The Best European Crypto Tax Guide
Cryptocurrencies are designed around the idea of no central bodies being in a total, centralized control and many of us would prefer that no amount of our crypto profits goes to the taxman. However, having clear taxation rules might be beneficial for the industry, legitimizing digital coins as a viable alternative to traditional money, essentially making taxes a necessary cost of doing business.
The reality is that the rules are often ambiguous and how Bitcoin and Co. are treated greatly differs from one country to another. With the tax season being in full force, we have decided to dig in deep and delve into the crypto tax state across thirteen European countries. This crypto tax guide will shed light on the share of profits their residents need to forego to their governments. Some countries have decided to treat trading cryptocurrencies and holding them for the long run differently, some don't, and some, surprisingly, are true tax havens for the crypto winners!
Countries That Treat Trading and Investment the Same
It is considered one of the most open-minded countries with a forward-looking cryptocurrency legislation. Currently, cryptocurrencies, such as Bitcoin, are regarded as property and your profits from selling them (the amount you received from the sale minus the amount you paid to obtain the cryptocurrencies) are subject to personal income tax at a 20% flat rate. Your losses, unfortunately, can't be declared and thus you bear 100% of the risk.
The government also doesn't differentiate between short- and long-term investment. If you realize a profit in a specific year from selling your Bitcoins, you are subject to a flat 10% capital gains tax, same as if you were trading financial assets. The good news is that your losses will thus decrease your taxable gains.
Yet another country, which has wrapped its head around the idea of how it views cryptocurrency. The Scandinavian country classifies crypto as asset and profits are declared under "Gain from other financial products", subject to capital gains tax of 25%. Here your losses are also deductible as in Bulgaria.
The taxation rate for crypto gains is the same as the one on foreign currency trading, 26%.
Your realized profit from trading and investing in cryptocurrencies is also taxed. Capital gains realized from selling your cryptocurrencies at a favorable price is regarded as "final income" on the basis of capital gains and is thus taxed at a flat 12%. Capital losses can be deducted but only from capital gains realized in the same tax year.
Is a rather strange case. There is no tax when you sell at a profit; however, the worth of your Bitcoins is calculated at the end of each fiscal year and is subject to the so-called wealth tax. Your crypto portfolio value is evaluated according to the actual exchange rates to CHF on Dec 31st, which are provided by the cantons themselves. If your total assets are worth less than CHF 100,000, most of the provinces won't take a cut from it. However, the tax is progressive and depending on where you live, you will need to pay from 0.13% up to 0.94% of your wealth each year. Switzerland is one of the few countries in the world still left with such a taxation policy.
Countries Which Differentiate Between Crypto HODLers and Traders
Despite Brexit, the UK is still the biggest financial hub in Europe and has the power to propel crypto legislation in a certain direction. Currently, the UK views digital assets as property and categorizes the tax payer's activity. If you are a HODLer, meaning that you don't actively trade, then your profits are subject to 10% capital gains tax. If you are a trader, then your profits or losses are covered by the income tax. If your total income (from trading and other sources) is below 12,500 GBP, then you don't need to pay anything. Otherwise, you will need to pay between 20% and 45% depending on your tax bracket. Any losses can be used to reduce your taxable income.
Only if you actively trade, your profit is regarded as commercial and industrial one and is subject to the progressive income tax schedule. On the other hand, the profits that are generated from one-time transactions are considered non-commercial profits and 66% of the gains are taxable but the rate depends on your specific situation, e.g. whether you pay monthly or quarterly on a notional basis, whether you use a chartered account, etc.
Also segregates the tax depending on the period in which you hold your digital assets. If you purchase and sell within a 12-month period, the tax rate will be between 24.75% and 52%. If you are a long-term investor, you will need to give to the Spanish government between 19% and 23%, based on your income.
Taxation can seem rather complicated, so let us try to explain. If you hold on to your crypto assets, you fall under "Box 3 – Taxable income from savings and investments". You first need to calculate the worth of your Bitcoins and other digital assets as of Jan 1st in euros (the beginning of the respective tax year) and add it to your total other assets. Here's where it gets interesting… Rather than looking at your actual return on your investment and taxing that income, the government provides a precalculated "assumed return", which is then taxable and it varies from year-to-year. For 2019, if your total holdings don't exceed 71,650 EUR, the taxable "assumed income" is 1.94% of your wealth; any wealth above 71,650 EUR and up to 989,736 EUR is assumed to have generated a 4.45% yield over the year and above that – 5.60%. This assumed return on your savings and investments is then taxed with 30%. You probably need an example; we did too… Let's say as of Jan 1st 2019 you had 100,000 EUR in Bitcoin and no other assets. The assumed taxable income that you will need to pay will be as follows:
First bracket: 1.94% x 71,650 EUR = 1,390.01 EUR
Second bracket: 4.45% x (100,000 EUR – 71,650 EUR) = 1,261.58 EUR
= taxable assumed income of 2,651.59 EUR
The tax you will need to pay is 30% x 2,651.59 = 795.48 EUR
If you trade actively with the explicit intention to profit from that activity, you will be taxed when you realize a profit and should include it in "Box 1". The cut is progressive and what you need to forego depends on your total income that goes to that box; it starts from 9% and can reach the daunting 51.75%. Seems like it is much better to be a HODLer in the Netherlands...
Surprising Crypto Tax Havens on the Continent
Surprisingly, can be considered a crypto tax haven by the HODLers. If you hold crypto for more than a year and then sell it, then you don't owe anything to the taxman. Additionally, if you buy and sell crypto within a year but the profit doesn't exceed 600 EUR, it is, once again, tax-free. If otherwise, the progressive income tax policy applies and your gains can be reduced by up to 45%. Note that any additional profits, e.g. if you sell something on eBay, will go towards this limit.
Yet another zero-tax zone. Neither profit from cryptocurrency trading is considered taxable investment income, nor is selling your cryptocurrency holdings subject to capital gains. A real tax haven on the continent.
Also seems to be a good place to reside in, if you have realized profits from crypto. Capital gains in the Southeastern European country aren't taxed. If you get paid in crypto though, you are still subject to income tax.
If you have read the whole crypto tax guide, you are probably now thinking of moving to Germany, Portugal, Slovenia or maybe even Bulgaria and Croatia if you are looking for a flat, simple and low tax rate. However, keep in mind that it's such a crypto jungle out there that as regulators try to come up to speed with the booming industry, changes are imminent. We might not like taxes, but one thing is clear – Bitcoin and the rest of the digital assets are getting a much-deserved recognition.
Didn't see your country mentioned? Let us know in the comments below!
This article has been completed to the best of our knowledge and should be used for informational purposes only.