Cryptocurrency Taxation Practices: The Balance and Competition Between the Real World and the Decentralized World

CN
1 month ago

How to Tax Cryptocurrency Assets: There is still much room for discussion on whether cryptocurrency assets should be taxed.

Written by: imToken

The taxation of cryptocurrency assets has been a hot topic in the industry. A report titled "2024 Global Cryptocurrency Tax Survey" released by PwC on April 30, 2024, points out that countries and regions such as the United States and the European Union have introduced new tax reporting requirements for cryptocurrency brokers and related intermediaries in 2023, aiming to enhance the transparency of cryptocurrency tax information.

In June 2023, the Organisation for Economic Co-operation and Development (OECD) released a "Cryptocurrency Reporting Framework" and updated the Common Reporting Standard for financial institutions to include new types of financial products. As of December 1, 2023, 54 jurisdictions worldwide have indicated their intention to adopt the "Cryptocurrency Reporting Framework," with an expected implementation of an automatic exchange mechanism for cryptocurrency transaction information by 2027.

What are the current tax practices in major cryptocurrency markets around the world? This article summarizes the current taxation status of cryptocurrency assets in major global markets based on publicly available information.

United States

The IRS defines cryptocurrency assets as "property." On June 28, 2024, the U.S. Department of the Treasury and the IRS released final regulations implementing bipartisan tax reporting requirements for the sale and exchange of digital assets, requiring digital asset brokers to report the total income from all digital asset sales in 2025 starting in 2026. From 2027, brokers must also report the tax basis information for certain digital assets sold in 2026.

On August 9, 2024, the IRS announced an updated 1099-DA form, which digital asset brokers will need to submit to the IRS starting in 2025, providing relevant tax information.

Europe

European Union: In 2015, a case involving Swedish resident David Hedqvis, who wished to exchange fiat currency for BTC through a company, influenced the tax regulatory approach to cryptocurrency assets in many European countries regarding whether the exchange service should be subject to Value Added Tax (VAT).

The court inferred from the ruling in the Chicago First National Bank case (C-172/96, EU:C:1998:354) that exchanging fiat currency for BTC or vice versa constitutes a taxable service. However, according to EU VAT regulations, the company providing the exchange service is exempt from VAT.

For individuals holding cryptocurrency assets, the taxable actions and tax rates vary significantly between different EU countries.

Germany: Tax authorities view cryptocurrencies as "property," and income from the sale of cryptocurrencies by individuals is taxed as "other income." Individuals who hold cryptocurrencies for more than one year are entitled to a tax-free allowance of 600 euros on income from sales.

According to an article published by KPMG on June 21, 2022, Germany issued a 24-page circular on May 10, 2022, which clarified the taxation of cryptocurrencies for the first time. Individuals holding cryptocurrency assets must pay taxes not only on income from sales but also on income earned from on-chain activities such as mining, staking, and lending.

Italy: Starting January 1, 2023, trading cryptocurrencies is subject to a capital gains tax rate of 26%, with no tax on annual capital gains not exceeding 2,000 euros.

Exchanges between different cryptocurrencies do not generate taxable events.

An article published by the European Times on January 5, 2023, indicated that this change followed the approval of a new "Budget Law" by the Italian Parliament, reflecting the Italian government's stance on cryptocurrency assets and strengthening regulation of this burgeoning but still highly volatile market.

United Kingdom: The UK tax authority classifies cryptocurrencies as "property," and transactions are subject to capital gains tax (CGT) at a maximum rate of 24%. According to a report by blockchain media The Block on December 30, 2024, in the UK, income obtained from cryptocurrencies through mining is considered taxable income, and salaries paid in cryptocurrencies are also subject to tax.

Africa

Nigeria: The "2023 Finance Bill," effective September 1, 2023, expanded the definition of "property" in Nigeria's Capital Gains Tax Act to include "digital assets," with a tax rate of 10%.

In September 2024, the Federal Inland Revenue Service of Nigeria proposed a new tax law to impose a 7.5% Value Added Tax (VAT) on cryptocurrency transactions.

Latin America

Brazil: According to Law No. 14754/2023, enacted on December 12, 2023, starting January 1, 2024, Brazilian residents must pay income tax on financial investments held abroad, including income from virtual asset investments, at a rate of 15%, with tax payable calculated monthly.

Asia

Japan: The National Tax Agency of Japan currently views cryptocurrency assets as "property." Income from trading cryptocurrency is included in the personal income tax scope as "miscellaneous income," with a progressive tax rate ranging from 5% to 45%.

According to tax reform requirements released by the Financial Services Agency of Japan for the fiscal year 2025, the chapter on "Integration of Financial Income Tax" mentions tax treatment issues related to cryptocurrency assets, indicating that the tax setup for cryptocurrency assets should be based on whether they should be considered financial assets with public investment participation.

According to a report by Japan News on December 15, 2024, the Financial Services Agency of Japan is discussing secure trading of cryptocurrency assets with experts and will focus on revising relevant laws such as the Payment Services Act and the Financial Instruments and Exchange Act. If cryptocurrency assets are confirmed to be regarded as financial assets, it may lead to a reconsideration of the taxation system for cryptocurrency assets, potentially lowering tax rates.

South Korea: According to a report by the Korea Economic Daily, the originally planned capital gains tax on cryptocurrency assets, set to be implemented in 2025, may be postponed until 2027.

Singapore: The Inland Revenue Authority of Singapore believes that taxing Digital Tokens used as a medium of exchange creates two taxable points: taxing the purchase of Digital Tokens and taxing the consumption behavior of using Digital Tokens to pay for other goods and services.

However, according to the electronic tax guide from the Inland Revenue Authority of Singapore, starting January 1, 2020, the use of Digital Tokens to purchase goods or services is no longer subject to Goods and Services Tax (GST).

Singapore does not have a capital gains tax, and profits from trading cryptocurrency assets by businesses and individuals are not subject to capital gains tax.

Indonesia: Starting May 1, 2022, providing cryptocurrency trading services is considered a taxable activity under Value Added Tax. Additionally, income from investing in cryptocurrency assets is subject to a 0.1% income tax.

Hong Kong: On March 27, 2020, the Hong Kong Inland Revenue Department released "Interpretation and Practice Note No. 39 - Profits Tax Digital Economy, E-commerce, Digital Assets," mentioning the direction of taxation for digital assets (including cryptocurrencies, crypto assets, or Digital Tokens, excluding asset types or trading activities classified as "securities" type digital assets).

Among them, digital assets obtained (including those purchased through ICOs or trading platforms) for long-term investment do not require profits from disposals to pay profits tax.

Additionally, an analysis article published by KPMG on April 5, 2020, indicated that the Hong Kong Inland Revenue Department believes that under the general principles of Section 14 of the Hong Kong Inland Revenue Ordinance, profits obtained from digital assets acquired through ICOs may be subject to profits tax unless any specific exemptions apply.

If employees in the digital asset-related industry receive salaries paid in cryptocurrencies, the tax regulations related to salaries in Hong Kong also apply to such income, with the declared amount calculated based on the market value of cryptocurrencies at the time of declaration.

Furthermore, according to news released by Bloomberg on October 28, 2024, the Hong Kong government proposed to expand tax relief policies for cryptocurrencies and other digital assets.

On November 28, 2024, Reuters reported that Hong Kong plans to exempt hedge funds, private equity funds, and certain family offices from taxes on investment income derived from cryptocurrencies and other alternative assets, in an effort to enhance Hong Kong's attractiveness as a wealth management center.

Although many countries or regions have begun to implement taxation practices for cryptocurrency assets, it is evident from this brief overview that there is still much room for discussion on how to tax cryptocurrency assets and whether they should be taxed.

Current taxation practices for cryptocurrency assets mainly involve capital gains tax, income tax, and value-added tax, with taxable subjects including individuals and businesses holding or using cryptocurrency assets, as well as digital brokers providing cryptocurrency services.

In terms of taxable actions, most countries or regions practicing cryptocurrency taxation generally view cryptocurrency assets as "property" or "assets," considering the income obtained from selling cryptocurrency assets as the primary taxable action. Therefore, in high-tax countries where the income tax rates are already high, the tax rates related to cryptocurrency assets may also appear particularly high.

In regions where Digital Tokens are promoted as a medium of exchange and payment function, using Digital Tokens to pay for other goods and services is also considered a taxable consumption behavior, similar to using fiat currency for consumption.

Some countries or regions also categorize income obtained from mining cryptocurrency and staking on-chain assets as subject to income tax, but whether these on-chain activities should be taxed based on income needs further discussion. On one hand, in PoW mechanisms, the assets obtained from mining are essentially incentives, while in PoS mechanisms, staking rewards are also intended to incentivize more validators to participate in maintaining the security of the blockchain network; on the other hand, on-chain activities already have corresponding consumption mechanisms, such as Gas Fees on Ethereum, which should not be subject to secondary taxation in the real world.

However, regarding mining activities, if there is a need to save energy and reduce electricity consumption in the real world, taxes related to energy conservation could be imposed, but not as income tax.

Overall, in the current practices, the taxation path for cryptocurrency assets cannot be said to be very clear, and the tax policy framework largely lacks consideration for the needs of building a decentralized world in Web3.

However, it is certain that imposing value-added tax or business tax on digital brokers providing cryptocurrency services, as well as taxing the transaction links between cryptocurrency assets and fiat currency in the real world, and even with stablecoin transactions, is a tax setup that is beneficial for balancing the development of the real world and the decentralized world at this stage. As for many on-chain activities, such as exchanges between various cryptocurrency assets and wallet account transfers, only when cryptocurrency assets are widely applied in the real world can these be considered taxable scenarios.

免责声明:本文章仅代表作者个人观点,不代表本平台的立场和观点。本文章仅供信息分享,不构成对任何人的任何投资建议。用户与作者之间的任何争议,与本平台无关。如网页中刊载的文章或图片涉及侵权,请提供相关的权利证明和身份证明发送邮件到support@aicoin.com,本平台相关工作人员将会进行核查。

Share To
APP

X

Telegram

Facebook

Reddit

CopyLink