Crypto Taxes Around the Globe

Cryptocurrency taxation and principles thereof vary widely across the globe. Just so that you know, Japan imposes the highest crypto tax rate at 55%. Some countries offer tax incentives for cryptocurrency transactions, while others do not impose any taxes on them. It may come as a surprise, but certain jurisdictions have outright bans on cryptocurrency activities. Below, you will find valuable info as to how different nations approach the taxation of digital assets.

Crypto taxes: when do you have to pay them?

Different countries have varying fiscal policies regarding cryptocurrencies. In the UK, they are classified as capital assets, whereas in the USA, cryptocurrencies are considered private property. At the same time, Italy treats crypto as foreign currency. 

In contrast, Singapore, Malta, and El Salvador do not tax cryptocurrencies. Tax exemptions in these jurisdictions are granted either for meeting specific criteria or without any conditions at all. Some nations have set minimum income thresholds for cryptocurrency earnings. If these thresholds are not exceeded, no taxes follow.

In most countries, cryptocurrency holders are subject to capital gains tax. The above tax is levied on the profits from selling cryptocurrency, similar to the taxation of real estate or stocks.

If the value of tokens increases due to a rise in exchange rates while they are being held, the holder will not have to pay tax. However, some cryptocurrency transactions are still taxable:

• Buying and selling tokens for fiat currency: In Germany, if the profit from crypto sales exceeds EUR 600 and the assets are held for less than 12 months, a tax of up to 45% must be paid. The exact crypto tax rate depends on the particular economic activity type and the token holder’s residency. However, if the coins are held for over a year, no tax is due, even if their value increases. In most countries, you don’t have to pay any taxes if you purchase crypto with fiat money.
• Exchanging tokens: This involves selling one token for another. If a profit is made from such a transaction, tax must be paid. Taxes on cryptocurrency trading follow the same principle. 
• Making purchases: In jurisdictions where tokens are accepted as a means of payment, taxes are paid when you make a purchase. Cryptocurrency is treated as property in these cases. When a person buys a product, they are technically selling digital currency (property), and tax is paid on the capital gains from the sale of that property.

Cryptocurrency income is subject to taxation if an individual or legal entity engages in the following activities:

• Token Mining: Miners earn cryptocurrency rewards for solving complex computational tasks, which are considered taxable income. This rule also applies to staking rewards.
• Payments for services or work performed: Entrepreneurs and natural persons who receive them must pay income tax according to their jurisdiction’s rates. If a specialist is officially employed and receives their salary in cryptocurrency, the one responsible for tax payment is the employer.
• Rewards: Cryptocurrency exchanges often reward users with tokens for specific actions. It may be making large deposits or referring new users, for example. Tax authorities consider these bonuses to be income and tax them accordingly.

NB: Any transfers between personal wallets and any cryptocurrency received as charitable donations or gifts are not subject to taxation.

Why is digital currency taxed?

Cryptocurrency trading and investing are often conducted anonymously. Due to the confidential nature of digital wallet ownership, tax authorities find it challenging to track these transactions. This anonymity can have negative consequences for the state. Say, if a company earns crypto profits, those earnings are not taxed and do not contribute to the national budget. Widespread adoption of this practice could undermine the state’s economic security by consistently reducing revenue.

For individuals, the anonymity associated with cryptocurrency transactions also implies challenges. Users can only see each other’s wallet addresses, which makes it challenging to report stolen tokens to law enforcement, if such a misfortune ever happens.

To address profit concealment and cryptocurrency fraud, countries worldwide are developing legislation providing for the disclosure of taxable cryptocurrency transactions. This way, the European Union has introduced the Markets in Crypto-Assets Regulation (MiCA) and tax transparency rules for crypto exchanges. These regulations require issuers to publish data on taxable transactions. While each EU state sets its own rules for crypto circulation, use, and taxation, EU leadership encourages all member states to collaborate in order to be on the same page as far as international cryptocurrency taxation is concerned.

Tax regulations in the EU

Countries that officially allow cryptocurrency circulation have established their own taxation rules and rates. In EU states, capital gains tax is commonly applied, with the percentage rate varying as provided for under each jurisdiction’s laws. Here’s how some European jurisdictions classify digital assets and what tax rates they have: 

• United Kingdom: Cryptocurrencies are classified as capital assets. There are two tax rates: the basic rate of 10% and the increased rate of 20%.
• Bulgaria: Here, digital currency is considered a financial asset, with a tax rate of 10%.
• Netherlands:  Tokens must be declared as personal assets. The tax rate is 31%.
• Denmark: Cryptocurrency is treated as a personal asset. The corresponding tax rate makes 37.1% on profits up to EUR 74,300. If the profit exceeds the above amount, an additional 15% must be paid.
• Estonia: In this EU jurisdiction, digital currencies are considered personal property. They are taxed at a rate of 20%.
• Germany: Depending on a particular situation, tokens are classified either as a means of exchange or capital. The corresponding tax rate ranges from 0% to 45%.
• Finland: In Finland, coins are deemed capital. The income tax rate is 30% on income up to EUR 30,000 and 34% for amounts exceeding this.
• Lithuania: Cryptocurrencies are regarded as assets in this EU jurisdiction. The income tax rate is 15% on profits up to EUR 202,180 and 20% for profits above the said amount.

US cryptocurrency regulations

In the USA, cryptocurrency is treated as private property, and taxes are levied on capital gains rather than exchange rate differences. Cryptocurrency transactions fall under estate tax laws, and all such transactions must be reported to the Internal Revenue Service (IRS). US miners are taxed on their gross annual income, and business owners who receive cryptocurrency as payment for goods or services must declare the value of the received tokens at the time of payment.

The federal income tax rate in the USA ranges from 15% to 37%, depending on your net income. In this jurisdiction, the long-term capital gains tax makes from 0% to 20%. If a holder pays for their purchase with Bitcoin (BTC), they will owe a tax on the Bitcoin sale, which is currently from 0% to 8%, depending on a particular state.

The Canada Revenue Agency does not recognize tokens as currency. Payments made with digital currency are treated as barter transactions in this jurisdiction. There is no specific cryptocurrency legislation, so general taxation rules for barter transactions apply to digital assets. Any profit from token sale or exchange is taxed at rates from 15% to 33%.

Cryptocurrency taxation and financial supervision in Asia

Several Asian countries have officially recognized digital currencies and allowed their circulation:

• Japan: In Japan, cryptocurrency is considered property, and income derived from it is subject to income tax. Token holders are exempt from taxes if they transfer tokens only between their wallets and if the profit from selling coins does not exceed EUR 1,385,000. FYI: Japan’s progressive tax system comes with rates ranging from 15% to 55%.
• India: While cryptocurrency is permitted in India, it is not yet fully legalized. The corresponding capital gains tax rate to pay on crypto transactions is set at 30%.
• Indonesia: In Indonesia, cryptocurrency is treated as a commodity. Transactions involving tokens are subject to income tax, with a rate of 0.1% for transactions through registered exchanges and 0.2% for those on unregistered platforms.

Crypto taxes in the Caribbean

Caribbean jurisdictions attract crypto investors with their low tax rates, often exempting individuals from income tax altogether:

• Saint Kitts and Nevis: Residents who sell cryptocurrency after holding it for more than 12 months are not subject to capital gains tax. However, under the laws currently in force, a 20% tax applies if the cryptocurrency is sold within 12 months of purchase.
• Saint Lucia and Grenada: These states do not impose any capital gains tax.
• Puerto Rico: While you will face no capital gains tax here, other types of income are taxed at a rate of 4%.

Countries without crypto tax

For crypto enthusiasts seeking to profit from token trading and enjoy favorable state policies, the following countries with no crypto tax are particularly appealing:

• El Salvador 
• Singapore 
• Malaysia
• Malta
• Germany (provided you hold tokens for at least one year) 
• Switzerland
• Georgia (here, individuals are exempt, while businesses pay a 15% corporate income tax on crypto)
• Cayman Islands.

Not sure how to start a cryptocurrency business in a tax-friendly jurisdiction? Consider establishing a trust. This approach allows you to operate globally, and you can manage both your affairs and capital with enviable flexibility.

Cryptocurrency taxes: how to pay

In jurisdictions where cryptocurrency is legally accepted, there are two primary ways to report income from crypto transactions on tax returns: as either profits or capital gains.

Generally, token holders must report profits from coin trading as capital gains. Here belongs income from long-term investments, short-term trades, and token swaps.

To accurately report their capital gains, traders need to calculate the net profit from these transactions. In most jurisdictions, crypto traders are free to deduct losses from their net profit. This way, the corresponding tax liability is reduced. As for the specific methods and deadlines to submit cryptocurrency tax declarations, these vary by jurisdiction.

Tax evasion: risks and penalties

In both EU states and the USA, failure to report income from cryptocurrency transactions is classified as income concealment.

If a state tax authority suspects a trader or investor of it, an audit is likely to be initiated. NB: Both individuals and legal entities must provide the audit firm in charge with all the necessary information.

There is no specific list of consequences for failing to report cryptocurrency income, as each case is analyzed and assessed on an individual basis. Generally, the tax authority considers the reasons for the trader’s failure to report. For example, if the token holder did not fully understand their obligations or mistakenly failed to report income on time, they are usually fined and made to pay the tax due. Repeat offenses lead to harsher consequences, including a ban on conducting business, substantial fines, and even criminal liability.

Where a crypto trader deliberately fails to meet their tax obligations by misreporting or concealing income, it is a standard practice to initiate criminal proceedings. In the USA, tax evasion may result in a fine of up to USD 250,000, and you may even serve up to 5 years in prison.

Staying current with tax laws: tips for compliance

Admittedly, crypto tax laws are complex in every country, especially for laypersons who are no experts in the field. Regulations on cryptocurrency taxation are frequently updated and revised. Traders must keep an eye on these changes, as late declarations and incorrect tax payments will result in legal repercussions. Here’s how you can stay informed:

1. Follow the latest news from exchanges.
2. Monitor the tax authority’s official website. There, updates on crypto tax reporting requirements are published on a regular basis.
3. Read news in specialized media. This is particularly important as tax deadlines approach. These sources often present official information more clearly, with the corresponding explanations, which makes it easier for cryptocurrency holders to understand it and thus avoid tax payment and reporting mistakes.
4. Follow thematic and accounting communities. Administrators of these blogs do their best to promptly publish information about any changes in cryptocurrency taxation.

However, most entrepreneurs prefer to focus on their core business activities and profit from cryptocurrency trading rather than navigate complex legal norms and financial reporting. To spare yourself the trouble, you are welcome to delegate your accounting tasks to us. At Q Wealth, we closely monitor all changes in international legislation, accurately calculate taxes, and always file reports on time. Our seasoned experts also offer consultations on any tax issues related to your crypto business. We will eagerly help you legally reduce your tax burden!

On a final note

Every state that allows cryptocurrency operations has its own specific reporting requirements and transaction rates. What is more, countries also treat cryptocurrency differently.

International taxation is complex, and selecting the right jurisdiction for your crypto business may be a challenge as different crypto activities come with varying tax rates. In this context, navigating it all on your own is hardly the best decision. Instead, you are welcome to reach out to International Wealth! Our top experts will help you choose the best jurisdiction for your goals and register your crypto business in next to no time.