Cryptocurrency tax: How it works in different countries

When the price of Bitcoin surged, millions of people hopped onto the crypto bandwagon without taking into account that cryptocurrencies, like any other investment, aren’t exempt from tax.  

This handy guide will outline how different countries tax cryptocurrency, and how you can prepare for your tax return.* 

Income Tax

If you’ve invested a considerable amount of money, time and energy into buying and selling cryptocurrency, you may be considered a trader and HMRC will apply Income Tax to your profits.

Depending on how much you’ve earned from trading, Income Tax will be applied at marginal rates of 20% (£11,851 - £46,351), 40% (£46,351 - £150,000) or 45% (over £150,000).

If you’re considered a trader by HMRC, you’ll need to set yourself up as a ‘Sole Trader’. It’s worth speaking to a tax professional to see whether you’ll be considered a trader by the taxman.

Capital Gains Tax

If, as an individual, you’re holding cryptocurrency as an investment, it’s treated as a foreign currency. That makes you subject to Capital Gains Tax. 

The total value of your cryptocurrency tax won’t be taxed – just the amount of money you’ve gained through the investment.  

It’s worth noting that in the UK, if HMRC views your investment in cryptocurrency as highly speculative, then you may not be subject to tax. Similarly, profits and losses from gambling aren’t taxable.  

The most important thing is to keep a CSV file of all your trades and maintain a record of their value.

THE UNITED STATES

Unlike the UK, the US treats all cryptocurrencies as a capital asset, similar to stocks, bonds and property. This means they’re subject to ‘Capital Gains Tax’, regardless of whether you use them for trading and investing, or for purchasing goods and services. 

For cryptocurrency, the following instances are viewed as taxable events in the US: 

- Trading cryptocurrency for fiat currency like the US dollar (currency that’s legal tender but isn’t backed by a physical commodity).

- Trading cryptocurrencies. You’ll be taxed on the market rate of the cryptocurrency at the time of the trade. 

- Using cryptocurrencies for goods and services. Similarly, you’ll be taxed on the market value of the purchase at the time of the trade. 

The following instances aren’t regarded as a taxable event in the US: 

- Gifting someone cryptocurrency, as long you don’t exceed the gift tax threshold. 

- Wallet-to-wallet cryptocurrency transfers. 

- Buying cryptocurrency with USD. If you hold onto your cryptocurrency for longer than a year, you’ll be applicable for Long-Term Capital Gains Tax, which is roughly half that of the Short-Term Capital Gains Tax. 

The most important thing to do is to keep a record of every trade and transaction you make with cryptocurrency, with the market value of those trades and transactions at the time.  

EUROPE

Most countries across Europe don’t have specific cryptocurrency tax laws. However, cryptocurrencies will comply with the general principles of the local tax authorities. Here’s an outline of the differences in tax laws of major European economies. 

France

The French tax authorities view profits from cryptocurrencies as capital gains and tax them at 19%, with a social contribution fee of 17.2%. Profits from cryptocurrency mining are treated as industrial and commercial gains and receive a tax of 45%. 

Germany

Similar to the US, Germany regards cryptocurrency as an asset. The scope of taxation will depend on whether it’s a private or business asset. If the cryptocurrency is held as a private asset, Capital Gains Tax of 30.5% is only applied if the purchase and sale take place in under a year.  

Sweden

In Sweden, the sale or exchange of cryptocurrencies is subject to a flat capital gains taxation of 30%. Mining of cryptocurrencies will either be treated as business income or as income from employment, and will be taxed accordingly.

INDIA

Although its cryptocurrency tax laws aren’t defined yet, India is taking a different approach. 
Rather than considering them a foreign currency or an asset as in most countries, India considers cryptocurrencies to be in the ‘Goods and Services’ category. 
As a result, it’s considering an 18% Goods and Services tax, although no final decision has been reached. The Indian government has been particularly sceptical of cryptocurrencies and has banned financial institutions from dealing in crypto-assets. 

HOW TO PREPARE FOR YOUR TAX RETURN

In the run-up to the end of the tax year, it’s important to know just how to prepare for your cryptocurrency tax return. Here are some of the most important things to bear in mind. 

Cryptocurrency record keeping is your responsibility. Keeping a record of all of your trades and transactions is down to you.

It’s important to keep a record of the market value of your cryptocurrency at the point of purchase or sale. Otherwise, you’ll be taxed at today’s cryptocurrency value, meaning your tax bill could be significantly higher. 

Understand your country’s tax laws on cryptocurrency. It’s vital that you understand how each cryptocurrency transaction will be taxed.

You must account for charitable donations. If you’ve made any charitable donations with digital currencies, you may be eligible for tax relief and it’s a good way to offset the tax you might pay on capital gains.