Cryptocurrencies are growing and becoming more and more popular all over the world at a rapid pace and the influx of the public into them is constantly growing.
The use of cryptocurrency in investment, trading, and as a means of payment has been rising steadily over the past years. They are a long-term investment option, a method of payment and negotiation, or as a substitute for money.
However, the way cryptocurrencies are taxed varies from country to country. Each country, as is logical, has its own regulations which are either already in place or in the process, as everything is still at an early stage. Thus, each country’s friendliness to cryptocurrencies is measured by two key factors, the degree to which it regulates cryptocurrency and the degree to which it taxes them.
The above indicates that anyone who participates or would like to participate in the cryptocurrency space is subject to different regulations based on their country’s attitude towards digital assets. So, the Tax liability is a major concern for those investing in bitcoin and other digital assets.
In some countries, which we will see below in more detail, they put indirect or even direct pressure on investors through the imposition of taxes on income and capital gains derived from Crypto/FIAT transactions. In contrast, other countries take a different approach, usually aiming at better adoption of digital asset innovation. These countries enforce friendlier legislation and allow investors to buy, sell and own digital assets without any tax liability.
Recently, China, and in particular the People’s Bank of China, announced that it was indefinitely banning cryptocurrencies and other related services provided to mainland China from abroad. China has called them illegal and said anyone involved in them would be prosecuted.
Thus, this article mentions countries that have friendly regulatory oversight for investors and low or no tax on cryptocurrencies.
Crypto-Friendly Countries where cryptocurrencies are not taxed
Switzerland — the Crypto Valley
Malta — Known as “blockchain island”
Malta recognizes Bitcoin “as a unit of account, medium of exchange, or a store of value.”
Malta is also known as “Blockchain Island”. The Maltese government is fully supportive of cryptocurrencies, in contrast to local banks which didn’t approve them from the outset. More specifically, Malta doesn’t have a capital gains tax on long-term cryptocurrencies, such as Bitcoin. The crypto friendliness in Malta is the reason that many crypto exchanges and blockchain projects operate there.
In Portugal, the tax authorities have chosen to take a lenient stance on investing in cryptocurrencies. Portuguese law is known to be very friendly to cryptocurrencies. People in Portugal who benefit from buying and selling cryptocurrencies and not exchanging them with another currency are also tax-free.
The country’s tax authorities state that the exchange of cryptocurrencies with FIAT constitutes the provision of on-demand services, excluding VAT”.
Switzerland is friendly to cryptocurrencies and is even known as “Crypto Valley”. Switzerland’s tax system is quite different from other countries. First of all, it is important to mention that Switzerland has a unique system which differs by canton (a spatial division of the state, each has its own prefectures, the Swiss are divided into 26 cantons), each of which has its own laws regarding cryptocurrencies. One Swiss canton may tax cryptocurrencies, while another may not.
The taxation of cryptocurrencies in Switzerland is quite interesting because mining income is declared as employment income (thus it is taxed through income tax). However, if one invests and trades for one’s personal account, cryptocurrency profits are treated as tax-exempt capital gains. More specifically, in Zurich, capital gains from mobile private wealth are tax-exempt, so Bitcoin and other cryptocurrencies could not be taxed, which is not the case because in this canton Bitcoin is taxed normally. Lucerne is still very close to the tax authorities around the canton of Zurich, and it treats capital gains on a tax-exempt basis. There are other cantons in which mining and trading regulations are stricter.
Germany has one different and special kind of tax for cryptocurrencies, such as Bitcoin. The German Government considers cryptocurrency to be a private money, as opposed to a currency, commodity, or stock. Cryptocurrencies aren’t subjected to VAT during transactions. Also, it is important to note that cryptos are exempted from the long-term capital gains tax, if the assets are held for less than a year, capital gains tax does not accrue on a sale.
Capital gains tax, for resident investors, will be applied if the value is more than 600 euros ($692). On the other hand, for businesses it’s different, they are still subject to corporate income tax when dealing with cryptocurrencies, just as it would with any other asset.
Singapore is a completely different case. Singapore has no tax on capital gains, this means that neither the individuals nor the companies that own the cryptocurrencies are responsible. Singapore authorities classify cryptocurrencies as “backyard property”, not as legal tender. Payment in cryptocurrency is an “exchange of exchange” where goods and services are taxed, but not the cryptocurrency itself, this applies to individuals.
Singaporean businesses are subject to income tax, either if the cryptocurrencies are their primary property or if they accept them as payment. Essentially the companies involved in cryptocurrency transactions the tax will be subject to their profits. This country is ideal for independent businesses as their laws are supportive of cryptocurrencies.
For those who do not know, Bermuda is a small Caribbean island. Cryptocurrency profits are not taxed there. Bermuda doesn’t impose income, capital gains, withholding or other taxes on digital assets or transactions, which involve cryptocurrencies.
Βelarus in 2018 issued a law that legalizes the activities of cryptocurrencies and in fact, these activities are tax-free.
This law will be revised in 2023. Their law stipulates that mining and investing in cryptocurrencies are considered personal investments.
Hong Kong’s relationship with cryptocurrencies is complex. In 2020, a new directive on cryptocurrencies was issued that cryptocurrencies will be taxed based on their use. More specifically, they state “If the digital assets are purchased for long-term investment purposes, any profits from the sale will not be subject to profit tax.”
9. El Salvador
Earlier this year, in El Salvador, a law was passed to legalize Bitcoin. There is still no legal framework in the country around tax exemptions for cryptocurrencies, but the government has shown intention to approach foreign investors with portfolios. For that reason, El Salvador will exempt them from paying taxes on their profits in Bitcoin.
There is no capital gains tax in Malaysia. More specifically cryptocurrencies aren’t taxed on capital gains as digital currencies due to cryptos aren’t considered assets or permanent money by local authorities. Businesses involved in crypto are subject to Malaysian income tax.
Finally, Slovenia has different management systems for individuals and businesses in taxation. Individuals aren’t subject to capital gains tax when selling cryptocurrencies, profits are not considered income, but companies that receive payments in cryptocurrencies or make profits through mining are required to pay tax to the state based on the corporation.
Levying taxes on income and capital gains from Bitcoin and other cryptocurrencies is now common. However, there are several countries that are bucking the trend, keen to see how this emerging asset class develops and to encourage innovation.
Even in these countries, tax laws are subject to change and are often complex for both businesses and individuals.
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