It has been a wild year for the cryptocurrency market, but as January rolls around the big question for many people is this;
Do you have to pay tax on cryptocurrencies?
The answer, for almost everyone, is a resounding yes. Although there are some exceptions, you should assume you’ll be paying some form of tax for cryptocurrency trading. Regulations vary by country and also by your type of involvement in cryptocurrencies (mining, trading, receiving payment, investing etc.)
What if you don’t pay tax on cryptocurrencies?
In the early days, many people used Bitcoin as a means of avoiding taxes. Even if we set aside the ethical issues with that, trying to avoid paying taxes on crypto is a really bad idea. Bitcoin is not 100% anonymous and most countries are getting better at catching tax dodgers. While crypto might be new, the same old penalties apply for evasion – fines for you and possibly your accountant, prison time for extreme cases.
An overview of key regulations to be aware of:
In the US, cryptocurrencies are counted as property (same as gold or real estate) and not as currencies. This means anyone who invests in cryptocurrencies needs to pay short and long-term capital gains. Whether you’ve sold it for dollars, for a different cryptocurrency, or used it for any sort of purchase, you will be taxed. However, if you hold cryptocurrency without selling, trading or spending, you probably won’t owe any tax for it.
If you’ve done some combination of the above, calculating how much you owe is likely to get complicated – so be sure to enlist the help of an accountant. Sadly, you will almost certainly have to pay tax for prior gains, even if you later lost the money. For more information, take a look at the official IRS guidelines or this help guide.
In the UK, tax regulations for cryptocurrencies are not yet fixed and the guidelines only refer to Bitcoin and not altcoins. HMRC state that they review charges on a case by case basis. Their official guidelines offer some pointers (and you can find more information here), stating that no tax is due to Bitcoins converted to fiat currency. Companies accepting Bitcoin as payment must pay tax for the sterling value at the time. If a transaction is considered ‘highly speculative’ it may not be taxed. But you may need to pay capital gains tax for profits made trading Bitcoin (unless your annual asset gains are below £11,300.
Throughout Europe, Bitcoin profits are exempt from VAT. Specific guidelines vary between countries, with most charging capital gains or income tax. Bulgaria, Slovenia, Belarus, Italy, Denmark and Germany technically do not tax cryptocurrencies within certain limits. The Netherlands subject cryptocurrencies to income tax and Russia does not yet have defined laws. See this guide for more details.
Again, regulations vary throughout Asia. China regards cryptocurrencies as securities and has banned ICOs. Singapore taxes crypto companies on their profits but does not appear to tax individual long-term investors. India subjects cryptocurrency profits to capital gains tax, although the exact details are not yet fixed. South Korea also does not have defined tax laws for now.
In Australia, Bitcoin transactions are taxed as barter agreements. For individuals, Bitcoin holdings are subject to capital gains tax and records need to be kept for all transactions. See the Australian Taxation Office guidelines for more details.
Bitcoin is believed to have been banned in Algeria, Morocco, Bolivia, Ecuador, Kyrzakhstan, Bangladesh, and Nepal. A few countries are enforcing strict regulations, but Bitcoin is legal in the rest of the 195 countries in the world.
It is important to note that regulations are changing all the time and many countries do not have defined guidelines. Be sure to contact a qualified accountant (ideally one with experience handling cryptocurrencies) and to keep track of transaction details throughout the year.