Cryptocurrencies like Bitcoin and other competitors have seen record growth in recent years, leaving many investors and their accountants uncertain about the overall state of the taxes involved. BTC price, LUNC price, USTC price, and others compete with each other.
This can lead to a big misunderstanding of tax invoices and transactions that represent taxable events.
The taxation of cryptocurrencies varies from country to country, with new regulations especially in Europe where each country has its own procedures. Currently, formal regulations regarding the taxation of cryptocurrencies exist in approximately 25% of countries.
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Crypto trading involves exchanging one cryptocurrency for another, buying and selling coins, and exchanging fiat currency for cryptocurrency. It has some similarities to the foreign exchange (Forex) market, where fiat currencies around the world are traded around the clock. The number of cryptocurrencies has exploded in recent years – and it is estimated that there are several thousand today.
Many of these currencies can only be acquired using a major cryptocurrency such as Bitcoin or Ethereum. One of the advantages of the cryptocurrency market is that it is possible to participate in it, via trading, without having to mine coins. Indeed, extraction (mining) requires time, energy, technical know-how and great computing power.
Profits from digital currency trading are considered “industrial and commercial profits”, but this only applies to those who derive regular income from trading cryptocurrencies (main source of income and usual).
For regular traders, profits from cryptocurrency speculation are therefore treated as industrial and commercial profits subject to the progressive scale of income tax (plus social security contributions). For businesses, profits from cryptocurrencies are subject to the general corporate tax regime for profits and losses.
There is no specific law or guidance on the VAT treatment of cryptocurrencies. Commonly, cryptocurrency assets are tax-associated with intangible assets, which means that, for now, their VAT treatment should be as follows:
– Revenues from cryptocurrency mining activities are subject to VAT as a supply of services
– When the cryptocurrency is exchanged against fiat currencies, such as the euro or the dollar, no VAT is due on the value of the cryptocurrency and on any fees charged by the intermediary
– Fees charged in addition to the value of the cryptocurrency for arranging or executing any Bitcoin transaction, with the exception of foreign exchange transactions with official currencies, are subject to VAT.
– Acquisitions of goods or services via payments in cryptocurrencies are also subject to VAT
– The sale of cryptocurrencies is not subject to VAT, unless it is carried out by a company and with the aim of earning income on an ongoing basis.
No transfer tax is due on crypto-currencies.
Calculation of the tax base
Calculating capital gains and losses from cryptocurrency transactions is relatively straightforward. However, before doing the calculations, it is necessary to understand what the taxable events are.
A chargeable event is simply a specific action that triggers a tax reporting obligation. In other words, each time one of these “taxable events” occurs, you realize a capital gain or loss which must be declared in the tax return.
Now that it is clear when to declare your crypto transactions, it is important to understand the exact process behind this declaration.