Under the new system, income from holding cryptocurrencies will be treated as capital asset income and taxed at a specific rate of 27.5%.

Source: Federal Ministry Republic of Austria Finance

Translation: TaxDAO

1. Income Tax

As part of the environmental responsibility tax reform (Ökosoziale Steuerreform), specific regulations on cryptocurrency taxation will take effect on March 1, 2022. Under the new system, income from holding cryptocurrencies will be treated as capital asset income and taxed at a specific rate of 27.5%.

Which cryptocurrencies are covered?

According to Section 27b(4) of the Austrian Income Tax Act (Einkommensteuergesetz - EStG), cryptocurrencies are defined as "digital representations of value that are accepted as a medium of exchange by natural or legal persons and can be electronically transferred, stored, or traded and are not necessarily linked to legal tender and do not have the legal status of currency, and are not confirmed or guaranteed by a central bank or other national authority."

This definition covers publicly offered cryptocurrencies accepted as a means of exchange. It also applies to "stablecoins" whose value is pegged to the value of legally recognized currency or other assets.

This definition does not include NFTs and "asset tokens" based on tangible assets such as securities or property. These products are subject to taxation under general tax regulations, depending on the nature of the relevant tokens.

Affected income and calculation methods

The definition of income from holding cryptocurrencies includes current income from holding cryptocurrencies and income from the increase in value of holding cryptocurrencies, regardless of whether the minimum holding period has been complied with.

According to Section 27b(2), the definition of current income from holding cryptocurrencies includes the proceeds from the transfer of cryptocurrencies. Income is recognized when cryptocurrencies are transferred to other market participants in exchange for consideration. For tax purposes, this consideration specifically includes interest earned from cryptocurrency loans and the provision of cryptocurrencies for liquidity and/or credit pools as part of "decentralized finance processes" (also known as "liquidity mining").

The amount of cryptocurrencies obtained through the technical processes of providing transaction processing services also falls within the definition of current income. This provision aims to cover the acquisition of cryptocurrency assets in the process of "mining," regardless of whether this process results in the creation of new cryptocurrencies and regardless of whether the income is provided by other members of the network in the form of transaction fees. Operating masternodes can also generate current income for tax purposes.

Notes

Income is considered to have been generated as capital asset income only if the nature and scope of the activities do not exceed simple asset management work. If these activities exceed the scope of such asset management, any income generated from them should be classified as business income.

All current income must be taxed upon receipt. Such income is evaluated at the time of receipt based on the amount of cryptocurrencies held and/or the value of any other consideration received at that time. This value will also be used to represent the tax cost of the cryptocurrencies acquired.

In contrast, the following situations are not considered to have generated current income:

• Services primarily related to processing transactions that involve investing (staking) existing cryptocurrencies;
• Free transfers of cryptocurrencies ("airdrops") or those used for other insignificant benefits ("bounties");
• Cryptocurrencies generated due to changes in the original blockchain ("hard forks").

In these cases, income from holding cryptocurrencies is not taxed upon receipt. However, the relevant cryptocurrency assets are considered to have been acquired at zero cost. This means that if they are disposed of in the future, the entire value of the held cryptocurrencies will be subject to taxation.

Warning

The exception for the amount of cryptocurrencies held as part of traditional staking procedures applies only to services related to transaction processing (i.e., creating and/or validating blocks). If the process of transferring the amount of cryptocurrencies in exchange for consideration is described as "staking" and is effectively equivalent to providing consideration in exchange for the transfer of the amount of cryptocurrencies held, such a process is not exempt, meaning any income generated from it is subject to taxation upon receipt.

According to Section 27b(3), "income from the increase in value of holding cryptocurrencies" specifically includes:

• Income generated by converting held cryptocurrencies into euros
• Income generated by converting held cryptocurrencies into legally recognized foreign currencies (e.g., US dollars)
• Income generated by trading held cryptocurrencies for other economic goods and services (e.g., purchasing economic goods and paying with cryptocurrencies).

Exchanging one cryptocurrency for another does not constitute a disposal, and such transactions are not subject to taxation. Additionally, any costs associated with such transactions (e.g., transaction costs) are not considered significant expenses for tax purposes and therefore do not incur taxation at the time of the transaction. In this case, the acquisition cost of the transferred cryptocurrencies will transfer to the cryptocurrencies obtained in the transaction.

Any act that results in the Austrian government waiving the right to tax profits from disposals is also considered a disposal.

The method for calculating disposal profits is to subtract the acquisition cost from the income generated from the relevant sale. Such profits are subject to taxation. For transactions, the disposal price of the relevant amount of cryptocurrencies is assumed to be the fair market value of the amount of cryptocurrencies held at the time of the transaction (Section 6(14)). Please note that any ancillary costs associated with purchasing cryptocurrencies (e.g., advice or transaction fees) can be offset against taxation, thereby reducing the tax burden. However, costs associated with financial assets (e.g., electricity costs or the cost of purchasing hardware) are not exempt from taxation unless the taxpayer chooses to use the standard tax option (Regelbesteuerungsoption).

Tax rates

According to Section 27a(1), income generated from holding cryptocurrencies (including current income and disposal gains) is subject to a special tax rate of 27.5% and is not included in the calculation of progressive tax rates for other income. This provision applies whether the tax amount is withheld at the source (i.e., as capital gains tax) or determined based on tax returns and/or assessment procedures.

However, an exemption does apply to income from private loans issued in cryptocurrencies, provided that the transfer contracts supporting the loans are open to the public. Income from such private loans is included in the calculation of the progressive income tax threshold.

Deduction of losses

According to general tax regulations in Austria, profits and losses related to income from holding cryptocurrencies can be calculated together with profits and losses related to other capital income (e.g., dividends or gains from stock disposals) for tax purposes.

Business income

In principle, the special tax rate for cryptocurrencies applies to business assets as well as traditional capital assets. However, if generating income through cryptocurrencies is part of the core activities of a related enterprise, the special tax rate does not apply. Specifically, this means it does not apply to enterprises trading with cryptocurrencies or those mining currencies on a commercial basis. Income from such activities is subject to taxation based on the progressive income tax threshold.

Losses generated from holding cryptocurrencies as part of business assets are treated in the same way as losses generated from holding traditional capital assets.

2. Value Added Tax on Assets

Austrian debtors and service providers will be required to deduct Austrian capital gains tax from capital gains accrued after December 31, 2023. This deduction can be voluntarily made from capital gains accrued before that date, in which case the capital gains tax is withheld and transferred directly to the tax authorities. Investors do not need to declare voluntarily taxed capital gains in their tax returns because the withholding of capital gains tax is considered as having collected the applicable income tax (this principle is called "final taxation").

Warning

If income is obtained from cryptocurrencies before the obligation to deduct capital gains tax takes effect and is not voluntarily taxed, it must be declared in the income tax return and taxed accordingly.

Limited tax liability

According to Section 27b(2), current income from cryptocurrencies and capital gains from cryptocurrencies are not subject to limited tax liability as per Section 27b(27). If the party obligated to withhold capital gains tax knows that the investor is not subject to unlimited tax liability in these cases, they can be exempt from withholding capital gains tax. If the withholding agent still withholds capital gains tax, it can be refunded according to Section 240(3). For the classification of cryptocurrency income under international tax law, please refer to the following.

3. Implementation of New Regulations

The requirement to tax income from holding cryptocurrencies will take effect on March 1, 2022, and will apply to cryptocurrencies purchased or held after February 28, 2021 (referred to as "new assets").

In general, cryptocurrencies held before this date are considered "existing assets" and are therefore not affected by the new tax regulations. They will continue to be treated as economic goods and taxed as before the environmental responsibility tax reform.

However, if current income is obtained from cryptocurrencies held before March 1, 2021 ("old assets") as per Section 27b(2), or if cryptocurrencies are obtained as part of staking, airdrops, bounties, or hard fork arrangements, then the new tax regulations will apply to such income. Any cryptocurrencies obtained in the process of these activities will be considered new assets.

If cryptocurrencies are liquidated (especially due to disposal or trading) after December 31, 2021, but before March 1, 2022, any positive or negative income generated from such liquidation can be voluntarily taxed according to the new regulations. In this case, the special tax rate for cryptocurrencies will apply, and this income can be combined with other income generated from capital assets in 2022 to offset losses.

4. Value Added Tax (VAT)

According to the case law of the Court of Justice of the European Union (CJEU) regarding Bitcoin and other cryptocurrencies, the following VAT treatment applies to Bitcoin:

• Exchange from legal tender to Bitcoin, and vice versa
• According to CJEU case law, the exchange between legal tender (e.g., euros) and Bitcoin is exempt from VAT.

Bitcoin as Consideration

Supplies or services provided in exchange for Bitcoin should be treated in the same way as supplies or services provided in exchange for legal tender (e.g., euros). The tax base for such supplies or services should be determined based on the value of Bitcoin.

Mining

Due to the lack of identifiable recipients of services and according to CJEU case law, Bitcoin mining is not subject to VAT.

5. International Tax Law

For clarity, this legal assessment is based on the OECD Model Tax Convention. In practice, the relevant bilateral double taxation conventions (DTC) must always be referred to.

The determination of whether taxable income should be accrued, the type of income, the attribution of income to the taxpayer, and the timing of accrual are governed by Austrian domestic tax law principles. Subsequently, this domestic treatment is considered to obtain qualification at the DTC level.

If income from cryptocurrencies qualifies as business (commercial) activity income domestically, it needs to be classified as commercial profits in the sense of Article 7 of the OECD Model Tax Convention at the applicable DTC level. In this case, the contracting state of the company's place of management has the primary right to tax these business profits, unless the activities are carried out through a permanent establishment in another contracting state, as defined in Article 5 of the DTC. Mining and staking both require specialized and sometimes very expensive equipment, which must be installed and put into operation and connected to specific locations. Therefore, the requirements for establishing a permanent establishment under Article 5 of the DTC can, in principle, be met. The assessment of whether this is the case depends on the specific circumstances and cannot be generalized. If the generated cryptocurrencies or income derived from cryptocurrencies can be attributed to a permanent establishment, the contracting state where the permanent establishment is located has the primary right to tax. The country of registration of the company usually exempts such income, but progressive taxation still applies. An exception to this principle is those DTCs that provide relief methods to mitigate double taxation. It should be noted that Article 7 of the OECD Model Tax Convention only applies in auxiliary cases, i.e., when other provisions of the DTC do not apply.

If income is obtained by transferring cryptocurrencies as consideration (Section 27(2) Z1), such income can essentially be considered interest in the sense of Article 11, as the payment of this income is in exchange for the use of capital. This means that this income can, in principle, be taxed in the contracting state where the recipient is a resident. Additionally, the source country (usually the contracting state where the payer resides in the sense of Article 11(5)) has the right to levy a 10% withholding tax on the total income. This income is taxed upon receipt. This also applies to cryptocurrency payment transfers conducted as commercial activities, as Article 7 is a subsidiary provision of Article 11.

Recommendation: The 10% withholding tax rate corresponds to the rates specified in the convention and must always be cross-checked with the applicable tax rates in the DTC.

From a domestic perspective, income from "mining" conducted by the taxpayer themselves should be considered current income (obtaining cryptocurrencies through technical means). In this case, Article 11 does not apply because the provision of capital does not generate income. Article 7 also does not apply because there is no commercial activity. Therefore, income from cryptocurrency mining outside of business enterprises is, in principle, classified as "other income" under Article 21 and the contracting state where the taxpayer resides usually has the primary right to tax such income.

Recommendation: Some DTCs concluded by Austria contain provisions based on Article 21(3) of the convention, and therefore also stipulate the right of taxation of the source country.

If a business realizes capital gains through cryptocurrencies, including capital gains obtained through "staking," "airdrops," "bounties," and so-called "hard forks," the provisions of Article 13 apply. If the cryptocurrencies are attributed to a permanent establishment in another contracting state, the right to tax is transferred to that country according to Article 13(2). For other realized capital gains from cryptocurrencies (i.e., capital gains held outside of business), the exclusive right to tax is allocated to the seller's country of residence according to Article 13(5). This legal assessment also applies to cases where Austria loses the right to tax capital gains, resulting in domestic export taxation and the sale of cryptocurrencies falling under the business activities of the enterprise, as Article 7 is a subsidiary provision of Article 13.

Recommendation: Asset tokens and NFTs are not considered cryptocurrencies. Therefore, the previous explanations may not necessarily apply to income from such assets. Other provisions of the DTC, such as Article 10 or Article 12, may apply.

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