Cryptocurrencies are becoming more integrated into the modern financial system and, like any other asset, they are subject to taxation. As cryptocurrencies continue to gain interest from investors and governments, different countries are adopting various approaches to regulate and tax cryptocurrencies. This article explores how cryptocurrency tax policies work around the world.
Table of Contents
1. Which countries require you to pay taxes on cryptocurrencies?
2. Why do some countries not have to pay taxes on cryptocurrencies?
3. Countries where cryptocurrencies are banned
4. Why do some countries not pay taxes on cryptocurrency?
5. What’s next for cryptocurrency taxation?
Which countries require you to pay taxes on cryptocurrencies?
In the United States, paying taxes on cryptocurrencies is mandatory. The authorities are very strict about taxation and almost everything, including digital assets, is subject to tax. Cryptocurrencies are treated as property, not currency. This means that taxpayers must pay capital gains taxes when they sell their cryptocurrencies. The profit is subject to either short-term or long-term capital gains tax rates, depending on how long the asset is held (less than one year or more).
In the UK, the situation is similar, as cryptocurrencies are taxed like other assets. Capital Gains Tax (CGT) applies to income above a certain tax threshold. If the revenue from cryptocurrency trading exceeds a specific amount, taxpayers must file a tax return and pay tax.
The Australian Tax Office also classifies cryptocurrencies as assets. Investors must pay capital gains tax if they sell their tokens at a profit. However, there is a minor exception – in some cases, cryptocurrencies used to purchase goods and services may be exempt from tax if the transaction amount does not exceed $10,000.
Overall, Europe is leading in cryptocurrency taxation, with Switzerland taking the lead. Some residents of Switzerland can not only pay for their purchases with cryptocurrency but also use it to pay their taxes, as explained by the Federal Tax Administration (FTA):
“If the salary or ancillary salary benefits are paid to the employee in the form of payment tokens, these are taxable as income from gainful employment and must be shown on the salary certificate.”
Why do some countries not have to pay taxes on cryptocurrencies?
Several countries encourage the use of cryptocurrencies by not imposing mandatory taxation. This is a way for authorities to attract investors and promote the development of cryptocurrency startups.
Portugal is one of the few countries where citizens are exempt from paying taxes on income received from cryptocurrency trading. However, there are exceptions when cryptocurrency is used in professional activities or business.
In Germany, cryptocurrencies held for over a year are not subject to taxation when sold. This creates an incentive for long-term investment in crypto assets. However, if the crypto is sold before this period, the profit will be subject to capital gains tax.
Malta is actively developing its crypto industry and offers favorable taxation conditions. Cryptocurrencies are only taxed if they are sold or exchanged for fiat currency; otherwise, no tax applies.
However, some countries do not require payment of taxes on cryptocurrencies simply because they are banned.
Countries where cryptocurrencies are banned
China is one of the most well-known countries that has banned cryptocurrencies. In 2021, all cryptocurrency transactions were prohibited, and regulators actively cracked down on mining. This has posed significant challenges for investors and crypto companies in the country.
In Algeria, the use of cryptocurrencies, including trading and mining, is strictly prohibited. The African country does not allow cryptocurrency transactions, including exchange and sale, making it impossible to carry out such transactions within the country.
Cryptocurrencies are also banned in several other countries, mainly in the MENA and Asia regions, such as Morocco, Pakistan, and Indonesia.
Why do some countries not pay taxes on cryptocurrency?
Apart from bans and investment attractiveness, some countries do not impose taxes on cryptocurrencies because the authorities have not yet developed regulations for digital assets.
For example, although Japan has recognized Bitcoin (BTC) and other cryptocurrencies as legal means of exchange, many aspects of their regulation are still being developed. While the country has some rules governing crypto exchanges, there are still gaps in the legislation regarding specific taxation factors.
In Nepal, cryptocurrencies are not clearly regulated but are de facto banned. Since the government has not developed legislation to regulate this class of assets, cryptocurrencies remain in a legal gray area.
What’s next for cryptocurrency taxation?
Cryptocurrency taxation varies from country to country, leading to different approaches in regulating and taxing these digital assets. While some countries actively develop tax policies and regulations for handling cryptocurrencies, others remain in a legal gray area, and some outright prohibit their use. However, according to Chainalysis, cryptocurrency adoption continues to grow globally.
Therefore, it is likely that cryptocurrency taxation will continue to evolve towards greater clarity and regulation, providing stability for investors and market participants. However, changes may occur unevenly depending on the region and political environment.