Crypto Taxes

WhiteBIT
Published 18 January 2024
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Crypto Taxes

Cryptocurrencies are not only an exciting world of financial innovation but also a challenging puzzle for tax authorities around the world. Every year, more and more investors are incorporating cryptocurrency into their portfolios. This trend is gaining momentum as cryptocurrency laws are being implemented in multiple countries worldwide. The regulation enables cryptocurrency companies’ registration, gives cryptocurrencies legal status, and regulates their taxation. However, implementing this is challenging, given cryptocurrency’s decentralized and anonymous nature. This article will examine how different countries address this issue.

Tax on Bitcoin and on Exchange Trading

Cryptocurrency trading can be a lucrative endeavor, but it also entails tax obligations. In most countries, the taxation of cryptocurrency trading profits depends on the time the assets have been held and the volume of transactions. It is essential not only to know how to pay tax on cryptocurrency, but also to keep records and comply with tax obligations. This will help you avoid legal problems and maximize your income.

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Some countries are liberal when taxing cryptocurrencies, while others are conservative. There is even a country with no crypto tax. Either way, long-term investors need to navigate the taxation of cryptocurrency. It is critical to understand the taxation rules and the amount of tax to pay. Let’s look at the examples from different countries.

What Is the Tax on Cryptocurrency in Countries Where Crypto Is Popular?

USA

The taxation of cryptocurrency in the US depends on various factors, including the nature of cryptocurrency transactions and the length of time it has been held.

Capital Gains Tax: In the US, an investor must pay capital gains tax on crypto when selling or exchanging cryptocurrency. The tax rate depends on how long the cryptocurrency has been owned:

  • If you own a cryptocurrency for less than a year, the short-term capital gains tax rate applies, which is the same as the regular income tax rate (within 37%);
  • If you own a cryptocurrency for over a year, the long-term capital gains tax rate applies (within 20%).

In addition, crypto-enthusiasts are liable to pay income taxes in case of:

Receiving cryptocurrency as payment for goods or services.

Receipt of cryptocurrency for mining and staking.

Australia

Not only are crocodiles giant in Australia, but so are taxes. Cryptocurrencies are legalized and treated as personal property, so cryptocurrency is subject to capital gains tax.

The Australian Tax Office separates traders and long-term investors (those holding cryptocurrency for over a year). As with the US, miners must pay taxes as they are considered business activities.

In Australia, there is a threshold of non-taxable income — $18,200 per year, and if the amount of income is more, you will have to pay income tax:

  • 19% for amounts between $18,200 and $45,000;
  • 32.5% for amounts between $45,000 and $120,000;
  • 37% for amounts between $120,000 and $180,000;
  • 45% for amounts over $180,000.

Not subject to capital gains tax:

  • Gain from the sale of personally created NFTs;
  • Rewards from airdrop campaigns and referral fees;
  • Income from staking.

In addition, if a person holds a cryptocurrency for more than a year, they will qualify for a 50% rebate for capital gains tax.

Canada

There are no short-term or long-term capital gains tax rates in Canada. Capital gains from cryptocurrencies in Canada are taxed at the same rate as federal and provincial income tax. You only have to pay tax on 50% of the total capital gains if you own cryptocurrency.

Cryptocurrency exchanges are required to report transactions exceeding $10,000 to the Canada Revenue Agency (CRA).

For 2022, the federal basic personal tax-free amount was $14,398 (for taxpayers with a net income of $155,625 or less). For 2023, the national base amount increased to $15,000 (for taxpayers with a net income of $165,430 or less).

Germany

In Germany, cryptocurrencies are considered a separate asset class and are not subject to capital gains tax laws (Kapitalertragssteuer/Abgeltungssteuer).

You won’t have to pay tax if you own a cryptocurrency for over a year. Suppose you sell your cryptocurrency after owning it for less than a year. In that case, it will be considered speculation, and you will have to pay tax (the tax rate is determined individually based on the taxpayer’s annual income. This rate can vary from 0% to 45%, depending on the total income).

It’s worth noting that there is a tax break — Freigrenze 600 euros. However, if you keep the cryptocurrency for less than one year and your returns exceed 600 euros, you will have to pay total tax on the entire income, and the 600 euro benefit “burns” rather than deducted from the income. It is essential to add that if the income from mining or staking exceeds 600 euros, you must also pay income tax.

Not taxable are long-term gains from the sale, exchange, or spending of a cryptocurrency held for more than one year, annual income of less than 600 euros, and additional income of less than 256 euros. In addition, you do not have to pay tax on the purchase, storage, and donation of cryptocurrency.

India

India has introduced a 30% tax on income from cryptocurrencies and NFT. Under Indian law, income tax is collected at source. When making a taxable cryptocurrency transaction, the user must deduct tax (TDS) from the payment amount based on a set rate and remit these fees to the government.

It is stated that citizens have to pay a 30% tax on cryptocurrency sales and 1% on asset sales of more than Rs. 50,000 (Rs. 10,000 in some cases) in a single financial year. It is also worth noting that the exchange can pay 1% per user or add 1% to the fees.

Portugal

The taxation of cryptocurrencies in Portugal from 2023 includes several categories of income: passive investments are subject to a flat rate of 28%, self-employment income is subject to progressive taxation (14.5% to 53%), and capital gains from the sale of crypto assets held for more than a year are not taxed at all. Capital loss compensation, severance tax, and NFT tax features are also considered.

In addition, tax liability depends on the nature of the cryptocurrency activity. Capital gains from the sale or exchange of cryptocurrencies may be treated as taxable income related to professional activities or speculation. Particular attention should be paid to documenting and reporting all transactions to comply with tax laws.

Singapore

The Inland Revenue Authority of Singapore (IRAS) recognizes cryptocurrency as property that can be owned. There are no capital gains taxes for individuals. In addition, according to the IRAS e-tax guidelines, receiving cryptocurrency in exchange for goods or work/services performed in Singapore is possible. It is also possible to pay for goods, work/services with cryptocurrency. At the same time, these transactions can be made by both individuals and legal entities. This means that companies can also have cryptocurrency as their assets.

Income tax is imposed on any income if the primary purpose of transactions is to make a profit. This includes a tax on trading on the exchange — 8% (if it is not a hobby but is strictly active trading on a centralized exchange). Taxes for mining also need to be paid, but it all depends on the purpose. If a person is engaged in mining independently, he can fall under the “amateur” category, and such profits are not subject to taxation. If a whole company is mining, it must be registered with the Accounting and Corporate Regulatory Authority and pay tax on “business income.”

In the case of staking — if the annual income exceeds $300, that profit will be subject to income tax. Buying and receiving cryptocurrency at a free distribution (airdrop) or hard fork is not taxable.

Thailand

The country has been known for its liberal attitude towards cryptocurrencies. However, starting January 1, 2024, all persons residing in Thailand for more than 180 days must pay a 15% tax on Bitcoin from sources outside the country. In this way, the Thai government plans to close a loophole that many non-residents and local traders have been exploiting.

Previously, individuals were required to declare only income earned abroad and transferred to Thailand in the year of its receipt. Foreign investment income could be undeclared after leaving the country during the fiscal year. The government also used to exempt traders who invested in Thai crypto startups from taxes.

Ukraine

The Economic Security Bureau has estimated that over the past ten years, the Ukrainian budget has lost at least $81M in taxes crypto from the activities of local cryptocurrency exchanges. Despite this, at the time of writing, Ukraine still needs to adopt laws on the taxation of cryptocurrencies, and the question of how to legalize cryptocurrency income in Ukraine remains open.

On September 8, 2021, Verkhovna Rada passed the law “On Virtual Assets,” but the President vetoed it and demanded its finalization based on his amendments. On February 17, 2022, Ukraine adopted an updated law, “On Virtual Assets”. According to the law, regulation is to be carried out by the National Bank of Ukraine (NBU) and the National Securities and Stock Market Commission (NSSMC). The NBU will control the turnover of virtual assets, while the NSCMC will control virtual assets as collateralized securities or derivatives. In addition, the NBU will authorize and control the operation of service providers related to cryptocurrency.

The National Bank of Ukraine and the National Commission on Securities and Stock Market (NCSM) are preparing an updated version of the legislation regulating the cryptocurrency market in Ukraine. This follows from a memorandum between the Ukrainian government and the International Monetary Fund (IMF), which emphasizes the need to improve the legislation in line with international standards. The new crypto currency law is expected to be submitted by the end of June 2024. The entry into force of the previously approved crypto law “On Virtual Assets” has been postponed until amendments to the Tax Cryptocurrency Code are made.

And while the country is waiting for changes in the legislative framework, cryptocurrency taxation in Ukraine is governed by general rules. Individuals must pay taxes on cryptocurrency of 18% and a 1.5% military levy. Commissions for trading operations are not taken into account.

Montenegro

Even though Montenegro is promoting the popularization of cryptocurrency, the local tax authorities have yet to clarify the special Bitcoin tax treatment of crypto assets. However, Montenegro is about to become the first country outside the EU, which, as a candidate for accession to the union, will bring its “cryptocurrency” legislation in line with the union’s standards. Even created a particular working group, which, with the support of experts from the World Bank, is studying practices in cryptocurrency circulation. The group is also working on creating a national solution that will comply with the new regulations of this industry, which will be adopted in the European Union on May 20, 2024.

And while Montenegro is developing laws on the taxation of cryptocurrencies, the general rules should be considered. So, the country has taxation on individuals, and the income tax is 15%. Receiving a salary in cryptocurrency on a centralized exchange, you need to be ready for these rates:

  • Wages up to 700 EUR are not taxable;
  • Salaries from 701 to 1000 EUR are taxed at 9%;
  • Salaries from 1001 EUR are taxed at the rate of 15%.

Cryptocurrency Taxes in the UK

What Does the Law on Taxation of Cryptocurrencies Provide?

Cryptocurrency is equated to shares and is subject to capital gains tax crypto and income tax, depending on the transaction. If the nature of the transactions shows that regular payments are received for something, the resident will pay income tax. If the investor’s capital grows, crypto capital gains tax must be paid.

How and Why the UK Developed Cryptocurrency Regulation?

The United Kingdom developed cryptocurrency regulation to respond to cryptocurrencies’ growing prominence and integration into the financial landscape, acknowledging their potential benefits and inherent risks. This regulatory framework aims to provide clarity and security for investors and operators in the crypto market. The primary reasons behind this development include the need to combat financial crimes like money laundering and fraud, the desire to protect consumer interests, and the intention to foster innovation in the fintech sector. By establishing clear guidelines, the UK government seeks to balance promoting technological advancement with maintaining a stable and secure financial system. This approach reflects a broader global trend where nations recognize the significance of cryptocurrencies and the need for regulation to ensure a safe and orderly economic environment. In addition, introducing clear rules and controls for cryptocurrency transactions helps combat money laundering (AML) and terrorist financing.

What Does the Market Think About Regulation and Crypto Tax?

The UK market holds varied views on cryptocurrency regulation and tax. Some appreciate the stability and legitimacy of regulation, making the crypto space more attractive for institutional investment and ensuring consumer protection. Others, however, see heavy regulation and taxation as impediments that could stifle innovation and drive the industry to more lenient jurisdictions. Fintech businesses often favor clear regulations for legal security, but are cautious about overregulation hampering growth. Regarding crypto tax, opinions are mixed: while some recognize the necessity of aligning with fiscal responsibilities, others are concerned about the complexity and potential impact on investment and usage of cryptocurrencies. Overall, the market is still adapting to these changes, with perspectives varying based on individual interests and views on the future of cryptocurrencies in the UK.

Cryptocurrency Tax and Licenses

Capital gains tax

The IRS treats cryptocurrency as a capital asset. You’ll pay capital gains tax every time you sell, trade, spend, or gift cryptocurrency. For 2023-2024, the tax-free amount has been reduced to £6,000. If capital gains exceed this amount, you need to pay tax at 10% or 20%, depending on which rate a person falls under:

  • 10% (income up to £50,270);
  • 20% (income between £50,270 and £150,000).

Income tax 

In the UK, cryptocurrency is taxed as income from staking, mining, airdrop, or salary. Income tax rates depend on annual income:

  • 0% up to £6,000;
  • 20% from £6,000 to £50,270;
  • 40% between £50,270 and £125,140;
  • 45% over £125,140.

Not taxable are cryptocurrency purchases with pounds sterling, holding (storing), transferring cryptocurrency between one’s wallets, donations to charity, and gifts of cryptocurrency to husband or wife.

How to Pay Tax on Crypto?

In the UK, paying cryptocurrency tax involves adhering to HMRC guidelines, which require you to identify taxable events such as selling, trading, or earning crypto. Keep detailed records of all transactions, including dates, values in GBP, and transaction IDs. Calculate gains or losses for Capital Gains Tax by subtracting the acquisition cost from the disposal value, and assess the value of crypto for Income Tax when received as earnings. Remember to consider annual allowances and possible deductions like transaction fees. Report your crypto-related gains and income via a self-assessment tax return, and ensure you pay any tax owed by January 31 following the tax year’s end. It’s advisable to consult a tax professional if you need more clarity about your obligations, as crypto tax regulations can be complex and subject to change.

Purchasing Goods and Services with Cryptocurrency in the UK

Purchasing goods and services with cryptocurrency in the United Kingdom is legally permissible but subject to specific tax implications. When you use cryptocurrency to buy goods or services, it’s considered a disposal of assets by HMRC, potentially triggering Capital Gains Tax (CGT). This means you need to calculate the gain or loss at the point of transaction based on the difference between the crypto’s value when you acquired it and its value at the time of spending. However, the adoption of cryptocurrencies for everyday transactions is still nascent, with a limited but growing number of businesses accepting them as payment. These transactions are viewed similarly to barter transactions, where the goods or services are valued in pounds sterling for tax purposes. It’s essential for consumers using crypto in this manner to keep detailed records of their transactions, given the tax implications and the need for accurate reporting to HMRC.

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How to Legalize Income from Cryptocurrency?

Legalizing income derived from cryptocurrency transactions is possible by declaring it following national legislation. This may include reporting cryptocurrency income on an annual tax return in Ukraine. In the US, records of all transactions must be kept to determine capital gains or losses.

Problems of Taxation and Legalization of Income from Cryptocurrency

Taxation and legalization of cryptocurrency income face some challenges: uncertainty in determining the tax status of cryptocurrencies, difficulties in calculating taxes due to their high volatility, and problems with tracking multiple transactions, especially when using different crypto wallets and exchanges. International regulation creates additional difficulties due to differences in the legislation of other countries. The anonymity and decentralization of cryptocurrencies complicate tax administration, and uncertainty in reporting and income declaration requirements exacerbates these problems.

Conclusion

Taxation and legalization of cryptocurrency income is a complex and dynamically evolving area. Countries have different attitudes towards cryptocurrency, they’re crypto tax free countries, conservative and more liberal. Laws have not kept pace with the pace of cryptocurrency popularization worldwide. Selling cryptocurrency can have tax consequences, and crypto-enthusiasts face uncertainty regarding the tax status of cryptocurrencies and the variety of international regulations. These challenges require the development of effective tax administration mechanisms to ensure tax transparency and fairness. Question of taxes and cryptocurrency is still open for many developing countries.

FAQ

Yes, crypto is taxable in many jurisdictions, including income and capital gains tax, depending on how it's used or earned.

It can be challenging to answer the “Do you have to pay tax on crypto profits?” question. It depends on the country. But some countries have tax on crypto profits, typically as capital gains tax, when you sell, trade, or spend cryptocurrency for a profit.

Yes, you pay tax on Bitcoin in many countries; it's usually subject to capital gains tax when you sell it at a profit or use it for transactions.

To declare crypto on your tax return, report any capital gains or income from cryptocurrency transactions on the relevant sections of your tax return. Keep detailed records of all transactions for accuracy.

Legal cryptocurrency withdrawal involves selling cryptocurrency through an officially registered cryptocurrency exchange. Then, you need to withdraw the funds to your bank account while complying with all UK tax legislation requirements.