Crypto tax policies vary country by country. While some have very strict rules, others have taken a more liberal approach for various reasons.
Managing tax has become a headache for anyone invested in Bitcoin and other digital assets. For many, especially early investors, it has really become a major problem.
Some countries are borderline harassing investors for taxes on income and capital gains from Bitcoin transactions. Others are approaching the topic differently by implementing more crypto friendly legislation — even promoting better adoption and innovation within the crypto industry. Some have gone as far as to give investors to buy, sell, or hold digital assets with zero tax liability.
Here’s a list of 11 countries that have the most crypto-friendly tax jurisdictions (as of September 2021).
Belarus is taking a new, experimental approach to cryptocurrencies. In March 2018, a new law legalized cryptocurrency activities in the East European state, exempting individuals and businesses involved in them from taxes until 2023, when it will be reviewed.
Under the new law, mining and investing in cryptocurrencies are deemed personal investments, and so exempt from income tax and capital gains.
The liberal laws aim to boost the development of a digital economy, and technological innovation. The country was recently ranked third in Eastern Europe and 19th globally in levels of P2P crypto trading.
Germany has a very special tax regime for digital currencies such as Bitcoin. Unlike most other EU states, Germany regards Bitcoin as private money, as opposed to a currency, commodity, or stock.
For German residents, any cryptocurrency held for over a year is tax-exempt, regardless how much it is. If the assets are held for less than a year, capital gains tax doesn’t accrue on a sale, as long as the amount does not exceed 600 euros ($692).
For businesses it’s different; a startup incorporated in Germany still needs to pay corporate income taxes on cryptocurrency gains, just as it would with any other asset.
In 2021, a new controversial tax law came into force which effectively kills crypto derivatives trading in Germany, as losses can no longer be deducted. The legislation reflects moves across EU to regulate derivatives.
3. Hong Kong
A Special Administrative Region of China, Hong Kong has theoretical autonomy over its own affairs, including tax legislation on cryptocurrencies. While Hong Kong’s relationship with crypto is complicated, a new guidance was issued in 2020.
Essentially, whether cryptocurrencies are taxed or not depends on their use, says to Henri Arslanian, a crypto expert at PwC.
“If digital assets are bought for long-term investment purposes, any profits from disposal would not be chargeable to profits tax.”
Arslanian added that this doesn’t apply to corporations or more accurately: their Hong Kong-sourced profits from cryptocurrency business activities would be taxable.
PwC clarified in its guide to crypto tax treatment in various jurisdictions back in 2020 that Bitcoin is considered a virtual commodity for tax purposes.
4. El Salvador
After passing of a law to make Bitcoin legal tender in El Salvador, the country will exempt foreign investors from paying tax on their Bitcoin gains. That’s according to Javier Argueta, legal advisor to President Nayib Bukele:
“If a person has assets in Bitcoin and makes high profits, there will be no tax. This is done obviously to encourage foreign investment. There will be no taxes to pay on either the capital increase or the income.”
The legal framework is not yet in place around these tax exemptions, but it’s a clear indication of the country’s intention to attract foreign investors with crypto portfolios.
In Malaysia, crypto transactions are currently tax-free, and cryptocurrencies don’t qualify for capital gains tax, because digital currencies are not considered assets or legal tender by the local authorities.
But, profits from active crypto trading may be regarded as revenue, and thus considered taxable income.
Ranjeet Kaur, communications director at the Malaysian Inland Revenue Board (LHDN) said
“If the transaction is more of a capital gain, passive, or as done occasionally, unplanned or unsystematic, then the profit from such sale and purchase is a tax-free income. [in other case] the party is considered to have conducted a transaction or profession [and subject to tax].”
Businesses involved in crypto are subject to Malaysian income tax.
The government of the so-called “Blockchain Island” – Malta, recognizes Bitcoin “as a unit of account, medium of exchange, or a store of value.”
Malta doesn’t therefore apply capital gains tax to long-held digital currencies like Bitcoin, but crypto trades are considered similar to day trading in stocks or shares, and attract business income tax of 35%. But, this can be mitigated to between five percent and zero, through “structuring options” which are available under the Maltese system.
Malta’s fiscal guidelines, published in 2018, also discriminate between Bitcoin and so-called “financial tokens,” equivalent to dividends, interest or premiums. The latter are treated as income and taxed at the applicable rate.
Malta came second after Liechtenstein in PwC’s 2020 Crypto Tax Index, which ranks jurisdictions based on how comprehensive their guidance is.Read the full article at Fintechs.fi