World Approach to The Cryptocurrency Taxation
The rise of Cryptocurrency has been a phenomenon of the modern era, with an increasing number of people investing in digital assets worldwide. This sudden popularity has caught the attention of governments across the globe, who are now seeking to bring the cryptocurrency market under regulatory control.
As a result, they have introduced tax brackets to digital assets to ensure that cryptocurrencies are treated similarly to traditional financial assets. This has created a need for clear and efficient taxation systems within the industry, helping to establish a stable and secure investment environment for investors and businesses alike. let’s look into some of the Crypto Taxation Approaches.
The United Kingdom
In the UK, both income in cryptocurrency and capital gains are subject to taxes with rates ranging from 10-20%. Taxable events include selling crypto to withdraw fiat, trading one token for another, using crypto to pay for real-world assets, and receiving compensation in crypto.
There are three methods of calculating taxes on crypto, calculating gains/losses on crypto traded on the same day, calculating gains/losses on crypto traded within a month, and calculating an average of all assets divided by the number of tokens.
The United States of America
In the United States, cryptocurrencies are considered property for tax purposes and all transactions involving cryptocurrencies must be reported on tax returns. There are various taxable events, such as selling crypto for fiat, receiving token airdrops, mining or staking, and buying one token with another. The tax rates for capital gains and income tax can range from 0-37%.
The calculation of crypto taxes is the responsibility of the users, who have the option to choose between two methods, FIFO (first in, first out) or LIFO (last in, first out). The FIFO method calculates profits based on the tokens that were bought first, while the LIFO method calculates profits based on the last tokens bought at the time of selling.
In Germany, cryptocurrencies are private assets and are subject to Income Tax. Capital gains tax is usually not applied to individuals but to businesses. Profits are tax-free as long as they are under 600€.
Taxable events include mining and staking income, which may be taxed as business income, as well as token airdrops, NFTs, using crypto to buy fiat, other tokens, or real-world assets, earning compensation in crypto, and DeFi lending. All transactions must be reported regardless of their value, and tax rates range from 0-45%. The FIFO method is preferred for calculating crypto taxes in Germany.
In Portugal, cryptocurrency qualifies as capital income or self-employment income. Passive income from crypto is taxed at 28%, while crypto mining, validation, and the issuance of tokens are taxed between 14.5-53%.
Portugal uses the FIFO method for calculating crypto taxes. Both individuals and businesses must report their transactions, including any gains or losses from cryptocurrency transactions, and may also be subject to VAT (Value Added Tax) on their cryptocurrency transactions.
In Italy, cryptocurrency is considered a financial instrument and is subject to capital gains tax. If the value of a portfolio exceeds 2000 Euros, a 26% capital gains tax is applicable. Taxable events include selling crypto to withdraw fiat, trading one token for another, and using crypto to pay for real-world assets.
The LIFO method is applied to calculate capital gains tax, and individuals must report the value of their cryptocurrency holdings at the end of the tax year, including gains or losses from the previous year. Alternatively, users have the option to pay a flat tax of 14% on their portfolio value if they choose not to calculate capital gains.
Clear and well-structured regulations and taxation frameworks for the cryptocurrency industry in India can pave the way for a stable and trustworthy investment climate, thereby drawing in a larger pool of investors and businesses, fostering growth, and generating employment opportunities.
Moreover, by effectively collecting taxes from this sector, the government has the potential to generate substantial revenue, thus supporting the country’s economy. It is essential to keep in mind that tax laws are subject to change and it is always advisable to seek advice from a tax expert for personalized recommendations.