Crypto 101

Regulations and Taxation of Cryptocurrencies Around the World

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Cryptocurrency tax

The cryptocurrency industry has created many ways for people to earn money. However, there was little regulation in the market in the early days. Because of this, crypto became a way for criminals to hide their activities. The lack of regulations in the crypto-verse has also caused investors to lose a lot of money through scams and hacks. As a result, governments around the world have been trying to come up with tax laws and ways to control the market.

The Crypto Industry at a Glance

Cryptocurrencies are digital currencies that work without control of central banks. An unknown person called Satoshi Nakamoto created the first digital currency in 2009. He named it Bitcoin (BTC). Bitcoin was almost worthless at the start.

As time passed, it’s worth grew to reach unheard-of levels. It got more fans over time, causing its price to go close to $20,000 in 2017. This surge brought big profits to early adopters.

According to a report by Forbes, some of the wealthiest people in the crypto sector include Chris Larsen, Changpeng Zhao, Joseph Lubin, the Winklevoss twins, Brian Armstrong, and Michael Novogratz.

Other people used Satoshi’s idea to Bitcoin-like currencies. In so doing, they led to the birth of altcoins. These became well-known over time and in December 2017, their prices also soared to surprising levels.

This gain in this relatively new market saw the holders of digital currencies make big profits. Examples of the best altcoins in today’s crypto market are Ethereum (ETH), Ripple (XRP), and Litecoin (LTC).

Some cryptos are mined, while others are pre-mined. There are different Bitcoin and altcoin miners in today’s market.

Satoshi was the first person to mine Bitcoin. Other individuals learned about the activity and started mining it as well. The early Bitcoin miners got 50 BTC for mining one block of data. Every four years after BTC’s, launch the mining reward drops by 50% in a process known as halving. Miners get 12.5 BTC for mining one block today.

Crypto Taxation Laws

There are three taxation models that apply to crypto:

  • Income tax. It refers to individuals who receive Bitcoin or other cryptos as income.
  • Company tax. It applies to big firms that deal with significant sums of crypto.
  • Capital gains tax. This applies to traders that have invested in crypto intending to earn profits.

Various regions and nations treat Bitcoin and other digital coins in distinct ways. While some view digital currencies positively, others have banned them.

European Union Members

The European Union (EU) has not given any crypto laws, and its stand on the subject is unknown. The lack of central guidance has seen the EU member countries come up with individual rules.

  • Finland views crypto as financial services. The country does not have crypto taxation laws as it views Bitcoin as a good, not a currency.
  • Belgium does not have crypto taxation rules. Its citizens can trade crypto without paying taxes. However, people who get most of their income from crypto can be subject to a 25% to 50% on top of local taxes.
  • Cyprus does not regulate or control crypto. Its residents can trade them freely.
  • The United Kingdom (UK) supports Bitcoin and other cryptos. However, the crypto sector falls under some taxation laws.
  • Bulgaria’s National Revenue Agency (NRA) has crypto taxation laws that regulate the use of these currencies in the nation.
  • Germany is crypto-friendly. However, German law taxes depend on whether the taxman is dealing with exchanges, miners, users, or businesses.
West Africa

Nigeria allows its residents to own and trade in crypto. However, the Central Bank of Nigeria (CBN) recently stated that citizens should be careful when dealing with them. It added that it could not regulate Bitcoin.

South Africa

South Africa classifies crypto as legal, intangible assets. Therefore, holders are required to pay taxes on the assets. However, the VAT status of the coins in the country is unknown.

The United States

The United States has government bodies such as the SEC and the CFTC to provide oversight on crypto. It aims to reduce illegal payments involving Bitcoin. Big firms such as the Dish Network, Subway and Microsoft accept crypto payments. Crypto is also available on US derivatives markets such as the CBOE.

FinCEN, an arm of the US Department of Treasury, has been giving Bitcoin advice to create awareness. The US considers crypto exchanges as money services businesses (MSBs). The IRS also views Bitcoin as a property. The coin is subject to crypto taxation laws.

The Bank Secrecy Act gives crypto firms the duty of reporting, registration, and record keeping to prevent crime. Taxation laws apply when:

  • Changing crypto into fiat
  • Paying for goods and services
  • Changing one crypto for another
  • Accepting mined or forked digital currencies

These are not taxable:

  • Buying crypto with fiat
  • Donating crypto to a tax-exempt charity
  • Gifting crypto to third parties
  • Moving coins between wallets
Canada

Canada has a positive attitude towards crypto. Just like the US, Canada has agencies that make sure its residents do not use crypto for money laundering. The Canada Revenue Authority (CRA) views crypto as goods.

In simpler words, Canada considers digital asset payments as barter trades. Consequently, all money from crypto payments is business income. Taxation also depends on whether a citizen has a buying-selling enterprise or only has interests in investing.

The CRA requires buyers that buy and hold crypto to pay a 50% capital gains tax.  In Canada, crypto exchanges are money service businesses (MSBs) and are under the anti-money laundering (AML) laws.

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) needs all crypto exchanges to report all suspicious transactions, keep records, and observe the country’s rules.

France

France charges its citizens high taxes for trading in crypto. The government taxes single transactions by 19% and a social contribution of 17.2%, amounting to 36.2%. Speculators and miners pay as much as 45%.

Companies pay 33% for all profits they make. The buying or selling of crypto in France does not attract VAT.

The Netherlands

The Dutch government considers digital currencies as barter items. This allows the nation’s citizens to trade without the need for licenses.

The Netherlands taxes crypto holders according to their basic income tax rates. The Netherlands does not apply VAT to crypto.

Italy

Italy does not have set rules for taxing crypto. However, Italians who participate in speculative trading have to pay 25% of their profits.

The government considers residents to be speculative traders if they hold more than €51,000 for seven successive days. This limit means that the law does not apply to a significant portion of crypto holders in the country.

Switzerland

Switzerland views crypto as foreign currencies. The country applies the Swiss Wealth Tax on all crypto payment. The nation is working on a complex system for taxing cryptos in the future. The law also requires citizens holding digital currencies to file their returns each year.

Australia

Australia views cryptos as any other currency. The country lets companies engage in all activities involving cryptos. Australia’s financial regulators monitor crypto transaction to reduce cases of money laundering and terrorist financing.

Sweden

Sweden’s crypto laws are similar to those of the US and the UK. The government views all cryptos sold at a profit as taxable events. Crypto businesses and miners in the country fall under the same laws as other business. Consequently, they have to pay income tax. The country’s citizens only pay VAT when using cryptos as legal tender.

Japan

Japan’s financial regulator views cryptos as commodities. The country’s government removed the 8% consumption tax on cryptos in July 2017. However, the country’s citizens pay income tax, capital gains tax, and company tax.

South Korea

South Korea’s financial watchdogs are weighing which taxation models to add. The country seeks to choose between VAT, gift taxes, income tax, and capital gains tax.

Israel

According to Israel law, cryptos are assets. Consequently, crypto holders must pay capital gains taxes.

Venezuela

Venezuelan citizens must pay taxes for owning and using cryptos. According to the government, it added taxation rules in cryptos to help raise funds.

Countries in Which Cryptos are Illegal

Although the use of cryptos is legal in a lot of countries worldwide, some states take their price instability very seriously. Other nations are against the use of digital currencies because they think of them as threats to traditional financial systems.

These countries have either banned cryptos completely or denied crypto startups access to banking services. Examples of such nations include:

China

The Chinese government has banned cryptos. The country does not allow crypto exchanges to provide services to its citizens. It has also prohibited banks from trading with crypto companies.

Russia

The Russian government does not regulate cryptos. However, it does not allow its citizens to use cryptos for buying goods or services.

Vietnam

Vietnam does not have crypto taxation laws. However, the Vietnamese government states that cryptos are not real currencies.

South America

In South America, Bolivia, Ecuador, and Columbia do not allow the use of cryptos as investments or as a currency for buying items.

North Africa
  • Algeria prohibits the use of cryptos as they lack the backing of physical currencies such as coins, notes, or cheques.
  • Egypt operates under Islam law, and its primary Islamic legislator gave a religious decree noting that the Islamic law considers cryptos illegal (Haram).
  • In 2017, the exchange office of Morocco announced that cryptos break its regulations and that participating in any crypto activities would attract penalties and fines.

In conclusion…

Although the crypto sector is more than a decade old, a lot of countries do not have laws or regulations that govern the industry. Many governments consider regulating the crypto industry difficult due to its decentralized nature.

Stay in touch! We are soon to publish an article answering some of the frequently asked questions about crypto taxes.

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