Tax authorities and governments around the world have yet to figure out how to deal with cryptocurrency and its taxation. This means that there is a significant gap between how crypto is perceived and how it is taxed around the world. In some countries, you will pay multiple taxes on your cryptocurrency, whereas in others, such as some of the countries listed above, you will pay none at all.
Except for El Salvador, the vast majority of countries do not recognise cryptocurrencies as fiat currency, such as dollars or pounds. Instead, it is commonly regarded as a type of asset or commodity, similar to a house or a stock.
This point of view is significant because it governs how cryptocurrency is taxed. In most countries, cryptocurrencies are subject to either income tax or capital gains tax – or both!
If you’re caught ‘earning’ cryptocurrency, you’ll have to pay income tax. Again, different countries have different definitions of what it means to earn cryptocurrency, but in general, you’ll pay income tax when:
- Getting paid in cryptocurrency.
- Cryptocurrency mining
- Cryptocurrency staking
- Earning interest on cryptocurrency.
In fact, in some countries, hard forks and airdrops are subject to income tax.
This isn’t the only tax you’ll have to pay, because even if you pay Income Tax on your cryptocurrency, you may have to pay Capital Gains Tax later on.
Because cryptocurrency is regarded as a capital asset, it is subject to Capital Gains Tax in the majority of countries. When you sell a capital asset, you will make a capital gain or loss (profit or loss). You must pay Capital Gains Tax on any capital gains you make. Crypto disposal options include:
- Exchanging cryptocurrency for fiat currency.
- Exchanging one cryptocurrency for another.
- Using cryptocurrency to purchase goods or services.
- Crypto gifting is legal in most countries.
In most countries, if you earn crypto, say by mining, and then sell your mined coins, you’ll have to pay both Income Tax and Capital Gains Tax. That’s a lot of money in taxes!
But, as we mentioned in the introduction, it’s not quite that simple when it comes to crypto tax. The above is a general overview, but cryptocurrency taxation varies depending on where you live. Some countries continue to be crypto tax havens for investors seeking to avoid double taxation on their cryptocurrency holdings.
There is no denying it’s a complex and sometimes confusing system for cryptoasset taxation. But fear not, we are here to help! If you have any questions or wanted to book in for a consultation with one of our specialist Crypto accountancy team, then CLICK HERE.
