Cryptocurrency Taxes: How Cryptocurrencies are Treated Around the World

Cryptocurrency taxes depend on the digital currency’s legal status in a particular country and the tax system used in that country. Most countries have found ways to tax gains from cryptocurrencies. For example In the U.S. The Internal Revenue Service (IRS)  has issued tax guidance and requires investors to disclose yearly cryptocurrency activity on their tax returns. If you are into crypto investing. You should be aware of taxes on cryptocurrencies.

Cryptocurrency taxes in different countries

United States

In the United States Cryptocurrency is considered a digital asset and the Internal Revenue Service (IRS) treats it like other capital assets. Tax levied on cryptocurrency is between 0% and 37%.

Tax-free cryptocurrency transactions

  • Buying cryptocurrency with fiat currency 
  • Holding Cryptocurrency
  • Transferring cryptocurrency between your own wallets
  • Gifting cryptocurrency
  • Donating cryptocurrency to charity 
  • Creating an NFT
  • Adding and removing liquidity 

Taxable Cryptocurrency transactions

  • Selling cryptocurrency for fiat currency.
  • Trading cryptocurrency for another cryptocurrency
  • Spending cryptocurrency on goods and services.
  • Hard forks
  • Receiving an airdrop
  • Receiving a token in exchange for your share in the liquidity pool

United Kingdom

The UK considers cryptocurrency as an asset and therefore subject to capital gains tax. If you sell or exchange your cryptocurrency for profit, you will need to report the gains and pay tax on them. The tax rate is based on your income and ranges from 10% to 20%.

Tax-free cryptocurrency transactions

  • Buying cryptocurrency with GBP
  • Holding Cryptocurrency
  • Transferring cryptocurrency between your own wallets
  • Donating cryptocurrency to charity
  • Gifting cryptocurrency to your spouse

Taxable Cryptocurrency transactions

  • Selling cryptocurrency for GBP or another fiat currency.
  • Trading cryptocurrency for another cryptocurrency
  • https://www.agenziaentrate.gov.it/portale/web/english/personal-income-tax-rates-and-calculationSpending cryptocurrency on goods and services
  • Gifting cryptocurrency other than spouse.

Italy 

Cryptocurrency taxes rate in Italy for 2022 are:

IncomeTax Rate
Up to €15,00023%
From €15,001 to €28,00025%
From €28,001 to €50,00035%
More than €50,00143%
Source: Agenziaentrate

Tax-free cryptocurrency transactions

  • Buying cryptocurrency with euros is tax-free in Italy. However, if you bought cryptocurrency with another cryptocurrency this would be taxable.
  • Transferring cryptocurrency between your own wallet is tax-free.
  • Holding cryptocurrency is tax-free in Italy.

Taxable Cryptocurrency transactions

  • Selling cryptocurrency for euros is subject to Capital Gains Tax at 26%.
  • Any gain you make is subject to 26% tax when trading one cryptocurrency for another.
  • Spending cryptocurrency on goods or services and therefore any gain would be subject to 26% Capital Gains Tax.

India

As per Union Budget 2022, income from digital assets (including cryptocurrency) transfers will be taxed at a 30% rate. Also TDS at a rate of 1% for cryptocurrency-related transactions.

Tax-free cryptocurrency transactions

  • Holding Cryptocurrency
  • Transferring cryptocurrency between your own wallet is tax-free.
  • Receiving a gift of crypto up to Rs50,000 from friends and relatives
  • Receiving a gift of crypto of any amount from close family members.

Taxable Cryptocurrency transactions

  • Selling cryptocurrency for INR or another fiat currency.
  • Trading cryptocurrency for another cryptocurrency
  • Spending cryptocurrency on goods and services
Transaction Tax
Buying crypto1% TDS
Selling crypto30% tax on any gain
Trading crypto for crypto30% tax on any gain
Spending crypto30% tax on any gain
Airdrops Income tax at individual tax rate, 30% tax if you later sell
Hard forksIncome tax at individual tax rate on receipt, 30% tax if you later sell
Donating cryptoCash donations are tax-deductible, any perceived profits may be subject to 30% tax
Mining rewards Income tax at individual tax rate, 30% tax if you later sell
Staking rewardsIncome tax at an individual tax rate, 30% tax if you later sell
Source: Koinly.io

Germany 

 In Germany for short-term profits when you sell, swap or spend crypto you have held less than one year as well as earning crypto through mining or staking you will only pay tax if you exceed a gain of €600. For long-term profits when you sell, swap or spend crypto you have held for more than one year, annual gains under €600 and additional income less than €256, as well as other crypto transactions like buying, holding and gifting crypto are tax-free.

Income tax rates for the year 2023

Single taxpayers Married taxpayersTax rate 
€0 to €10,632€0 to €21,2640%
€10,632 to €61,971€21,264 to €123,94214% to 42%
€61,971 to €277,825€123,942 to €555,65042%
€277,825+€555,650+45%
Source: Koinly.io

Tax-free cryptocurrency transactions

  • Selling crypto held for over a year
  • Gifting crypto to friends and family
  • Earning less than €600 in short-term gains and income in a year
  • Buying crypto with EUR
  • Staked crypto sold after one year
  • Transferring crypto between wallets
  • Hard forks

Taxable Cryptocurrency transactions

  • Selling crypto for more than €600 within 1 year
  • Trading or exchanging crypto held less than 1 year
  • Trading with stablecoins held less than 1 year
  • Participating in an ICO/IEO
  • Crypto margin trading and derivatives
  • Spending crypto within a year 
  • Selling staked crypto within 1 year
  • Mining crypto
  • Staking rewards

How to Report Cryptocurrency on Taxes in the United States and Germany

United States

To report your cryptocurrency taxes to IRS follow these steps:

Calculate your crypto tax.

1. You need to know your capital gains, losses, income and expenses.

2. After calculating crypto tax complete the tax Form 8949 with all your taxable transactions.

3. Include your net capital gains and losses from Form 8949 on Schedule D.

4. If you have crypto income from airdrops, forks, and liquidity pools you need to complete Schedule 1. If you are self-employed or operating a crypto business and have crypto income complete Schedule C instead.

5. Complete Form 1040 and attach the other forms that you have completed. File these with the IRS.

Germany

To report your cryptocurrency taxes to BZst follow these steps:

  1. You will need to declare your income and profit made from crypto activities.
  2. If you have sold, traded, spent or earned cryptocurrency in the last financial year, you will need to declare your crypto totals on your Income Tax Return.
  3. Once you calculated your crypto tax, file your tax online.
  4. To file your crypto tax declaration you have to fill out two forms one for general income and the other for crypto income.

Related: How Cryptocurrencies Promote Financial Inclusion?

Conclusion

Investing in cryptocurrencies has become increasingly popular in recent years and with it the need to understand how to handle taxes on cryptocurrency investments. Different countries have different regulations regarding cryptocurrency taxes, so familiarising yourself with the laws in your area is a must.

Frequently Asked Questions (FAQs)

Is cryptocurrency taxable?

Yes, when you sell cryptocurrency, you must recognize a taxable gain or loss on the sale.

How is cryptocurrency tax calculated?

Cryptocurrency taxes are dependent on several factors such as your income, how long you have held your cryptocurrency and your total crypto gains and losses.

Which country has the highest cryptocurrency tax?

Belgium has the highest cryptocurrency tax 33% tax on capital gains on crypto transactions and it also withholds up to 50% in taxes from professional income on crypto trades.

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