We tried to understand and systematize how the regulators of Europe, Asia and the post-Soviet space approach the issue of selling, exchanging and mining digital coins.
Taxation of transactions with cryptocurrencies -a problem that is being solved all over the world. Since the World Bank and the financial regulator SEC do not have a common vision regarding digital money, each country solves this problem individually, at its discretion.
Germany: Bitcoin is an item
The position on taxation of any transactions related to digital assets is determined by the Federal Ministry of Finance (Bundesministerium der Finanzen).
In 2018, the BMF adopted and enshrined in the law the following provisions:
- Buying and selling cryptocurrencies is an income-taxed operation but is not subject to VAT.
- Digital and electronic money that is used exclusively to pay for goods and services are equated to fiduciary (that is, circulating within the state payment system).
- Transactions of game tokens that do not have the features of traditional means of payment are excluded from the list of VAT-exempt transactions.
- Mining is a related service formaintenance of the blockchain, therefore it is not subject to value added tax. The transaction fee that miners receive is a voluntary donation from network users and is not subject to income tax.
- Income tax and VAT are levied on the sale of cryptocurrency hardware wallets. Local, exchange and paper wallets are not included in the list of taxable ones.
It is important to understand that crypto assets are not officiallyare considered in Germany as a means of investment or payment. Digital money is equated with tangible objects. Therefore, their purchase and storage are not subject to any mandatory commissions. And the sale is considered the alienation of personal property.
However, there is an important nuance.
Any sale (furniture, real estate or digitalcoins) is regarded by German tax authorities as speculation if the period between buying and selling is less than 12 months. That is, only the net profit from the sale of crypto assets that were purchased and sold within one year should be entered in the tax return.
How to calculate the profitability if, for example,Bitcoins were bought through exchangers in the period from 2015 to December 2020 and then sold in one batch in January 2021 (at the peak) - it is not clear. Also, the regulators do not provide explanations on how to distinguish the military-technical cooperation purchased on the exchange in 2016 from the same one purchased in 2020 through the exchanger, if one of them is sold in 2021.
Personal income tax in Germanycalculated on a progressive scale: from income over € 56,000, the Germans give 42% to the state, and profits less than € 600 are not declared at all. Legal entities give to the budget from 14 to 17% of net income (its size is set by the municipalities, where companies register the address of the head office).
UK: bitcoin - payment token
The size and types of taxes in relation to cryptocurrencies in the UK are developed by Her Majesty's Revenue and Customs.
In 2019, HMRC published a cryptocurrency guide for tax agents. It consists of two parts: "Cryptocurrencies: Tax of Individuals" and "Cryptocurrencies: Taxation of Business".
All digital assets in this guide are divided into 3 groups.
- Exchange tokens (allowing the exchange process).These are currencies that use ledger technology (blockchain), can act as a means of payment and do not provide ownership of goods and services.
- Utility tokens (service or utility).Tokens created on the blockchain that give owners ownership of tangible and intellectual assets. Service tokens cannot be used as payment.
- Security tokens (secure, secured).These are tokenized shares and securities. They are created on the blockchain as a means of investing in a project. The owners of security tokens receive shares of ownership in the project in proportion to the number of purchased digital shares. Can be sold, but cannot be used as a means of payment.
UK crypto asset holders are required to pay CGT (Capital Gains Tax) - capital gains tax. This applies to both individuals and legal entities.
Any income received as a result of mining, exchange or sale of group 1 and 3 tokens is taxed at the regular rate:
- Deals with capital gains below 12.3 GBP are exempt from payment.
- Income between 12.31 and 37.5 GBP is subject to 10% UK tax deductions.
- All income in excess of this limit will require payment of 19-28% tax on CGT, depending on the amount of increase for the reporting year.
Operations with utility tokens are counted indeclarations, but are considered not generating direct income. The taxpayer himself must indicate the type of token, wallet address, bank statement, date of the transaction and the value of the transaction.
Italy: bitcoin is a foreign currency
In Italy, cryptocurrency issues are handled by the State Revenue Agency (Agenzia delle Entrate).
Since 2019, regulations have come into force here, inwhich digital money is equal to money held in foreign banks. The jurisdiction, which is determined by the custodian of the cryptocurrency, is, according to tax authorities, the country where the custodial wallet or cold storage of the exchange is registered.
At the same time, the value of bitcoin is determined once a year as of December 31 in euro equivalent.
Naturally, this approach is perplexing, because two main features of cryptocurrencies are not taken into account: extraterritoriality and volatility.
But Italian regulators do not intend to back down from the decision and threaten a 15% fine for the amount of funds not declared in the declaration.
However, Italy has always been famous for its absurdlaws. For example, there is a “shadow tax” (if the shadow from a canopy over a cafe or shop extends beyond the purchased plot of land and enters the public area) or a “nuclear power plant maintenance tax”, which is included in all electricity bills, although not a single nuclear power plant in Italy, no.
Taxation, according to the legislation,cryptocurrencies worth more than € 51,000 must be kept for longer than 7 days a year. If the Italian was stupid to show in the declaration that he has been keeping 2 BTC since 2019, then he will pay 25% of their value to the Italian budget.
The absurdity of the regulations adopted in Italy is compensated for only by the fact that none of the crypto enthusiasts bothers themselves with their implementation.
In the next article, we will tell you how things are going with taxation of digital money in Asian countries.
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