Taxation of cryptocurrencies in different countries in the world

Fiscal policy regarding taxes on cryptocurrency in countries around the world depends on how their legislation interprets the concept of virtual money: in the US it is property, in Britain it is a capital asset, Italy considers it as a foreign currency. In Malta, El Salvador, Malaysia and Singapore, there is no taxation of cryptocurrency, or it can be avoided if certain conditions are met. This article is a guide to fiscal policy on bitcoin and other virtual currencies around the world, as well as the possibility of obtaining citizenship for investing in digital capital.

Tax regulation of cryptocurrency

Initially, cryptocurrency trading was positioned as a completely safe and anonymous process, and its characteristics did not allow fiscal authorities to track taxable transactions. Partly, this had negative consequences for both ordinary citizens and states: if a user’s cryptocurrency was stolen, he could not go to the police and write a complaint against the criminals, because the transaction was carried out without disclosing the identity of its participants and the intermediation of banks. At the country level, the use of virtual money led to the fact that the payment of taxes decreased, and the state budget began to under-receive the necessary funds.

To stop the development of fraud in the world of digital assets, many states have begun to develop regulations that require the collection and disclosure of taxable transaction data. In particular, the European Union developed the Regulation on crypto asset markets and tax transparency rules applicable to cryptocurrency exchanges. Issuers were required to regularly publish information about the transactions on which its participants must pay a fee. While each EU country sets its own rules for digital assets and their taxation, the EU leadership calls on all governments to join forces to harmonize existing laws.

What cryptocurrency transactions are taxable

In most countries, citizens need to pay tax on cryptocurrency capital gains — a fee on the profit that a person can get from the sale or purchase of assets, similar to the purchase or sale of real estate, company shares. It is important to note: even if the value of digital money increases in the course of storage, no deductions are paid. Taxation of transactions with cryptocurrencies on capital gains applies in case of:

• Purchase. If a person buys digital assets for a certain amount (for example, in Germany – from 600 EUR), they will have to pay a storage fee for the first year. But citizens of the country who hold cryptocurrency for more than 12 months do not have to pay the fee. If a person buys crypto assets for fiat money, in most cases taxation is not applied.
• Selling cryptocurrency for cash. It is in fact a withdrawal of cryptocurrency with an exchange for fiat, and if such a transaction increases a person’s wealth, then, for example, in the USA one will have to pay tax for it as a capital gain.
• Exchanging one digital currency for another. If a person makes an exchange, technically there is a sale of coins at an in-between stage. And if the sale price of Bitcoin is more expensive than the purchase price, the owner will have to pay a levy on the amount of profit made. Cryptocurrency trading tax is similarly paid because the broker is purposefully trading virtual assets for income.
• Payment for goods and services. In countries where cryptocurrencies can be used as a means of payment, legislation requires citizens to pay a fee for their use. After all, a person technically sells cryptocurrency before purchasing a good or service, and since digital assets are often considered to be property, their owners must pay a capital gains fee.

Cryptocurrency is taxed as income, which means that income tax is applied if a person conducts the following transactions:

• Mining. This is an activity aimed at creating blocks, which means generating new coins. Since a person receives cryptocurrency as a result of mining, tax must be paid on it as an income. Similarly, profiting from staking is viewed as storing certain stablecoins, for which the user is remunerated.
• Acceptance as payment for a good or service. Regardless of what funds an entrepreneur receives from a customer, all of their profits are taxable.
• Acceptance as payment for work. The employee must pay the income tax that is applied in their country on the amount received. If the person is in official employment, the employer pays the deductions from his salary instead.
• Remuneration. If a cryptocurrency exchange has provided a user with a certain amount of coins for a particular action (for example, inviting a friend through a referral link), they will be treated by the tax system as income, and accordingly, the person will have to pay tax.

Cryptocurrency transactions such as donating to charity, giving or receiving funds as a gift, or transferring assets to yourself from one wallet to another are not subject for taxation.

Taxation for individuals and legal entities

Income from cryptocurrency received by an individual or business is taxed as any other monetary proceeds in fiat assets. The amount of fees depends on the laws of the country of the taxpayer’s residence/registration. To calculate the amount that a citizen or company must pay to the state, virtual assets are converted into the national currency at the current exchange rate on the date of the transaction.

It is important to consider that cryptocurrency mining is often seen as an entrepreneurial activity aimed at creating a product. However, if a person engages in coin mining on an irregular basis, they are not required to register their own company. If mining is a permanent or main activity of a citizen, the person must register as self-employed, a sole trader or a firm — the form should be chosen based on the laws of their country. The option of registering as a business for mining of coins may be more profitable, because in this case, when submitting a tax return, costs can be deducted from the income — the equipment expense, electricity consumption, which cannot be done by a private person.

Taxation of cryptocurrency transactions in the world

If an individual or business is only planning to store digital assets and does not want to pay tax on crypto, jurisdictions that consider it a financial asset or foreign currency are better suited for this purpose, such as the Netherlands, and Italy. If a citizen saves virtual money for more than a year, they will not have to pay interest to the state even if the coins are sold, exchanged or invested after some time. Individuals who plan to conduct regular transactions with cryptocurrency should choose countries where cryptocurrency operates without taxes or with minimal fiscal rates.

Taxes on cryptocurrency in Europe

Cryptocurrency is taxed in all European countries — capital gains tax is often applied, and the rate depends on the legislation of each state:

Taxes on cryptocurrency in the United States

U.S. law treats virtual coins as property and, accordingly, cryptocurrency transactions are taxable. The capital gains rate is applied to the income received from the purchase or sale of coins, which is 0% if the individual’s income does not reach USD 41,675 per year, and 15% when it exceeds this amount. If a U.S. citizen has received more than USD 459,750 in income from cryptocurrency within 12 months, a 20% tax rate will be applied.

Fiscal regulation of cryptocurrency in Asia

The attitude of Asian government to cryptocurrency transactions as of 2023 has not formed a common vector:

• Hong Kong. In terms of the tax system, coins are treated as virtual commodities, and the income generated from any activity related to them is subject to income tax. The standard fiscal rate in Hong Kong is 15%. However, if digital assets are purchased as investments, no tax will have to be paid. All trading platforms must be licensed from June 1, 2023.
• China. According to a notification from the People’s Bank of China dated September 24, 2021, any use of digital currency in the state falls under a ban.
• Japan. According to the legislation, cryptocurrency is considered to be property, the sale of coins and the profit received from this transaction is taxed as income. A citizen of the country will not have to pay to the treasury if they bought coins, stored them, transferred them between wallets or earned from the sale of less than EUR 1,385. Since the country uses a progressive tax scale, the actual tax rate on cryptocurrency trading ranges from 15% to 55% if the profit exceeds EUR 1,386.
• India. A capital gains tax of 30% is applied to income generated through digital currencies.
• Indonesia. The country allows cryptocurrency trading as a commodity. An income tax of 0.1% is applied to operations with coins if the transaction is made through an exchange registered in the country, and 0.2% through an unregistered platform.

Countries where cryptocurrency is not taxed

Every year, it becomes more difficult to find a country where there is no taxation of income from cryptocurrency. For example, in Belarus and Portugal, until the end of 2022, there were laws allowing citizens to conduct transactions with virtual currencies without paying to fiscal authorities, but since 2023, new rules began to work.

The most convenient countries for people who want to profit from cryptocurrency without paying tax or enjoy significant benefits are as follows:

• El Salvador. Since 2021, bitcoin is the official means of payment of the country alongside the dollar. Accordingly, it is possible to withdraw cryptocurrency without tax.
• Singapore. The city-state is positioned as a tax haven for cryptocurrency owners because the country’s fiscal rules do not include any capital gains tax. Individuals who use bitcoins as a long-term investment will not pay a levy on them. However, if a company receives digital money as a reward for its services, it will pay an income tax of 17% on it. Businesses that trade coins as a core activity are also required to make deductions, such as arbitrage tax if it is a cryptocurrency exchange.
• Malaysia. There is no capital gains tax in the country, so cryptocurrency holders do not have to pay taxes. However, if the activity related to digital assets brings an individual or company a profit, income tax must be paid, the rate of which ranges from 0 to 30% depending on the amount received.
• Malta. The state considers cryptocurrency as fiat money, accordingly, if operations with coins are profitable, a person must pay income tax — 0-35%.

Ranking of countries by the index of cryptocurrency adoption

Chainalysis is a global index of cryptocurrency adoption, which aims to evaluate and rank countries by the criterion of how much of their savings citizens invest in digital assets. There are 5 index categories used to give a complete picture of cryptocurrency turnover:

• Price of cryptocurrency according to centralized exchanges, equated to purchasing power parity (PPP) per capita;
• retail price of digital currencies, weighted by PPP per citizen
• peer-to-peer (P2P) exchange trading volume, equated to PPP per capita and the number of Internet users;
• value of cryptocurrency on the network derived from DeFi protocols, weighted by PPP per citizen;
• retail price on the network derived from DeFi protocols, equated to PPP per capita.

According to the data for the year 2022, the following 10 countries lead the Chainalysis ranking:

1. Vietnam.
2. Philippines.
3. Ukraine.
4. India.
5. USA.
6. Pakistan.
7. Brazil.
8. Thailand.
9. Russia.
10. China.

Citizenship by investment in cryptocurrency

As of 2023, no country in the world grants citizenship by investments in cryptocurrency assets. Some sources have spread information that an investment in the form of digital currency allows obtaining a Vanuatu passport, but the country’s government has officially denied such rumors.

Considering the activity of different states in the issue of regulating cryptocurrency, there is a possibility that it may soon become a way to obtain citizenship. To find out where you can get a passport for investment, in what currency you should pay, it is necessary to ask for help from experts in international law. Lawyers will assist with the following issues:

• monitoring the ways of obtaining a second or dual citizenship that are relevant for the client;
• analysis of the number and reasons for refusal to issue a passport to foreigners in different countries;
• collecting documents to apply for citizenship of the selected country;
• preparation for the interview, language exam, oath taking, if such is required by the legislation of the state;
• choosing the method of transferring finances, including in the form of cryptocurrency, if citizenship is formalized by investment.

iWorld specialists do not offer ready-made solutions, but develop an individual plan of actions for each client, taking into account their history, needs and capabilities.