It’s today’s news that the US Congress has just officially enforced a bill that will be a “Safe Harbor for Taxpayers with Forked Assets.”
The bill implies that US crypto fork taxpayers won’t have to face penalties if they don’t pay taxes on hard forked assets correctly.
This is good news for taxpayers but in general what is the situation in the US and other countries when it comes to paying taxes on crypto assets?
We take a look at some of the global tax enforcement to find out what are the most crypto friendly countries with regard to tax policies.
As a general rule globally, you do not need to pay taxes on your crypto assets as long as you keep them as cryptocurrencies for one year and do not convert them, trade them, sell them for goods or other currencies.
If you believe in a future ruled by a crypto economy with not much room for fiat currency then hodl tight and you won’t be liable for taxes. For the time being.
The moment you trade your cryptocurrency, use it (sell it) to buy goods or services, convert them into dollars, euros, pounds or any other sovereign currency then you might be liable to pay taxes. Also using them via your business to pay salaries or other services and goods, might be a taxable event.
In the USA using Bitcoin and other cryptocurrencies to pay for goods and services, trading, selling, mining, and airdrops are all currently taxable events. Recent data suggest that only 53 percent of Americans had plans to report their cryptocurrency gains or losses, therefore, the IRS is looking at ways to tackle the issue.
It’s planning to interview family and friends, search through social media posts, and issue subpoenas to ensure people pay taxes on their Bitcoin, according to a presentation given to the IRS Criminal Investigation division.
Meanwhile, recently Singapore proposed to exempt Bitcoin and cryptocurrency transactions from VAT. If adopted by Singapore’s Parliament, the proposal will become law in January.
Neighbouring Malaysia has gone further by deciding crypto doesn’t qualify for capital gains tax, but that’s because digital currencies are not considered assets or legal tender by the authorities.
The same approach has already been taken by other jurisdictions, notably Australia, Germany and Portugal.
In Australia, capital gains acquired through crypto, whether by disposing of the crypto, exchanging one coin for another one or a token, by keeping them as an investment, as personal use asset, loss or theft of the crypto or as chain split, some or all of the gain may be taxed. If the cost of your digital currency is less than $10,000 and you are only using it to pay for personal goods or services, it is not taxed.
Certain capital gains or losses from disposing of a cryptocurrency that is a personal use asset are disregarded. If the disposal is part of a business you carry on, the profits you make on disposal will be assessable as ordinary income and not as a capital gain.
In the UK, the annual tax-free allowance for an individual’s asset gains is £11,700 for 2018/19. So if the profit from selling your cryptocurrency, in addition to any other asset gains, is less than this, you won’t have to report or pay tax on it.
Generally, those who have disposed of crypto assets will be taxable to either capital gains tax or income tax. Alongside this, there may be additional taxes that individuals may be taxable to too, such as national insurance, or alternatively subject to another tax, such as corporation tax, where the taxable activity is undertaken through a company.
HMRC confirm that the overall majority of taxpayers will be subject to capital gain tax on the disposal of their crypto assets. This is because the cryptocurrencies are predominantly held as an investment and therefore these will be given comparable treatment to assets, such as shares.
If taxable to CGT, a taxpayer will pay tax at the rate of 10% or 20%, dependent upon the taxpayers’ level of income.
In Portugal, the national tax authority analyzed the possible classification of cryptocurrencies under capital gains, capital income and income from business activities. As a general rule, they decided that crypto holders should not be taxed in regards to gains obtained from trading activity as an investment. Except in the case of the trading of crypto as the main business activity. In that instance, the owner of the assets might be subject to Portuguese tax.
Finally, in Germany, as Bitcoin is seen as a legitimate currency, the country has announced that no tax will be charged for transactions. If you hold Bitcoin or other altcoins for one year or longer, you will pay no capital gains tax when selling them.
These are only to be taken as indications on the fiscal matter that differs from country to country and if you need to know more we strongly advise to speak to an expert.
Or just hold on to your cryptocurrency to be on the safe side.