self-employed are remunerated in a cryptocurrency, it is also taxable but qualifies as income from a self-employment activity.
Cryptocurrency Regulation – Americas
Crypto Taxes in the United States
When it comes to tax legislation, cryptocurrency is considered as property; profits, in this case, are derived from capital gains and not from exchange differences. Accordingly, holders must pay taxes on cryptocurrency as property and notify the US Internal Revenue Service (IRS) of their transactions. Miners in the United States also have to pay taxes on annual gross income. Taxpayers who receive cryptocurrencies for goods and services should include the cost of the cryptocurrency received in the declaration, at the rate of the cryptocurrency on the day of payment.
How gross income affects your tax bracket
Federal income tax ranges from 15 to 35%, depending on the size of net profit; the state tax is 0 to 10%, depending on the state of registration. The amount of federal tax will depend directly on the net profit (PE), which is calculated by the formula: PE = Revenues – Costs.
The size of the tax levied grows in proportion to the company’s net profit. For example, if the amount of net profit ranges from 0 to $50,000, then the rate of 15% will be applied. As soon as the net profit exceeds $50,000, the company is obliged to pay $7,500 in tax and an additional 25% on the next $50,000 (and up to $75,000), etc. The maximum rate of 35% is applied, provided that the company’s net profit is $18,333,333 or more.
|Single Filers||Tax Rate|
|$0 – $9,525||10%|
|$9,526 – $38,700||12%|
|$38,701 – $82,500||22%|
|$82,501 – $157,500||24%|
|$157,501 – $200,000||32%|
|$200,001 – $500,000||35%|
Short-term capital gains are taxed as ordinary income as stated by the law, whereas long-term capital gains are taxed in the three brackets of 0%, 15%, and 20%.
Non-uniformity of sales taxes
In terms of a one-time sale transaction, how is Bitcoin taxed in the US? Spending BTC to buy a product or a service is regarded as a sale, and selling a property at a markup is a taxable event.
In the US, sales tax ranges from 0 to 8%, depending on the specific state but excluding city and local taxes. This tax is considered regional, and therefore, each state sets its rate depending on the economic situation of the state, the existence of developed or developing economic sectors, the prevalence of the goods, and whether the goods are imported from abroad or were produced in the United States.
In addition, there are separate areas that are subject to local tax in some states – local surtax. For example, in the state of Delaware, there is no sales tax, and in Alaska, some cities and individual districts are allowed to set their own sales tax rate of up to 7%, although there is no official tax at the state level.
Taxes on cryptocurrencies in Canada
According to Raymond Chabot Grant Thornton (RCGT), any profit realized at the time of the disposition or exchange of a virtual currency may result in a taxable income or gain and, if applicable, must be included in the tax return. Regardless of the transaction, the rules persist: all transactions (exchanges, transfers, etc.) must be reported as dispositions and distributions for tax purposes (numbers are rounded up):
- 15% on the first $45,000 of taxable income, plus
- 20.5% on the next $45,000 of taxable income, plus
- 26% on the next $50,000, plus
- 29% on the next $60,000 of taxable income, plus
- 33% of taxable income over $200,000
According to RCGT, for the purposes of Canadian tax law, the Canada Revenue Agency (CRA) regards bitcoins as a good or commodity. The Canada Revenue Agency considers the use of bitcoins to purchase goods or services as a barter trade since it is not a currency. While it is a virtual currency used to purchase goods or services, the CRA considers that the tax rules on barter transactions are applicable. For example, whenever a taxpayer exchanges property for another property, it is a barter trade. Ironically, barter, the oldest economic operation of humanity, has been applied to Bitcoin, the most recent monetary invention (2009).
What happens if the price of Bitcoin soars?
Can cryptocurrency be taxed in Canada at the same rate if the price changes drastically? According to RCGT, the fluctuation in the value of Bitcoin (or other virtual currency) held on a continuous basis does not in itself have tax consequences; the tax on cryptocurrency comes into play only when it is sold or exchanged for another property.
However, given the highly speculative nature of cryptocurrency and the marginality of its use to make purchases, profit made by several taxpayers who trade bitcoins and other virtual currencies may be considered income rather than a capital gain.
Taxation on crypto in Brazil
Digital currencies (such as Bitcoin) should be declared in the Assets and Rights tab as other assets as they are considered a financial asset. Each digital asset purchased is to be declared, which means a new field must be completed for each one. If you have purchased 10 different assets, you must declare and enter 10 fields. Upon completion, you must describe the digital asset in your possession: the quantity, average purchase price, and month when you acquired it.
Since the cryptocurrencies have no official quote, there is nobody responsible for controlling their issuance and no legal regulation for converting the amounts for tax purposes. Negotiation statements with the exchanges or extractions from the user’s wallet are among the accepted documents.
Clear-cut policy on capital gains
Gains from the disposal of assets with a total of more than R$35000 are taxed as a capital gain at the initial rate of 15% (up to R$5 million). Income tax collection must be made by the last business day of the month following the transaction.
If you sold your crypto and did not know whether you had made a capital gain, and therefore did not pay the monthly taxes, have the Capital Gain Calculation Program do the calculations. If you have made a capital gain and have not reported cryptocurrency taxes in Brazil, you will be subject to retroactive tax, including penalties (fines and interest).
Cryptocurrency Regulation in Asia and the Pacific region
How cryptocurrencies are taxed in Australia
The ATO perceives cryptocurrencies as property; therefore, a similar logic applies as to the regulation of real estate investment or shares. A tax is levied on the profit obtained from an investment and has to be declared every year. A business that is related to the digital currency has crypto as part of its current business, or accepts the digital currency as a payment should consider the implications of GST that may arise. A detailed record of the transactions made with cryptocurrencies should be kept, which is simple enough to do given the nature of blockchain.
Advancing the regulations on cryptocurrency
The Tax Office has a specific department for the regulation of cryptocurrencies with documents that guide users towards understanding the laws applied to the field.
The country has a system for identifying suspicious activities in which unusual transactions higher than $10,000 AUD have occurred. A relevant observation is that those people whose funds are worth less than $10,000 AUD are exempt from declaring taxes because in this case it is considered that cryptocurrencies are for personal and recreational use.
In addition, the Australian government is improving its data matching technology, so it can make sure that crypto traders pay taxes according to their profits. However, all persons involved in the acquisition or disposal of bitcoins or altcoins must maintain records related to their cryptocurrency transactions.
How to report cryptocurrency on taxes in Japan
The National Tax Agency states that income is taxable if your profits come from virtual currency. Cryptocurrency is defined as a means of payment and of intellectual value. Therefore, crypto is exempt from consumption tax.
Revised Fund Settlement Act to include crypto
The Fund Settlement Act was originally a law that established the rules for e-money and gift certificates, but the revised Fund Settlement Act aimed to include cryptocurrency. The revised law includes the definition of cryptocurrency, the registration of crypto exchanges, and business restrictions.
Simply put, cryptocurrency transactions are subject to income tax. There are 10 categories of income tax in tax law, but if you earn it individually, it is classified as miscellaneous income. In fact, miscellaneous income doesn’t have a set tax rate, and there are seven brackets in the tax rate (5% to 45%), according to the combination of gross income with other income.
|Gross income amount||Tax rate||Deduction amount|
|More than 200,000 yen 1.95 million yen or less||5%||0 Yen|
|More than 1,950,000 yen and less than 3,300,000 yen||10%||97,500 yen|
|More than 3,300,000 yen 6.95,000 yen or less||20%||427,500 yen|
|Over 6.95 million yen and under 9 million yen||23%||636,000 yen|
|Over 9 million yen and under 18 million yen||33%||1,500,000 yen|
|Over 18 million yen and under 40 million yen||40%||2,796,000 yen|
|Over 40 million yen||45%||479,600 yen|
(Inhabitant tax of 10% is added further.)
Tax laws on cryptocurrency in China
The People’s Bank of China published a statement warning citizens to avoid the possible risks of ICOs and enforcing rigorous procedures regarding transactions with cryptocurrencies, explicitly banning cryptocurrency exchanges and ICOs within the country.
It also addressed the question of whether citizens would have to pay taxes on cryptocurrency collected from trading online on international platforms. In line with the statement, the earnings collected by natural persons through buying a cryptocurrency and subsequently selling it to others at a profit on international platforms must be taxed. The tax is categorized as income tax, which shall be calculated in a category of asset transfer. The initial price of the cryptocurrency traded should be equivalent to the price for buying that cryptocurrency online plus the applicable additional charges. If the taxpayer fails to declare the evidence of the initial price, the authorized tax bodies shall decide on the initial price.
Crypto taxation in Hong Kong
In late August 2018, the Hong Kong Financial Services and Treasury Bureau (FSTB) issued a report in which it stated that cryptocurrencies do not pose a threat, despite the uncertainty in their regulation. There is no capital gains tax for cryptocurrency investments, but there is income tax for profits derived. Therefore, you have to file crypto taxes as part of your income in Hong Kong.
It creates an encouraging space for investors and, accordingly, stimulates the industry in Hong Kong.
After ICOs were banned in China in September 2017, the Hong Kong Securities and Futures Commission (SFC) stated that it would take a pragmatic approach — instead of banning ICOs, it would determine the regulatory status in each case depending on individual characteristics.
How to pay taxes on cryptocurrency in South Korea
To ensure the tax collection on cryptocurrencies, the National Tax Service of South Korea is working on developing the tax system further. The Deputy Prime Minister (PM) of South Korea and the Minister of Strategy and Finance said that the service was studying taxation methods in the BTC market. The NTS decided to learn from the examples in other countries, sending employees to the USA, Japan, Germany, and the UK to study various crypto-security mechanisms.
It remains vague and disputed
As a tax base, officials propose to use the income derived from cryptocurrency trading. The basic principle is to collect income tax. To establish the cryptocurrency tax rate, it is important to collect detailed historical transaction data. Since virtual currency is the same type of property as real estate or securities, it should be taxed in accordance with the general principles of income taxation. Tax on transactions, or VAT, can be levied only if a clear definition of cryptocurrency is worked out and unambiguous terms are used. This will take time. Cryptocurrency exchanges, on the other hand, are already categorized. They are to be taxed in accordance with existing tax policies, 22% corporate tax and 2.2% local income tax.
Addressing the ICO ban in South Korea, the Deputy PM specified that the government would take a new position on the digital industry following a thorough review of the market, global trends, and investment concerns.
Cryptocurrency Regulation in other regions
How to report cryptocurrency on taxes in India
The Reserve Bank of India (RBI) has issued a series of contradictory statements indicating its discomfort with the regulatory framework governing cryptocurrencies. However, paying taxes is inevitable for investors who hold virtual currency, despite the ambiguous position of the authorities on the validity of these investments.
Applying strict rules despite backlash
The Indian authorities started levying an 18% tax on goods and services in cryptocurrency operations. The authorities of the country classify cryptocurrencies as digital products on par with various software products. Following the new legislation, cryptocurrency activities will be considered as the supply of goods (while the transfer, storage, and accounting of crypto assets will be regarded as services). The value of the coins can be determined on the basis of the value of the transaction in Indian rupees or its equivalent in any freely convertible currency. For the purpose of transfer or sale, the place of delivery will be the location of the registered person. Transactions outside the country will be subject to an integrated tax on goods and services, as well as treated as export-import operations with goods.
Tax laws on crypto in the UAE
Failure to control cryptocurrency by any government agency and/or conduct transactions by a bank or financial institution leads to various legal difficulties. There is a lot of data on cryptocurrency trading, but no clear cryptocurrency taxes have yet been determined.
The Central Bank of the UAE published a plan to enhance user protection and financial stability. However, the President of the Central Bank made an announcement that these policies did not apply to exchange rates, blockchain, Bitcoin or other cryptocurrencies.
While there are no new regulations to govern cryptocurrencies, the most important questions to answer are whether it is a currency or a commodity and how to claim cryptocurrency on taxes in the UAE. If it is considered a commodity, the Emirates Securities and Commodities Authority may become the governing authority and it will be subject to VAT. If it is a currency, it is likely that it will enter the regulatory authority of the Central Bank. UAE officials have not clarified their position on the matter.
Cryptocurrency Taxation in Russia
The Russian government brought about legislation on how to report cryptocurrency tax in Russia. Cryptocurrency transactions with a fiat currency will be taxed if they are higher than 600,000 rubles or about 9,600 dollars. This limit is already used by the Russian authorities to fight against money laundering and terrorist financing.
State vs. digital assets
In addition, the Financial Assets Act stipulates that cryptocurrencies are a digital financial asset that can be managed only by authorized exchanges, and this includes ICOs. Users who have cryptocurrency accounts will also require Russian government authorization. The law is highly criticized, as many cryptocurrency investors have indicated they want more flexible regulations on cryptocurrencies.
The tax on cryptocurrency as digital financial asset transactions is set to be 13%, but the anonymity of virtual currencies complicates this taxation. Russia is also working on a state-issued cryptocurrency.
How to file taxes in Israel
Authorities note that the sale of cryptocurrency in the secondary market will constitute capital income, and accordingly, the profit or loss from the sale should be declared. (A tax rate of up to 50% may apply.) The Tax Authority also determines that crypto transactions, such as Bitcoin, will be treated as a barter transaction for tax purposes according to the value of the exchanged assets at the date of the transaction.
In the event that a company provides services or sells products in return for crypto, the tax law states that this will be recognized as income in accordance with the rate of service delivery or the supply of the products. Among other things, it was determined that the proceeds received from ICOs would be recorded as deferred revenue (a kind of advance payment from a customer) in the issuing company, and would be taxed in Israel according to the value received on the issuance date (cash and/or cash equivalent).
Cryptocurrency and taxes in Turkey
Bitcoin is taxable in Turkey, but the government is still trying to classify the tax category because if any tax is levied, it is necessary to make it transparent. Although the central bank and the Capital Markets Board of Turkey announced that cryptocurrencies are considered a commodity, the situation is not clear.
If you are an investor, profits over 24,000 TL are taxable. In other words, if you make a lesser profit from your investment, you will not be subject to any taxation or income tax. Taxation may also be included within the commission obtained per transaction on Turkish platforms. The authorities have taken a stance, even though the studies continue.
How to report crypto taxes in South Africa
The country has been making strides in crypto regulation. In South Africa, cryptocurrencies have not yet received legal status, but citizens are already required to pay taxes on them. The Income Tax Act in South Africa does not consider cryptocurrency as a currency, so Bitcoin is not legal tender in the country but rather an intangible asset. According to the official statement of the regulatory body of South Africa, taxpayers must declare the income from cryptocurrency received or accrued. Failure to meet this requirement will be punished with penalties and fines.
There are three cases in which cryptocurrencies are subject to taxation: as a result of mining, exchanging cryptocurrencies for fiat funds, or using them to pay for goods and services. Taxpayers will have to report their income and losses as part of the capital gains tax, while any other income earned in cryptocurrencies will be treated as income tax.
Tax-Free Cryptocurrency Countries
Cryptocurrencies are not regulated by Maltese law, and crypto exchange is comparable to commodity trading. Cryptocurrency is not considered an investment tool according to the Investment Services Act and does not require any licensing documents. In addition, a cryptocurrency company does not require a license from the Financial Services Authority of Malta if it does not qualify as a collective investment scheme or does not operate as a banking institution. In the latter case, the business must be properly licensed in accordance with the Financial Law institutions, or the person must be subject to an income tax of 5 percent. Otherwise, it stands tax-free.
Explaining Malta’s tax policy, three MEPs said that they did not let the EU decide on behalf of the Maltese citizens how to manage their tax systems. The fact remains that competence over the matter belongs to each government.
In SKAT’s view (the tax authority of Denmark), the Bitcoin system is merely a payment system that makes it possible to carry out transactions that are not regulated by any central bank. On the basis of this, SKAT finds that Bitcoin cannot be regarded as an official currency covered by the Tax Control Act and that the Bitcoin price cannot, therefore, be used as a basis for preparing tax-related annual accounts.
Only the value stated in the purchase or sales invoice for the trade in question, including possibly any foreign currency, can be included in the calculation of the taxable income. They see the consequence of BTC transactions as an entirely private matter. Thus, any gains on bitcoin are tax-exempt, and losses are non-deductible.
In the case of a sale (i.e., sale of tokens) to a non-resident, the company is exempt from VAT. If such a sale is made to a Singaporean resident, the company is exempted from paying the tax only if its annual turnover is less than 1,000,000 SGD. If the IRAS recognizes the services provided by the company (including financial services) as international services, then the tax can be defined at a rate of 0%.
Companies are required to register as GST payers if their annual turnover exceeds 1,000,000 SGD (about 724,600 US dollars). A company may submit an application to register as a GST payer voluntarily, even if its turnover is less than the amount mentioned. After registering on a voluntary basis, the taxpayer must remain registered for at least two years and keep the entire account and any other company records for at least five years (even if the business has been transferred to another country, etc.).
Slovenia is a haven for crypto assets with its tax compatibility. The legislation was introduced in 2013, and since then, there have been additional changes in this area under the Slovenian Company Tax Law.
Individual investors’ profits are not taxed or treated as their income. The financial administration of the Republic of Slovenia notes that the income from trading bitcoins or other virtual currencies, as well as income from fluctuations in the rate of cryptocurrency for an individual, is tax-free. According to the Income Tax Law of Slovenia, capital gains, as a rule, do not apply to income from movable property or from derivative financial instruments. However, companies using cryptocurrencies are taxed, as well as individuals who receive their income in bitcoin.
Belarusian citizens are legally entitled to independently mine cryptocurrencies, as well as trade them on international exchanges. It is an entirely valid activity and can be qualified as a business. Until January 2023, mining will not be subject to any taxes but only if it is executed by one individual, strictly using their own capital and for their personal purposes. If they accept investments from other parties, participate in a partnership or offer equipment for rent, they are obliged to register as a private entrepreneur and pay a standard income tax for this form of entrepreneurship.
According to the IRC, cryptocurrency is considered an asset, like securities, but with an increased level of risk. Therefore, such an activity will be an investment in the future, so a miner or a trader will pay the same tax as people who work with securities. The tax is at the same percentage as taxes for private entrepreneurs.
The tax authorities explain that gains from cryptocurrency transactions cannot be taxed as capital gains because the law has a narrow wording. It states that this is only applicable to gains derived from the factual assets provided in the IRS code, for example, financial units such as securities. Virtual currencies do not fit into any of the cases listed in the law.
Although the current Portuguese tax legislation does not specifically regulate this type of activity, such income constitutes a distribution of profits in proportion to their participation (investment). The tax authorities conclude that the sale of cryptocurrency is not taxable under Portuguese tax law unless done as a professional or business activity of the taxpayer. Then they are obliged to issue an invoice or invoice-receipt whenever they make a sale or provide a service, but investors are not expected to list this activity as a profession.
Panama has the territorial principle of taxation, which applies to both Panamanian citizens and residents. This policy applies to income tax, capital gains, local taxes, and inheritance tax for individuals. Therefore, companies that receive income outside of Panamanian jurisdiction are not subject to corporate tax.
It makes Panama a valuable residency option for anyone who creates sources of income outside of the country, which is applicable to most cryptocurrency investors. In other words, if you own a digital business that is generating money abroad, your company’s effective tax rate will be 0%. Unfortunately, in the case of Panama, the government has not issued any regulations on what crypto activity is legal and what is not.
Basically, it is important to stay on the ball when it comes to Bitcoin and taxes. The tax treatment of cryptocurrencies is well regulated in only a few countries of the world, so the long-term financial strategy should be based on similar or stricter rules than those of fiat currencies. Crypto investors and traders, in particular, are bothered by the unfavorable legal framework and taxation in some countries. Due to the high-profit margin, higher taxation for price gains is quite possible, even over 50%.
Many banks are still struggling with crypto and specifically prohibit crypto trades in their terms and conditions. It is essential for a company to find a corresponding business account that ensures a smooth and straightforward conversion into fiat.
An increasing number of traders are willing to relocate to countries where cryptocurrencies are either tax-regulated or the system has regulations that would probably make cryptocurrencies tax-exempt. Residence should be in a country that combines the policies of crypto-friendly tax regulation and no additional taxation of foreign companies. For large sums of crypto assets, the better choice is to go for selective private banks in, e.g., Switzerland, which has adapted to the new clientele of crypto-millionaires. For smaller sums, it is best to work with financial service providers, which are explicitly crypto-friendly and open online business accounts for offshore destinations. Whether it is the fully tax-free Belarus, territorial tax countries such as Panama and Singapore, or a country with a special program such as Malta, the choice ultimately depends on individual preferences.
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