You must have heard the proverb: there are only two certain things in life, death and taxes. But when it comes to cryptocurrency, many ask themselves a question: do I have to pay taxes on crypto? This depends on where you live, but most likely, the answer is yes. There is crypto taxation legislation in most of the developed and in some developing countries, and citizens have to report their crypto savings.
The requirements can be very different: in some countries, you only pay taxes when you are taking profit from crypto and transferring it into fiat or paying for goods; some countries are crypto havens with no crypto taxes at all. Let’s take a deeper look at what crypto taxation looks like worldwide.
What causes a taxable event in cryptocurrency?
Bitcoin and other cryptocurrencies are not considered legal tender in all countries of the world besides El Salvador, so their legal status is different from that of fiat money. In many countries, it is considered as property, which means there is a capital gains tax on cryptocurrency. You need to pay it, however, only in case you sell your coins.
In the USA, If you buy crypto, you don’t pay any taxes. And you can HODL it as long as you want without having to pay anything, too — no taxable events are triggered in case you store your assets in a private or exchange wallet. Unsold coins are unrealized gain.
How is crypto taxed when it is sold?
According to the law of the US and many other countries, you generate profit while selling your crypto or paying for goods or services with it. Only the part of your crypto that you sell is taxed. Say, if you’ve bought 1 Bitcoin for $30,000, and then you have the same 1 BTC worth $40,000. If you sell the coin, you will get a $10,000 gain, and this exact gain is taxed — not the whole $40,000 pile. If you buy and then sell Bitcoin at $30,000, no taxable events will be triggered.
Is crypto trading taxed?
The tax on cryptocurrency trading in the USA is the same as on selling crypto assets. If you trade on an exchange, you trigger taxable events. The profit that you get from the bargain is subject to capital gains tax. That’s why it’s important to keep track of all your trades in terms of tax declarations. Many exchanges have tools that facilitate this.
For crypto stored in the short-term and the long-term, taxes are different
So we’ve figured out that in most cases, you pay a tax only when you take profit from your assets. This also depends on how long you’ve been holding them: in the USA, there is a long-term capital gains tax paid for assets stored for more than a year, and a short-term one if there was a shorter period of storage.
Here’s the good news: in America, you pay less in the case of long-term storage. The short-term tax is paid on one’s regular tax rate which depends on how much a person earns overall: their salary, crypto and other property, stocks, and other assets. The short-term capital gains tax may be 10–30% depending on the total income. In the long-term tax, if the yearly income is lower than $40,000 overall, you don’t have to pay taxes for the sold crypto at all. This is a great incentive to HOLD your coins for a year and longer.
What is the tax policy for the case of money loss?
In some countries including the USA, tax authorities are very loyal in the case of losses while trading or investing in crypto. One would expect that if they experience losses, nothing will return — but this is not the case. The money that you’ve lost is deductible from the total tax amount that you have to pay. This is why it’s worth mentioning your losses in the tax declaration.
Taxes on mining rewards, airdrops, and crypto loans
Does one have to pay taxes on crypto raised in mining or airdrops? This money is considered as a reward — for helping the network run securely or participating in marketing activities. The whole amount of mining rewards and airdropped crypto is subject to tax. You trigger a taxable event when you sell this crypto, but unlike in the cases described above, you pay tax on the entire sum, not only the one that represents the profit that you’ve made from holding the coins.
When it comes to crypto loans, it gets more simple. You can get a loan in fiat with cryptocurrency as collateral. Both the cash that you get and the crypto with which you repay the loan do not trigger taxable events. The tax here only arises if the loan is not repaid on time.
Crypto taxes around the world
The USA
Here’s a summary of what we described above: cryptocurrency in the USA is treated as property and is subject to taxation. The capital gains tax is paid when you sell your coins or buy something with them; the tax can be as low as 0% and reach 37%. For assets held for more than a year, the tax is lower. Mining rewards and airdrops are taxed entirely; loans are not taxed.
Canada
Fundamentally, Canadian crypto taxes are similar to American ones: if you simply store crypto, you don’t pay any taxes, but you do in case you sell it, pay with it for goods and services, swap it for other cryptos, or present it as a gift. The capital gains tax can go as high as 50%. For businesses, the whole volume of crypto-related activities is taxed.
The UK
Crypto taxes in the UK are similar to those in the USA and Canada: simply storing your coins does not incur a tax, while selling it does. By taking profit, mining, and exchanging crypto, you trigger taxable events. The tax rate depends on your total income, and the range is quite wide. If you have losses, they can be deducted from your taxes.
Germany
German crypto tax legislation is a little different. Here, cryptocurrency is considered as a private asset — so instead of a capital gains tax, you pay an income tax. Only the assets stored for less than a year are taxed, where those held more are not. For gains up to €600/year, there is no tax.
China
In 2021, China cracked down on crypto. Bitcoin mining was virtually banned in several regions. Holding cryptocurrency in China is still not illegal, but the government is trying to discourage it in all the ways possible — crypto trading is banned, banks and payment providers can’t offer services to cryptocurrency holders and traders. Thus, crypto is not taxed in China as banks and authorities do not recognize it.
Australia
There are two groups of taxpayers in Australia — investors and traders. If you simply hold crypto and even trade it sometimes, you are qualified as an investor and are liable for capital gains tax. If you carry out some sort of business activity with crypto, you pay the ordinary income tax. For investors, there is a discount: if you hold longer than a year, all profits taken from this asset will be given a 50% tax discount.
Crypto tax havens: where do you pay no tax on crypto?
Many countries have realized that the legalization of cryptocurrency and the introduction of tax benefits for it can foster their economies. In these countries, cryptocurrency is not legal tender — rather, it is a personal investment that is tax-exempt, meaning that it’s not liable for capital gains tax. For crypto businesses in these countries, however, the rules can be different.
Here’s the list of countries that have no tax on crypto:
- Hong Kong
- Malaysia
- Portugal
- Singapore
- Slovenia
- Switzerland
- Cayman Islands
How to keep yourself updated on the crypto tax laws?
If you trade crypto or invest in it, check what tax conditions there are for cryptocurrency in your country — this will allow you to stay safe and not worry about your stashes and, most importantly, the gains that they bring.
It is likely that in your country, cryptocurrency is treated as property, and taxable events are selling it for fiat or paying with it at stores and online services. It might be better in terms of tax to take profit from crypto held in the long term, and capital losses may be deducted from your taxes. However, this is the case far not for all countries.
It may not be easy to delve into crypto tax laws yourself, and it’s especially challenging to keep yourself updated on all their changes. In countries that have only started to recognize crypto recently, such changes can occur especially often. That’s why the best strategy may be looking for a good specialist and contacting them for clarifications. Luckily, many crypto tax experts have their YouTube channels, so finding one specifically for your country may be the best way to start exploring tax rules that apply to you.