0 to 50% – Time To Pay Crypto Taxes In The European “Union”
With the growing popularity of bitcoin and the like, this year’s tax campaign in Europe comes with many questions on how to report and pay crypto taxes. Despite the obvious doubt on the part of many governments to regulate / legalize the sector exhaustively, income from cryptocurrencies and profits “enjoy” special attention. The different decisions on the matter pose different challenges for the citizens of the individual member states.
There is no uniform approach to cryptocurrencies in any region and Europe is not an exception when it comes to taxes. The recent G20 summit does not demonstrate a global consensus on the state of cryptocurrencies, and each jurisdiction is expected to make its own short-term decisions. In the absence of pan-European guidelines on how to deal with revenues and benefits related to cryptography, some Member States follow a decision of the EU Court of Justice. In a 2015 resolution on the application of value-added tax (VAT) to cryptocurrencies, the Luxembourg-based institution set a precedent. Basically, it drew a parallel between “virtual currencies” and fiat money, when digital currencies are used for payments.
In accordance with that decision, the Federal Ministry of Finance of Germany recently announced that bitcoin should not be subject to VAT, when it is exchanged with fiat. The tax is applicable only when the goods and services are paid in cryptocurrency. According to the German authorities, exchanges can enjoy tax breaks when they change cryptos, and cryptoextraction should not be taxed. However, the cryptocurrency trade by individuals is subject to the standard capital gains tax. The benefits of less than € 600 and the gains from long-term holdings (more than one year) are exempt.
Several other governments have adopted similar rules. Estonia submitted digital currencies to capital gains tax and VAT. The authorities of Tallinn see the crypts as means of payment and investments. Slovenia does not tax the capital gains of individual investors who trade in cryptocurrencies, since they are not considered part of their income. Revenue from crypto, however, for both individuals and businesses, must be informed and taxed. The applicable rates depend on the annual income and vary from 16% for less than € 8,000 to 50% for income above € 70,000 per year.
Tax authorities in Denmark have announced that encryption companies will be taxed like any other business. According to the Financial Services Authority, private individuals who trade in cryptocurrencies will not be required to pay taxes. The agency requested the adoption of legislation that regulates cryptos and their taxes. Spain is reflecting on tax exemptions for companies that use blockchain and cryptocurrency technologies. The exact scope of the exemptions has not yet been determined, but the Popular Party in power has presented a bill to offer incentives to small businesses in the cryptographic sector.
Waiting for the Brussels decision
Several EU countries are still waiting for a common European approach to the imposition of cryptocurrencies. The government of Belgium, which houses many EU institutions, has not issued an official position on the matter. However, recent reports suggest that the tax authorities are pursuing Belgian citizens who trade cryptocurrencies in foreign exchanges. It is expected that anyone who waits in the encryption markets will pay 33% of taxes on their profits, even though cryptocurrencies are not regulated. Belgians must declare them as “other income” on their tax returns, the Special Tax Inspectorate said late last year.
Bulgaria is another member state that expects guidance from Brussels. The National Tax Service has issued a clarification notice that says the 10% capital gains tax is applied to the profits from the purchase and sale of cryptocurrencies. However, its legal status is not yet determined by the Bulgarian parliament. It is not clear how bitcoin revenues and purchases with cryptocurrency will be taxed.
Other member states of the EU are losing patience. The Dutch finance minister recently described the current regulatory framework as “insufficiently equipped”, as reported by news.Bitcoin.com. Wopke Hoekstra spoke of the “intrinsically cross-border” nature of cryptocurrencies and called for a “coordinated international approach”. The government of the Netherlands insists on adopting new European regulations by the end of next year, including amendments to the anti-money laundering directive , which also deals with tax evasion. The European Neighborhood While EU regulators are still struggling to understand the cryptographic phenomenon, other European countries have taken advantage of their non-aligned status. Belarus, for example, fights against political and economic isolation by embracing crypto. A decree, signed by President Lukashenko, introduces tax exemptions and other incentives for activities related to cryptography until 2023. It will take effect in less than a week, on March 28. Whether this cryptograph-friendly policy will fill the government’s coffers at the end of the day is yet to be seen.