For everyone from large investors to a first-timer, cryptocurrencies have offered the best opportunity for asset investment profits this century, and while the market has cooled down from the insanity of 2017, many people are still making a lot of money every month from cryptocurrencies of all kinds.
However, when you invest in cryptocurrencies or simply make money buying and selling digital currencies as a day trader, there are some things that you need to know. They may a completely new kind of asset, but that doesn’t mean that they avoid tax liability. The problem is, tax legislation for digital currency is also very new, and how they work for tax purposes is often unclear, with information hard to obtain.
In previous posts, we discussed the tax regulations in the UK, Ireland, and France, as well as in South East Asia - Indonesia, the Philipines, Thailand, and Malaysia. We also presented you a collection of useful tools that may come handy when doing taxes or preparing the income data necessary to do them quickly and correctly.
In this post, we are going to look at the tax liability for trading cryptocurrency in Spain, Italy, Portugal, Germany, Greece, and Turkey.
Digital Currency Tax in Spain
Currently, the EU as a whole is instigating new money laundering legislation, and as part of that, the new legislation will define cryptocurrencies. This means that, like many other EU countries, taxation for trading or investing in digital currencies may change in the future, and currently a draft law is proposed that makes reporting all cryptocurrency assets mandatory, although this is not yet in place at the time of writing.
Currently, Spanish traders and investors are only liable to realized profits from their digital currency activities. That means, you only pay tax once those profits from trading cryptocurrencies are transferred into euros or other recognized currency and into your bank account to create a taxable event. While you Bitcoin, Ethereum or other digital currency may gain in value, you don’t pay tax on them while they remain digital currencies.
If you do cash out of your trading or investments, then you will have to declare those profits on your income tax statement, the 720 form. That taxation rate will depend on how long you have held the cryptocurrency and the amount. Time is divided into less than a year of ownership, and longer than a year, with rates varying in each category depending on the income. This can be anything from 19% to 60%, with rates noted by the government as they change each year.
Tax for cryptocurrency in Italy
The tax situation in Italy remains open to interpretation. However, there is no specific legislation regarding digital currencies in force at the time of writing.
This leaves those trading cryptocurrencies seeking clarity, but at the moment, digital currencies are viewed as foreign currency, and as such, profits from trading them is subject to taxation. Capital gains is charged at 26% on the difference between purchase and sale price for the asset, which is all quite clear. For traders, the tax is paid on trading profits, the main point of confusion comes when we try and define investors.
In Italian law, capital gains apply to assets held above certain values, for cryptocurrencies, if you old more than €51,645 in your account for more than seven consecutive days in a financial year, you are liable for capital gains on your asset at the end of the financial year. In other words, for smaller investors, holding Bitcoin, Ethereum or other digital currencies does not incur any tax liability.
Cryptocurrency tax in Portugal
Portugal issued new advice on cryptocurrency tax on May 31, 2018, ratifying the view on cryptocurrency that it would be VAT exempt, further building on existing tax policy announcements. In Portugal, personal income tax does not apply to cryptocurrencies, they are tax-free.
However, that only applies to personal activity, if it relates to a business income then taxation applies at usual rates for business profits. That means for most people in Portugal, cryptocurrency trading and investing can be enjoyed tax-free.
Cryptocurrency tax in Germany
Germany is another EU country where precise definition of the nature of virtual currencies remains in flux as the EU continues its roadmap to new money laundering rules in 2020. However, unlike some, Germany has clear regulations on the tax liability for trading and investing in cryptocurrency and are in fact some of the easiest to follow.
Virtual currencies are not considered a commodity or other taxable asset, but as private money, the way other foreign currencies are. This means that for investors, as long as you hold your Bitcoin, Ethereum or another cryptocurrency for more than a year, any profits made when selling them are entirely tax-free.
Traders are not so lucky though, as transactions for trading cryptocurrencies that you have held in your possession for less than a year are subject to current capital gains tax rates on the profit. There is another tax-free exemption, the first €600 profit in the financial year is tax-free, but for the most people trading cryptocurrency, they will be making more than that and paying the 25% capital gains rate.
These rates only apply to individual investors and traders, commercial businesses dealing with cryptocurrency profits must declare and pay tax in the usual way as part of their business income.
Digital Currency Tax in Greece
Greece is a unique country, in that it has been the subject of fiscal controls almost continually since the 2008 financial crash, which in effect is the entire lifespan of Bitcoin, and therefore all cryptocurrencies. This has shaped usage, Bitcoin use grew massively in the country in 2015 when the government initiated strict limits on the amount of cash each person could withdraw from their own bank account each day, set at just €50.
That makes the tax arrangements particularly important, and currently, the situation is simply that there is no legislation applying to digital currencies at all. In theory, this suggests there are no tax liabilities for profits from trading cryptocurrency, however, the lack of guidance makes this unclear too.
For investors and traders in other assets, profits are liable for capital gains taxation, with rates set at 15% for individuals and 29% for businesses. Without more guidance from the government, it is safer to assume this is the liability for digital currencies too.
Tax for virtual currencies in Turkey
Turkey has a thriving use of cryptocurrencies, in particular, Bitcoin, as happens all over the word as local currencies suffer devaluation. IN fact, they are even discussing launching a state-sponsored virtual currency of their own, such is the enthusiasm for blockchain technology.
Turkey keeps everything simple, cryptocurrencies are classed as a financial instrument like other investment and trading assets. That means profits on both trading and investing are subject to taxation under the other income rates. This ranges between 15% and 35% depending on the total income amount, using progressive bands at 13,000 Try, 30,000 Try, 70,000 Try and 70,001 Try and over.
I hope you found our run-through useful for your personal situation. If you have to pay cryptocurrency taxes it means you made a profit. There is still time to earn more. Check up the completely new SimpleFX WebTrader, probably the best trading app 🙂