Although cryptocurrency is not controlled by any government or bank, the financial services related to crypto are different. Whether we like it or not, the number of countries taxing cryptocurrency profits is increasing, so our spending is not only limited by transaction fees. Today, we discuss the size of Bitcoin and cryptocurrency taxes and when they will be paid.
- 1 Legal and tax definition of cryptocurrency
- 2 Cryptocurrency tax software
- 3 Cryptocurrency tax regulations in different countries/regions
- 3.1 #1. Internal Revenue Service
- 3.2 #2. United Kingdom, Canada, Australia
- 3.3 #3. China and Hong Kong
- 3.4 #4. European countries
- 3.5 #5. India
- 3.6 #6. Switzerland
- 3.7 #7. Russia
- 3.8 #8. Germany
- 3.9 #9. Philippines
- 3.10 #10. New Zealand
- 3.11 Cryptocurrency tax-free countries
- 3.12 Conclusion
- 3.13 Share this:
- 3.14 Like this:
- 3.15 Related
Legal and tax definition of cryptocurrency
The legal status of cryptocurrency varies from country to country. Although some of them prohibit the use of cryptocurrencies for mining and operations, equating them to crimes, other countries do not levy taxes and do not consider cryptocurrencies as personal financial assets at all.
Generally, encrypted assets are usually regarded as commodities or investment assets and are subject to relevant laws for tax purposes. Sometimes, Bitcoin is recognized as a unit of account (for example in Germany), in other countries (for example, in Japan), Bitcoin is a legal tender with a purchase tax. And in some countries/regions (such as China), banks prohibit bitcoin transactions, but individuals can do so. China is a leader in cryptocurrency mining because it has the largest production capacity.
In Switzerland, cryptocurrencies follow the same rules as foreign currencies, and the country is one of the most favorable jurisdictions for Bitcoin startups and public blockchains. Currently, Russia has no restrictions on the use of Bitcoin, but the Russian government does plan to introduce some future laws and regulations. The Central Bank of Russia recently (March 16, 2020) announced the start of work on a new bill to prohibit the issuance and organization of cryptocurrency circulation.
In many countries/regions such as France and India, the government has not yet made a formal decision on the regulation of cryptocurrencies. Although they are still considering how to stand, they warn potential users about the high risks of investing in cryptocurrencies due to the potential for high volatility.
Cryptocurrency tax software
Figuring out cryptocurrency taxes is one of the most disturbing parts of being a cryptocurrency trader. It takes a lot of time to provide detailed information about crypto taxes because you need to report the number of tokens you have, the number of exchanges that have been completed, and the trading platform used. Every exchange you make should be recorded, which is a very cumbersome procedure.
Fortunately, you can simplify the process with the help of encryption task software. The most popular solutions include the following.
it is maybe the easiest way to report your cryptocurrency business and income tax. it was rated as the best platform for recording digital currency taxation by Forbes and is the only crypto taxation platform that supports all major exchange websites. The software has a direct connection with each exchange platform and provides automatic reports. If the exchange does not allow the import of data, the record containing the exchange information can be transferred to this.
When transferring data, it will generate a form: all you need to do is fill it out and file it. These files include 8949, TurboTax, FBAR, FATCA forms, and some other files you may need.
BearTax utilizes connections with more than 25 popular exchanges to import your exchange information to define your income and provide you with expense records.
it has various useful functions. The user interface is simple and clear. Their matching function coordinates your withdrawals and deposits on the exchange. Using this tool, tax reports will become accurate.
The platform is compatible with both decentralized and centralized platforms, but if your exchange does not import data, you can simply submit the data in CVS format.
CryptoTrader.tax enables digital currency traders to quickly determine their gains and losses. Their basic interface makes it easy to import transaction data and ensures that you don’t overpay taxes.
Their software now supports Coinbase, Bittrex, Gemini, Binance, and Poloniex. CryptoTrader will use similar first-in, first-out techniques used by certified public accountants and tax experts to calculate your taxes.
Similarly, CryptoTrader conducts a so-called audit trail to record all calculations used in tax declarations. The report contains salary reports, short and long sales charts, closed positions reports, etc.
In addition to the above platforms, you can also try CoinTracker or ZenLedger.
Cryptocurrency tax regulations in different countries/regions
Encryption tax regulations differ from one region to another.
#1. Internal Revenue Service
In official reports from the World Bank and the FBI, Bitcoin is considered a “virtual currency.” The Financial Crimes Commission of the U.S. Department of the Treasury classifies Bitcoin as a “decentralized virtual currency.”
In March 2013, the Financial Crime Enforcement Network (FinCEN) announced that the exchange of any cryptocurrency to legal currency should be regulated in the same way as the exchange of legal currency to legal currency (for example, the US dollar to the euro). In November 2013, the U.S. Senate held a hearing on Bitcoin. During this period, it decided not to ban the circulation of cryptocurrencies, but to focus on regulating business.
In August 2013, a judge in the eastern part of Texas ruled that because Bitcoin is a currency that can be used to purchase goods or exchange for common currencies such as the US dollar, euro, yen, or yuan, bitcoin is a currency or money A form.
On March 25, 2014, the U.S. Internal Revenue Service issued guidelines for the taxation of Bitcoin and other virtual currencies. For federal tax purposes, Bitcoin is considered property, that is, for those who buy Bitcoin as an investment tool, the sale of Bitcoin will generate “capital gains” rather than “foreign exchange gains.” Bitcoin is taxed. The high volatility of the Bitcoin exchange rate may cause those who use Bitcoin to pay for goods and services to bear tax liabilities (especially the obligation to pay taxes on capital gains).
In the fall of 2017, the U.S. Securities and Exchange Commission (SEC) published the first case involving fraud in an initial coin offering (ICO).
The Internal Revenue Service (Internal Revenue Service) recently issued a tax guideline that states that cryptocurrencies should be taxed in accordance with the same rules as any other property or capital gains. Even in digital format only, cryptocurrency is money. According to the US Internal Revenue Service, if you obtain a cryptocurrency through an airdrop or hard fork, you must pay taxes on it (even if you have not requested an asset transfer).
#2. United Kingdom, Canada, Australia
HMRC (General Administration of Taxation and Customs) believes that only under special circumstances can the buying and selling of cryptocurrencies be called financial transactions. In this case, the profits tax will take precedence over capital gains tax. The income tax rate in the United Kingdom is floating, that is, it varies according to personal income, ranging from 0% to 45% according to the total income.
In most cases, individuals are allowed to hold encrypted assets as personal investments. In this case, they will be required to pay capital gains tax. The capital gains tax rate in the UK also varies according to the taxable amount, ranging from 10% to 28%.
In Canada, cryptocurrency profits are also taxed, but citizens only need to pay 50% of their income. There is no tax to buy or store cryptocurrency. Suppose you bought some cryptocurrencies for $1,000 and later sold them for $3,000. You need to report a capital increase of $1,000 (half of $2,000), which increases your income and is taxed at the marginal tax rate.
In Australia, business involving Bitcoin and other cryptocurrencies is equivalent to a barter agreement. For tax purposes, Bitcoin is considered an asset, not a means of payment or foreign currency.
Companies that require bitcoin transactions to record and indicate the date of the transaction accordingly. Companies that accept bitcoin payments should report their value in Australian dollars and treat it as ordinary income.
On the other hand, transactions with Bitcoin for personal use are exempt from tax under the following circumstances:
When Bitcoin is used as payment for goods and services for personal use;
When the transaction amount does not exceed AUD 10,000.
In Australia, Bitcoin mining and trading for commercial purposes is considered an exchange transaction and is subject to appropriate taxes.
#3. China and Hong Kong
On December 5, 2013, the People’s Bank of China banned Chinese financial companies from conducting bitcoin business. At the same time, individuals can freely participate in Internet transactions at their own risk. Cryptocurrency is considered a commodity, not cash.
In Hong Kong, cryptocurrency exchanges are not prohibited-Chinese cryptocurrency traders often use Hong Kong platforms to cash out their digital assets. There is no capital gains tax. At the same time, any income generated by frequent transactions in daily activities can be regarded as personal income and company profits and is subject to income tax and profit tax. However, according to the press release dated April 3, 2019, the tax bureau does not keep records of individuals who need to pay taxes on the use of virtual assets. They only review special circumstances.
#4. European countries
On October 22, 2015, the European Court of Justice stated that the Bitcoin exchange business in fiat currency is exempt from VAT. The court’s ruling clearly stated that the VAT law applies to the supply of goods and services. Transactions in Bitcoin have been classified as payment transactions in currency, coins, and banknotes, so there is no need to pay VAT. The court recommends that all EU member states exclude cryptocurrencies from taxable assets
In April 2018, the Reserve Bank of India effectively destroyed the country’s cryptocurrency industry by forcing all banks in the country to stop doing business with cryptocurrency exchanges. However, they later revised the law and made the following recommendations:
Buying or selling cryptocurrency will be considered a service.
The value of cryptocurrency can be determined based on the transaction value of the rupee or any freely convertible foreign currency equivalent.
If the buyer and seller are in India, the transaction will be considered a software delivery.
Transactions outside India will be subject to GST (Goods and Services Tax) and will be treated as imports or exports of goods.
In Switzerland, although the government plans to control the cryptocurrency business, it does not impose taxes on cryptocurrency business. In the near future, the following regulations may be introduced:
Cryptocurrency will be regarded as valuable property, so the fact that it owns should be reflected in the tax return and its value should be taxed;
If virtual coins qualify as private property (that is, they are not used for commercial purposes), then under current tax regulations, only profits from rising prices are taxed.
The mining tax for Bitcoin and other tokens is a corporate (profit tax) of a legal entity or a personal income tax.
On August 28, 2017, the Russian Ministry of Finance proposed to treat cryptocurrency as a financial asset, but it should be regulated as “other property”. At the same time, the Ministry believes that only “qualified traders” can buy and sell Bitcoin.
Russian banks oppose the legalization of cryptocurrencies. They are opposed to private money, regardless of whether its form is material or virtual. Cryptocurrency is regarded as a private digital currency that must be taxed.
Germany has an interesting tax policy for cryptocurrencies. The government does not consider Bitcoin or altcoins to be currencies, stocks, or commodities, however, digital assets are considered private property. Therefore, according to the law, private sales up to 600 euros are tax-exempt. If you sell cryptocurrency within one year of acquiring it, you will need to pay taxes on short-term gains. There is no tax on long-term gains. However, you must still report all trading transactions that use cryptocurrency.
In the Philippines, there is an agency (CEZA) that regulates cryptocurrency on the territory of the country. It issued a set of new rules governing the issuance of digital asset tokens (DATO). This covers the purchase of cryptocurrencies including utility and security tokens. Therefore, the government aims to protect the interests of cryptocurrency investors while promoting the concept and use of cryptocurrencies.
According to this legal framework, all digital asset investments are divided into three categories:
Investment and assets less than USD 5 million
USD 6-10 million
More than ten million dollars
#10. New Zealand
The New Zealand tax authorities are considering changes to the cryptocurrency taxation policy.
Currently, Bitcoin and other cryptocurrencies are defined as property in New Zealand. Therefore, as part of business operations, cryptocurrency is levied a 15% tax in the country. however. The subsequent application of income tax may cause double taxation problems. The New Zealand Inland Revenue Department (IRD) tried to make changes and resolve this issue:
Due to its innovation, cryptocurrency usually also has different functions from other investment products. This means that certain existing tax laws may be difficult to apply, involve high compliance costs, or may provide policy results for certain encrypted assets, resulting in excessive taxation compared to other alternative investment products.
Cryptocurrency tax-free countries
Currently, there are 6 countries/regions that do not need to pay taxes on their cryptocurrency income:
- Encrypted tax calculator
You can easily calculate cryptocurrency taxes using online calculators like Crypto Tax Calculator, CoinTracker, Koinly, and many other similar services.
Unfortunately, the goal of most countries is to control cryptocurrencies: they realize that crypto-assets pose a threat to traditional fiat currencies and the global financial system. Therefore, the legalization process will take many years, so for now, we can enjoy relatively tax-free financial freedom. In most cases, regular Bitcoin users who perform a small number of transactions are not obliged to pay taxes at all.
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