ACCOUNTING WEEKLY

How Crypto Is Taxed Around The Globe

Cryptocurrency is still going strong after 14 years. Though the industry has faced major setbacks like China’s crypto mining ban and sell-offs in January, Yahoo Finance reports that its market cap is still well above $1.3 trillion. In part, this is thanks to its large user base of over 3 million people.

Crypto transactions are usually done for profit, so many governments now tax crypto as an asset. This is understandable with many countries currently struggling to fund initiatives to recover from the pandemic.

Interestingly, these countries have also decided to tax crypto in different ways. Below we go into a few of them.

United States
Given 40 year-high inflation rates in the US, the country’s Internal Revenue Service (IRS) decided to tighten crypto taxation to offset it. Financial site AskMoney explains that inflation can then decrease, interest rates will increase, and consumers will have more purchasing power — so make sure you abide by these new provisions if you’re an American crypto user. The IRS defines crypto as an asset, meaning capital gains tax applies to any crypto transaction where you earn a profit. Other countries that follow a similar scheme include Australia, Canada, and the UK.

South Africa
The South African Revenue Service (SARS) has taken a different route. Similar to in Germany, crypto assets must be declared as part of one’s taxable income within the tax year they were received or accrued. Otherwise, interest or penalties may apply. We’ve also reported on the Financial Advisory and Intermediary Services (FAIS) Act. This year, SARS may officially target cryptocurrencies to plug tax leakages by updating FAIS to recognise crypto exchanges as financial service providers. This can further complicate how these entities are taxed under local laws.

The Netherlands
Dutch holders must first declare their crypto assets as passable income. If the profit made from these assets is less than €50,000 as of midnight on January 1st, holders do not need to pay taxes. However, a profit of more than €50,000 is subject to a 31% wealth tax. For those who earn crypto as part of their salary, income tax rules apply. Failure to declare these holdings will cause Netherlands authorities to see them as ‘undisguised capital,’ and one may incur a hefty fine.

Portugal
Here, provisions for crypto taxation are much laxer. Both the sale of crypto and its exchange for fiat currencies isn’t subject to capital gains, income tax or VAT. This effectively makes profits gained from crypto tax-free for individual users. However, the same is not true for private companies: for Portuguese firms that receive crypto payments, normal capital gains taxes apply. As a result of this soft stance on crypto, Market Realist lists Portugal as one of the world’s crypto tax havens.

India
Both crypto and blockchain-based non-fungible tokens (NFTs) are especially popular in India. Local Binance-owned crypto exchange WazirX alone saw a trading volume exceeding $43 billion in 2021. According to TechCrunch, this is a 1,735% increase from the year prior. However, crypto regulation in the country is still lacking — which is why finance minister Nirmala Sitharaman proposed a 30% tax on crypto and NFT income at the beginning of February. If passed, Indian crypto holders will pay both this tax plus existing taxes placed on crypto conversions to the Indian rupee.

Though it’s clear that governments need crypto taxation to maximise their revenue, these different strategies either benefit individual holders or large organisations, but never both. The challenge moving forward will be for governments to strike a balance and prevent inequity.

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