With the increasing 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 hesitation on the part of many governments to comprehensively regulate/legalize the sector, cryptocurrency incomes and profits “enjoy” special attention. Different decisions on the matter pose different challenges to citizens of individual member-states.
There is no uniform approach towards cryptocurrencies in any region and Europe is no exception when it comes to taxation. The recently held G20 summit proves no global consensus on the status of cryptocurrencies, and each jurisdiction is expected to take its own decisions in the short run. In the absence of pan-European guidelines on how to treat crypto-related incomes and profits, some member-states follow a decision by the Court of Justice of the EU. In a 2015 ruling on the application of value added tax (VAT) to cryptocurrencies, the Luxembourg-based institution set a precedent. It basically drew a parallel between “virtual currencies” and fiat money, when digital coins are used for payments.
In accordance with that decision, Germany’s Federal Ministry of Finance recently announced that bitcoin should not be subject to VAT, when exchanged with fiat. The tax is applicable only when goods and services are paid for in cryptocurrency. According to German authorities, exchanges can enjoy tax breaks when they trade cryptos, and crypto mining should not be taxed. Trading cryptocurrencies by individuals, however, is subject to standard capital gains tax. Profits of less than €600 and gains from long term holdings (over one year) are exempted.
Several other governments have adopted similar rules. Estonia subjected digital currencies to capital gains tax and VAT. Authorities in Tallinn view cryptos as both means of payment and investments. Slovenia does not tax capital gains of individual investors trading cryptocurrencies, as they are not considered part of their income. Crypto incomes, however, for both individuals and businesses, should be reported and taxed. Applicable rates depend on the annual income and vary from 16% for less than €8,000 to 50% for incomes over €70,000 a year.
Tax authorities in Denmark have announced that crypto companies will be taxed as any other business. According to the Financial Services Authority, private individuals trading cryptocurrencies will not be required to pay taxes. The agency called for adopting legislation that regulates cryptos and their taxation. Spain is mulling tax breaks for businesses using blockchain technologies and cryptocurrencies. The exact scope of the exemptions is yet to be determined, but the ruling People’s Party has introduced a bill to offer incentives for small companies in the crypto sector.
Waiting for Brussels’ Decision
A number of EU countries are still waiting for a common, European approach towards cryptocurrency taxation. The government in Belgium, which is home to many EU institutions, has not issued an official stance on the matter. Nevertheless, recent reports suggest that tax authorities are going afterBelgian citizens trading cryptocurrencies on foreign exchanges. Anyone speculating on crypto markets is expected to pay 33% tax on their gains, despite the fact that cryptocurrencies are not regulated. Belgians should declare them as “other income” on their tax returns, the Special Tax Inspectorate said at the end of last year.
Bulgaria is another member-state expecting guidance from Brussels. The National Revenue Service has issued a clarification notice saying 10% capital gains tax is applicable to profits from buying and selling cryptocurrencies. Their legal status, however, is yet to be determined by the Bulgarian parliament. It remains unclear how bitcoin incomes and purchases with cryptocurrency will be taxed.
Other EU member-states are losing patience. Dutch finance minister recently described the current regulatory framework as “insufficiently equipped”, as news.Bitcoin.com reported. Wopke Hoekstra spoke of the “inherently cross-border” nature of cryptocurrencies and called for “coordinated international approach”. The government in 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 grasp the crypto phenomenon, other countries in Europe have taken advantage of their non-aligned status. Belarus, for example, is fighting political and economic isolation by embracing crypto. A decree, signed by President Lukashenko, introduces tax breaks and other incentives for crypto-related activities until 2023. It enters into force in less than a week, on March 28. Whether this crypto-friendly policy will fill government coffers at the end of the day remains to be seen.