How does taxation for cryptocurrencies work in different countries

Taxes are the biggest challenge for governments, as they are conscious of the great amount of money flowing through cryptocurrency transactions

A challenge for governments

Financial transactions carried out with cryptocurrencies are increasing daily around the world, reaching millionaire figures. This is a situation that worries the governments of many nations because, due to the lack of regulation of these activities, generalized taxation standards haven’t been stipulated to track the income perceived by digital investors.

The percentage of people benefiting from the use of cryptocurrencies is pretty high, however, in the legal terms, there are still wide gaps, mostly because of the characteristics of each operationcarried out within a decentralized network that isn’t regulated by any public state or financial entity. 

Many governments make great efforts not to fall in the wayside of this cryptocurrency technology, facing many obstacles in the process. One of the greatest motivations that the governments have to determine regulatory policies urgently is that criminal and illegal actions are carried out through them, even though this isn’t a generalized feature.

Taxes are the biggest challenge for governments, as they are conscious of the great amount of money flowing through cryptocurrency transactions, and they obviously want to make sure that they will receive additional income thanks to the activities of individuals and companies. This has caused a divergence in the way to catalog cryptocurrencies for tax enforcement: some governments have defined them as foreign currencies, and others as financial assets.

Taxes in different countries

Some ways to apply taxes to cryptocurrencies in several countries are:

UNITED STATES: In this country, cryptocurrencies have the tax category of property, which means that, if it’s sold to earn something, a tax must be paid to the state’s income, which is calculated depending on the cryptocurrency’s value starting from the date they were negotiated.

Additionally, the U.S. government is being advised by one of the most important audit giants, Ernst & Young LLP (EY), who has launched a tool for cryptocurrency briefs for accounting and tax purposes called EY Crypto–Asset Accounting and Tax tool (CAAT), mainly destined to the calculus of cryptocurrency transaction taxes. 

CANADA: In this country, cryptocurrencies have an intangible property tax status. They are taxed with 50% on capital gainsand 25% to self-employed workers. The Canadian government considers that the use of a digital currency doesn’t exempt users of Canadian tax obligations, which means that cryptocurrencies are subject to laws on income tax. This includes selling cryptocurrencies for profit, mining and making crypto-to-crypto transactions. Taxes on investments, applied to cryptocurrencies, suggest 50% for any income in Canada.

UNITED KINGDOM: in this country, cryptocurrencies are categorized as investments in a low-scale trend, and working capital if they are used regularly. Profits for cryptocurrencies are exempt from taxes if they are under£11 850, and if they exceed this margin, they are taxed on 45%. Generally,cryptocurrencies are taxed in the capital gains tax category for the occasional users in the United Kingdom, considered as investments, however, some merchants can be subject to income tax.

GERMANY: In Germany, cryptocurrencies are considered as private money in taxing terms, despite not being legal tender. Thus, any profit obtained for the negotiation of cryptocurrencies is considered an income, which requires an income tax of25% and 28%

SWITZERLAND: In this country, cryptocurrencies don’t have a fixed tax status, however, they are considered an asset for the purposes of capital gain tax, which is only applied to citizens qualified as professional merchants, depending on the amount or frequency of transactions performed annually.

RUSSIA: In this country, cryptocurrencies don’t have a fixed tax category, as there’s no fiscal framework for them, however, they are taxed on 13% of personal income.

JAPAN: In Japan, cryptocurrencies are considered as a legal payment method in terms of taxing. But as income, which is classified as‘miscellaneous income’,they are taxed on 15% and up to 55%, depending on the volume. The maximum amount is applied to the people who earn more than 40 million yen (US$ 365.000).

SOUTH KOREA: It has a tax category of legal payment method. Currently, there isn’t a taxable situation for crypto-investors in South Korea, and there isn’t information about having to return taxes for the issuing of crypto, although there is a tax on 24,2% for the cryptocurrency stock market in the country. 

SOUTH AFRICA: Cryptocurrencies have a tributary status as assets of intangible nature. The enforcement is 18% as capital gain tax and 18% to 45% as normal income tax. 

SINGAPUR: In this country, cryptocurrencies aren’t considered basic products or currencies. For this reason, theincomefrom cryptographic investments of individuals isn’t taxed, but companies that trade cryptocurrencies must pay income taxes. 

BRAZIL: Cryptocurrencies don’t have a fixed tax status. In 2014, the Central Bank of Brazil declared that cryptocurrencies aren’t legal tender, thus, they can’t be legally regulated. However, Bitcoin and other currencies are subject to tax regulations up to 15%, if more than BRL 35000 is returned. 

Paradise and hell for cryptocurrencies

Additionally, there are very remarkable cases such as the Malta and Gibraltar islands, where their governments have developed very beneficial regulatory policies for cryptocurrency investors and blockchain developers, which gives them the category of legal financial activities, which opens the doors to future tributary legislations, beneficial for everyone. 

However, there are still many countries that, despite the high percentage of investors performing transactions on their territories, are reluctant to implement regulations. While some accept the ICOs, others prohibit the exchange of cryptocurrencies, a few chase cryptocurrency miners, and a Middle Eastern country has just banned everything related to cryptocurrencies.

The most extreme case is China, which has focused on exterminating the trade with crypto-assets, through extreme surveillance, raids and application of “defensive methods” to comply with the law issued by the Central Bank of China, which considers that Tokens, or”virtual currencies”, don’t have the legal status equivalent to money and thus they can’t and shouldn’t circulate as money in the market.

For experts, this hostile environment is due to the inability of governments to establish tax policies on the income received by a citizen, in an industry in which they have no control or participation.

There is then only one alternative, for the investors to be willing to report these crypto-assets in their tax returns, and previously notify the amount of money they would invest, and then report their earnings.

The implementation of taxes for cryptocurrencies continues to be a huge problem for governments, which will only find a way out in the consensus of some international group, and generalized strategies that can be implemented worldwide, given that the nature of cryptocurrencies and blockchain technology allows it to be an asset of worldwide use. This is an aspect in which the scope of the particular jurisdictions of each country is quite limited.

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