Taxing the Intangible: How is Crypto taxed worldwide?
Cryptocurrencies have ushered in the decentralized finance era and are being hailed as the future of money. Yet, crypto has a fair share of skeptics that view it as a risky asset bubble. They believe another crypto winter is inevitable, like from late 2017 to mid-2019 where the market had very little growth.
Regardless, cryptocurrencies have made their way to the mainstream, with more and more institutional attention, and the trend is only going upward. According to Gartner, the business value added by blockchain will generate an annual business of over $3.1 trillion by 2030. PwC also estimates that by the same time 10% to 20% of global economic infrastructure might be running on blockchain
Recently, crypto market valuations have skyrocketed. Billions in trades are being executed on a daily basis, with 100 million+ traders making or losing money. As a result, countries have been increasingly trying to tax and regulate crypto gains.
Why are Regulators Still Skeptical about Crypto?
When it comes to crypto, entrepreneurs and businesses need legal clarity. Asset laws can be applied to cryptos for the person holding them, but there remain unaddressed grey areas in the taxation space that can lead to regulatory trouble.
Crypto in China
Recently, China banned all its financial institutions and organizations from engaging in any cryptocurrency business. The country declared because crypto markets are volatile, they may “seriously infringe on the safety of people’s property and disrupt the normal economic and financial order.” Countries are hesitant to legalize crypto because it is decentralized. Many governments believe this makes crypto a convenient tool for people to engage in money laundering or other illicit activities.
A 2019 report by Chainalysis showed that over $2.8 billion was moved illegally through crypto, with over 50% of these transactions happening via Binance and Huobi. Notably, both of these are among the biggest crypto exchange platforms in the world and require a KYC to register.
The ability to abuse crypto had made regulators increasingly cautious about crypto. This is why lawmakers want to regulate crypto, so they can bring more accountability and stability to the industry. Their skepticism has delayed the process to enact tax laws around cryptocurrencies.
Crypto Tax Laws Among Countries
There is no uniform stance or standard for how governments should approach crypto and tax it. This has concerned many investors and businesses because they cannot predict whether lawmakers might declare crypto illegal or not. There have been efforts, but the progress is neither uniform nor unidirectional.
There have been efforts to bring more direction and clarity to the field, but countries have taken varying stances on the matter. Some have introduced full legal frameworks while others have only addressed parts of it. Some, like Portugal, have even left cryptos totally tax-free.
How is crypto taxed in the UK?
In the United Kingdom, crypto has been classified as a ‘property and not a currency, which is further divided into three types: exchange, utility, and security tokens. These three types are taxed in a similar manner. Separately, crypto miners are classified as self-employed and are required to pay an income tax on their earnings.
Crypto taxes in Malta
In October 2018, Malta became the first country to establish an elaborate legal taxation plan around blockchain. It covered all aspects including Initial Coin Offerings (ICOs), Crypto Exchanges, and Digi-currencies. Malta passed three acts: the Malta Digital Innovation Authority Bill, the Technology Arrangements and Services Bill, and the Virtual Financial Assets Bill. These regulations were formulated while working closely with entrepreneurs in the space, and taking into account their recommendations. Malta earned itself the name “Blockchain Island.”
How is crypto taxed in Germany?
Although other countries are not as far ahead as Malta, there have been steps to regulate the field. In Germany, Bitcoin is recognized as “Private Money,” which means it’s not mandatory for institutions to accept it as payment. However, if individuals use it to acquire goods or services, they have to pay tax.
How is crypto taxed in the U.S and Australia?
Last year, the U.S. Internal Revenue Service (IRS) also directed citizens to include all gains made through cryptocurrencies on their tax filings. In Australia, crypto is seen as a barter arrangement, thereby qualifying only as an asset. It is not recognized as a currency, due to there being no central regulatory body to issue it. Therefore, this leaves the exchanges to be taxed under capital tax laws, like land or stocks.
Crypto taxes are still arbitrary across countries, with some wholeheartedly accepting them and some only partially. However, based on current trends it appears cryptocurrencies are here to stay. From Tesla in the automobile sector to Xbox in gaming, major companies have even started accepting cryptocurrency as a payment option. These moves will only solidify the market’s tangibility and make it less of just a virtual asset.
With the global crypto market cap at $1.86 trillion, the industry looks very promising. However, governments are also actors in this space, and likely have their own interests to profit from it. Nonetheless, as policies slowly roll out, the crypto market will likely see more regulation.