Unless you live in Italy or another similar country where cryptocurrency gains aren’t taxed at the moment, you’ll soon be trying to figure out how to properly account for your bitcoin or other cryptocurrency holdings ahead of the upcoming tax season and beyond.
Generally, ambiguity reigns presently, as cryptocurrency taxation is very much a work-in-progress for legislative bodies across the entire world. Nevertheless, as current cryptocurrency users, we must contend with the laws of our respective lands as they stand now, lest we commit tax offenses and cause major headaches for ourselves down the road.
Today, then, we’ll be breaking down the taxation models applied to cryptocurrencies in some of the world’s most influential nations to help give you a better sense of the current international regulatory spectrum.
The Three Main Taxation Models
Most nations make their crypto users submit to one of three fundamental taxation categories:
- Income tax
- Company tax
- Capital gains tax
Income tax applies to all non-incorporated entities that receive Bitcoin or other cryptocurrencies as income.
Company tax applies to enterprise-grade operations that are large and deal, accordingly, with huge amounts of crypto. Think of a cloud-mining company like Genesis Mining, for example.
Capital gains tax applies to traders who have invested in crypto speculatively with the express purpose of making gains. Most nations split capital gains taxes into short-term gains and long-term gains categories depending on various criteria.
Now, let’s shift to specific national taxation approaches.
USA: In the United States, the Internal Revenue Service (IRS) considers cryptocurrencies to be “property.”
Image credit: Bloomberg.com
In a legal sense, then, this means that your crypto investments will be subject to a capital gains tax—either a short-term capital gain rate or a long-term capital gain rate depending on how long you held your crypto before taking a profit.
If you cash your crypto out within one year of buying it, then you’ll be hit with the steeper short-term capital gains tax. These short-term rates are typically whatever your regular tax rate is, so if you’re taxed at 25%, then so, too, will your short-term gains be taxed at the same rate.
For U.S. users who cash their crypto out after one year of holding it, they’ll contend with the long-term capital gains tax rates of 0%, 15%, and 20% depending on their tax bracket.
And the Cryptocurrency Fairness in Taxation Act (CFTA) is also currently being debated in the U.S. Congress; this will would exempt all crypto transactions beneath $600 from taxation.
Update 2018: There was some debate about whether Crypto to Crypto trades would be treated as “like-kind”, meaning no tax would be due on these. This has now been clarified and tax is due, so you will need to keep records of any trades you make and pay tax accordingly.
A Company called CryptoTaxPrep offer a complete Cryptocurrency tax service which costs $750 for a state and federal tax return.
Canada: Per a 2013 interpretation letter, the Canadian Revenue Agency (CRA) declared cryptocurrencies are “commodities” under Canadian law—just like silver or natural gas.
This means here your crypto will either be taxed as business income or as a capital gain (or business loss and capital loss, respectively).
Mexico: The Mexican government has an open-minded, liberalized legal attitude toward Bitcoin. Domestic regulatory framework is not yet finalized, but the nation’s legislature is actively designing new measures.
UK: The British government repealed their VAT tax against Bitcoin in 2014. Now, most cryptocurrency transactions are exempt from VAT fees in the nation.
Moreover, the HM Treasury considers BTC and other cryptocurrencies to be “assets,” not legal currencies. This mandates such crypto be taxed either by an income tax or a capital gains depending on the circumstances (if you’re a trader, for example, you’ll pay income tax vs capital gains for normal investors).
Mining as part of a business will have to pay corporation tax at the standard rate of 20%.
If you are an individual, you will pay capital gains tax on any profits you make from your cryptocurrency investments. It should be noted that each person has an allowance of £11,300 per year which is tax-free. You are also able to “gift” some of your crypto investment to your wife who will also have the £11,300 allowance. If you plan your withdrawal properly and do it in April ( start / end of new tax year ) you could withdraw £11,330 on the 5th of april and £11,300 on the 6th of april which means they fall in separate tax years. You can double that amount if you are married, meaning it’s possible to withdraw £45,200 without having to pay tax.
Like The USA, any crypto to crypto trades you make will be taxed :
The definition of a disposal is written above and many of you will have noticed the problem it causes. As BTC is the entry point into most Altcoins, you must first purchase BTC, then transfer that to an exchange, then to trade that for an Altcoin. With the transaction times and volatility of BTC that value could have risen or fallen quickly, when you trade your BTC for an Altcoin you are ‘disposing’ of your BTC and creating a Capital Gain or Capital Loss.
Where you purchase and sell a large amount of Altcoins this can be a problem, you will need to create a spreadsheet recording the dates and FIAT values of the Altcoin purchases and disposals. Each separate disposal of a Cryptocurrency will be required to be converted to FIAT at the time of disposal.
See this excellent guide for more info.
Switzerland: The Swiss have officially categorized Bitcoin as a “foreign currency.”
Capital gains taxes aren’t applied to the vast majority of individuals in Switzerland, either, so that’s another important dynamic to consider.
The Netherlands: Holland’s Finance Minister announced that the Dutch government would be considering Bitcoin and the like as “barter items” henceforth.
This classification was a liberal one, giving crypto users in the nation no need to license their activities or meet any sort of compliance regulations.
Accordingly, Dutch crypto users’ holdings are taxed according to these users’ respective basic income tax rates.
Germany: Like the UK, Germany doesn’t apply a VAT tax to cryptocurrencies.
If you’re a trader, you have free capital gains up to €800 Euros. Once you breach this amount, you’ll need to pay a 25% flat-rate on your speculative gains.
If you’ve made gains from simply holding your crypto and never moving it, you won’t owe any taxes in Germany.
Again, like in Britain, large-scale mining operations are hit with company taxes here.
Italy: Zero taxation on cryptocurrencies as of Q3 2017.
Russia: Taxation laws as applied to individual users are unset for now. However, Russian president Vladimir Putin just instructed the Russian Duma to draft up a framework through which to regulate and tax large crypto mining operations in the nation.
China: In Q3 2017, China banned crypto exchanges and Initial Coin Offerings (ICOs) indefinitely in domestic markets, leading many pundits to wonder if the Chinese Communist Party was on the verge of banning crypto ownership altogether.
The reasons for these bans? Chinese regulators are concerned about clamping down on the possibilities of money laundering through crypto before the crypto space gets too big and too unmanageable.
Per Sheng Songcheng, a top economic adviser to the People’s Bank of China:
“Because it is traded anonymously and peer to peer, Bitcoin makes it easy for money laundering and tax evasion.”
These Chinese bans will likely not be permanent, but they will remain as Chinese administrators further workout a new tax framework.
Japan: Japan’s top regulatory watchdog considers Bitcoin to be a “commodity.” The nation’s government also ended the 8% “Consumption tax” that hitherto applied to crypto on July 1st, 2017.
Beyond that, Japanese crypto users contend with all of the normal taxation models: income tax, capital gains tax, and company tax.
South Korea: South Korean regulators are currently exploring a range of taxation options including 1) value-added taxation (VAT), 2) gift taxes, 3) income tax, and 4) capital gains tax.
Thailand: Bitcoin was illegalized in Thailand in 2013 and then re-allowed in 2014 with numerous restrictions.
Israel: Israel’s top financial watchdog drafted up new rules at the beginning of 2017 that classified cryptocurrencies as “assets” that must fall under the purview of capital gains taxes in the nation.
Australia: The Australian government just ended the infamous “double tax” on crypto in Australia by exempting cryptocurrencies there from facing the goods-and-services tax (GST).
Bolivia: Bolivian officials have banned cryptocurrencies, arguing that they enable tax evasion.
Turkey: Cryptocurrencies are taxed just as any other regular financial instruments are here.
Brazil: Brazilian legislators have characterized crypto as an “asset,” not a currency.
Accordingly, Brazilian crypto users face a 15% capital gains tax on their profits.
Most Nations See Cryptocurrencies As Property
As you can see, then, the predominant international trend is to regulate cryptocurrencies like Bitcoin as if they were “property” and “assets.” Most nations have yet to come around to the idea of treat crypto like real currencies in a technical, legal sense.
Whether this dynamic will hold true over the next ten years, though, is anyone’s guess.
It’s clear for now that regulators have only just begun to seriously scrutinize regulating cryptocurrencies. Indeed, many more tax updates are in store for crypto users the world over in the years ahead.