Holding or trading cryptocurrency? Get ready to pay taxes

Holding or trading cryptocurrency? Get ready to pay taxes

Nobody likes taxes, especially if they are imposed on something that is still not incorporated into everyday lives or used frequently on the market. One could argue that cryptocurrencies have a market of their own, which is, in most cases, separated from individual markets of every country. However, when it comes to taxes, those, who hold cryptocurrency or practice bitcoin trading are not excluded. In fact, they are often the primary targets of the tax collectors.

Sure, we could protest and argue that cryptos should not be taxed, but once the lawmakers decide that they should, there is nothing we can do about it.

Which countries charge taxes for cryptos?

Although there are some countries that are considered tax havens for cryptocurrency traders and holders, the majority opted to charge taxes to crypto owners. Countries, where you don’t need to worry about taxes are Germany, Singapore, Belarus, Slovenia, Denmark, Malta, Switzerland, and the Cayman Islands. This part of the article will not discuss countries that charge taxes but will focus on the ones that don’t as they are few in number and usually have various reasons not to charge cryptocurrency taxes. 

For example, Germany considers cryptocurrencies private money and simply do not pass bills to tax them. All other countries view cryptos in different ways, which could then help them decide whether they should be taxed or not. In opposite to it, some countries view it as a commodity, stock, or currency, and require you to pay taxes.

Some countries, such as Singapore, don’t even have a specific view regarding cryptos. There, Bitcoin and other cryptos are neither a currency nor anything else. They simply do not provide any rules about cryptos, which makes Singapore an excellent option for cryptocurrency holders and traders.

What do you need to know about crypto taxes?

The majority of governments and financial bodies around the world that decided to charge taxes on cryptocurrencies stated that cryptos are properties and should be treated accordingly. For example, the IRS (Internal Revenue Service) of the United States published a document which clearly recognizes cryptos as property. In other words, it means that it should be taxed just like all transactions that involve properties such as trading stocks and various capital assets. As a result,  you need to report everything you earn or lose while trading cryptos to the IRS and pay taxes like you are reading stock.

The problem with paying taxes is that many people don’t know how to do it properly since it has been a relatively new process, especially for cryptocurrency traders. In fact, many people failed to report gains and losses accurately to the IRS, leading to a lot of confusion along the way. One of the ways to solve this problem is to contact tax professionals who will help you with the papers and report everything as it should be.

Australia is another country that views cryptocurrencies as property. They also use to tax capital gains, but their Goods Service tax is not applicable in this case. 

The legal method of payment

Some countries, such as Japan, consider cryptocurrency a legal payment method, meaning that there is a particular set of rules that are applied to them. In the Country of the Rising Sun, you need to pay taxes whenever you sell your cryptocurrency and earn fiat money from it. Furthermore, your transactions are also taxable if you just exchange one crypto or token for another. In both cases, taxes are applicable only if there is a capital gain, meaning that you ended up with more money than you had prior to the transaction. The third case in which you need to pay taxes is whenever you receive cryptocurrency. For example, if you win a prize in a casino which uses cryptocurrencies or you received some cryptos during mining, you will have to pay for your income.

Case-by-case basis

The United Kingdom is a very interesting case when it comes to paying taxes for cryptos. The lawmakers did not want to make a universal claim about how cryptos should be perceived. Instead, they went full British and decided to deal with perception on a case-by-case basis. This is perhaps the most logical approach, given that creators of individual tokens usually have some purpose in mind which may differ from token to token. Nevertheless, the UK demands that the capital gains tax is paid in most cases, while the sales tax is mostly not applicable.

The silent treatment

Many governments around the world still remain silent when it comes to the cryptocurrency taxation issue. One of the most important countries for cryptos is definitely China, which has already taken a negative stance toward them. However, they are accepting blockchain technology, and Chinese bitcoin miners have been pretty active. In fact, most Bitcoin miners actually come from China. People are still wondering what limits and regulations are imposed when it comes to cryptos in this country. Although the law has covered the majority of things, the lawmakers have been silent about the crypto tax.

In other words, the government of China has been pretty loud when it comes to regulating all things related to cryptos, yet its Ministry of Finance failed to release any type of guidance pertaining to cryptocurrency taxation. Therefore, we are yet to witness the Chinese approach to charging taxes. Most likely, they will consider cryptos as property or commodity and make it a part of personal income tax as a result.

Conclusion

As you can see, the world is still preparing for the crypto regulations, and while some countries have decided to become tax havens for those who own cryptocurrencies, the majority took a couple of necessary steps to regulate that market. Most of them only charge capital gains, although their perception of cryptos may differ. Nevertheless, if you live in a country where tax must be paid, make sure to consult a professional who will help you with that.