It is no surprise that when it comes to crypto taxation, most of the focus is on the U.S government, the U.K, Europe and Asia. While continents like Africa and South America continue to see blossoming cryptocurrency businesses and opportunities, it is likely that most countries outside the U.S will have to adopt or adapt to the legal regulation as stated by the IRS or European regulatory institutions should they wish to do proper business in or with those regions.
The exciting buzz around crypto taxation this October 2019, has confirmed what most investors and tax practitioners already knew, but made it far more clear to those that did not. With the crypto landscape changing at an accelerated pace, Blox would like to provide you with a better understanding to learn about crypto taxation by country in 2019.
The crypto universe is only growing larger and larger with each cycle around the sun, and regulators or government institutions can no longer ignore the pending eclipse of cryptocurrency that has cast a shadow over today’s financial networks and the future of digital currency and global economies.
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While Canada is carving its own path for the future of cryptocurrencies, it is likely that they will end up adopting a similar guidance model as the United States, which is a common practice for the northern neighbor. Today, some cities in Canada, like Richmond Hill, is one of a handful of cities to accept cryptocurrency for tax payments.
Just like the U.S, cryptocurrencies are not classified as legal tender according to the Canada Revenue Agency (CRA), and have been taxed since 2013. Canada is proactive in its views and treatment of crypto, and more startups are implementing new ways for Canadians to transact in digital currencies safely and legally. However, much will change over the coming years as U.S guidance begins to crystalize.
The United States of America tends to always lead the charge and setup the status-quo for the way things are done around the world, and for cryptocurrencies, that fact remains true. Most countries and tax authorities around the world are waiting for the U.S to make the first move in providing clear guidance over cryptocurrency transactions.
In October 2019, the IRS issued guidance for the second time in five years, providing increased transparency over taxation procedures and treatment for digital cryptocurrencies. You can learn more about this news on our Blox blog to learn more.
If you want to learn more about taxable events versus non-taxable events for the U.S, you can read this informative Bitcoin Magazine article.
UK & Europe
The UK is one of the financial epicenters for finance, especially for financial technologies and cryptocurrencies. Currently, the government considers crypto as non-legal tender and any exchange, like CEX.IO, will have strict registration requirements. The nature of crypto according to the HMRC (HM Revenue & Customs), claims that cryptocurrencies can’t be compared to traditional investments or payment instruments. Regardless of classification, crypto is undeniably taxable and subject to capital gains tax in the UK.
The U.K leaders of finance agree the regulation is pending, but with Brexit and other financial challenges, the UK treasury will take some time before developing a strategy for handling the risks and taxation of cryptocurrencies in the region.
The Swiss have always been a more lenient country when it comes to handling traditional financial instruments and now too, cryptocurrency assets. In fact, when Facebook set out to launch its own Libra cryptocurrency, the consortium taking control of its governance is completely based in Switzerland.
The tax treatment in Switzerland on crypto differs significantly than most other European or American laws. For example, mining income can be declared as self-employment income, and therefore taxed through income tax. When trading or transacting with crypto, this activity is subject to a typical business tax. However, cryptocurrency income or wages delivered in crypto must be declared as income tax. As for the few qualified crypto investors and traders with personal account, crypto gains are then tax-exempted capital gains.
The Germans have also found their own version of regulation and taxation for cryptocurrencies that has more unique components. The country has outright exempted bitcoin transactions from VAT taxes. Moreover, assets held for over a year are effectively taxable, similar to the U.S. Because crypto is not regarded as a legitimate currency, you are not taxed based on income, and gains made are not taxed as capital gains. But, for businesses, they still are required to pay capital gains originating from crypto via corporate income taxes.
France has generally been disinterested and anti-cryptocurrency since its arrival. As of late, the country has rarely got along with American companies like Google, Amazon and Apple. But most recently they have made headlines for their strong stance on preventing Facebook’s Libra cryptocurrency from being usable in the French country.
However, while the government and the AMF (Autorité des Marchés Financiers) originally maintained a skeptical and hardline approach to cryptocurrencies, things are starting to change. As of April 26, 2019, crypto in France is regarded as “movable property, with an applicable tax rate of 19% for investors. The AMF is currently drafting ICO regulations and legal framework to help enforce the regulation and sanctions for cryptocurrencies and potential violations.
Interestingly, due to Brexit and other financial challenges, the French government is investigating real-world and secured options for cryptocurrencies, especially the launch of ICOs in France.
Malta is known as one of the worlds “crypto havens” where the day trading of crypto is taxed as business income. Yet buying or holding crypto by retail investors is not taxed. Long-term crypto investments are not taxed, however daily crypto trades are compared to day trading of stocks, therefore it is taxed as income for business.
China is very different than most of the countries on this list. They are a communist government with a track record of censoring and controlling everything in sight. Cryptocurrencies have faced the wrath of the Chinese government as they have outright banned some components of crypto, but still allows its citizens to own it (Like India or Russia).
There has been repeated issues of exchanges being closed down, ICOs being dismantled and investors penalized for their crypto activity. China has not expressed much interest in defining the legal ramifications and guidance on taxation, making it a difficult cryptocurrency environment to do business in.
However, In October, 2019, the President of China endorsed the virtues of blockchain technology, causing the value of bitcoin to rise. The president believes that blockchain can “bolster the Chinese economy” and plans to “spearhead the development of blockchain technologies”. A welcomed announcement that has shaken up the crypto community across the globe.
In Japan, the profits investors have been yielding are dramatically underreported. This is due to Japan’s exceptionally high 55% tax rate. To compare, stock trading is taxed at just 20%. In December 2018, it was discussed to possibly change the crypto tax rate from 55% to Lawmakers in December proposed changing the crypto tax rate from 55% down to 20%, a surely welcomed decision for crypto businesses, should it be granted.
Malaysia, similarly to Singapore imposes no capital gain tax on cryptocurrencies. There are rumors that it could change in the future however, today, crypto transaction are entirely tax-free.
In regards to crypto capital gain, businesses and individuals in possession of cryptocurrency for long periods, will not face any capital gains taxes. For businesses based in Singapore that transact or operate in digital currencies, will be taxed on profits as if they were considered legitimate income. But businesses and individuals holding long-term crypto investments are also not taxed in the country.
Just like China, Russia has a stranglehold on its cryptocurrency community. The country has already banned the usage of crypto as a form of payment. They have also done the same for ICOs and many cryptocurrency-related startups and businesses – for reasons not made clear. It is even claimed by international legal experts that Russian tax official simply lack the expertise needed to address the matter properly.
Regardless of the governments overview of cryptocurrencies, like many other countries, the future of crypto taxation is bound to make many leaps and falls. Nevertheless, individuals and businesses alike can face prosecution if they should refrain from declaring income and gain from crypto activities – with a possibility of banning crypto completely.
Mexico is not well-known for its cryptocurrency community but at the outset of regulation and guidance from the government, it was claimed that the “bar was set too high,” according to their Ex-Director of the Secretary of Finance, Josu San Martin. However, after seeking more inclusive and open regulation the law resulted in being far more restrictive on cryptocurrencies, deeming exchanges as illegal under Mexican law.
It is worth it to note that Bitso is one of Mexico’s largest exchanges, serving over 700,000 bitcoin customers. The demand for the currency and regulation exists, but much skepticism does exist due to corruption and distrust of Mexican banks.
Latin America is a generally mixed bag when it comes to classification, usage and taxation for cryptocurrencies. Some of the worst countries for taxes are in Latin America, which included Bolivia, Columbia and Ecuador to name a few. Bolivia has an outright ban on crypto, whereas Ecuador issued a ban on cryptocurrency circulation, except for the government-issued “SDE” token.
In Brazil, Argentina, Chile and Venezuela, crypto is commonly accepted as payment in retail shops and even online merchants. For tax purposes they are treated as assets subject to capital gains tax. The outlook on crypto is more evident when you look at crypto exchange regulations in South America. For example, many countries have no conclusive laws for the trading of crypto and neglect to regular exchanges.
There is growing concern in Latin America about the possible negative or corruptive effect of crypto on the financial stability. Governments have deployed official warning, but no plans have been delivered to reveal and legislate regulation of Latin American crypto activity.
An interesting fact according to Statista, is that Latin American countries are 5 of the top 10 countries for owning crypto assets. In Brazil and Colombia, 18% of the respondents have admitted to owning and using digital assets. They are followed by Argentina with 16% and Chile with 11%.
Where Is The World Going With Crypto?
The future of crypto is moving at speeds where the rest of the world and governments can’t keep up. Companies and technologies can move and learn at a much faster rate, providing unique solutions and innovations every day.
However, until governments and regulatory bodies around the globe begin to define the legal framework, the goal is to one day have a “global governing body” for addressing the concerns and issuing guidance to the entire cryptocurrency ecosystem. Not only will this evoke more trust and regularity, but it will dramatically boost and improve today’s ageing financial infrastructure – while providing support to the next generation of the financial world.
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