A very good question!
As a new asset class with novel features unprecedented in their conventional counterparts, cryptocurrencies like Bitcoin and Ether are taxed differently around the world. Some jurisdictions consider them property while others categorize them as a medium of exchange, a unit of count, or a store of value.
Another factor that is considered is the investment time. If you are a HODLer and have bought crypto assets as a long-term investment, some jurisdictions will exempt you from paying any crypto taxes or charge you less!
In general, the regulatory body responsible for collecting and managing tax in the country will provide guidelines on how cryptocurrency users such as traders and investors should file their tax returns.
For example, the US Internal Revenue Service or IRS, the government agency responsible for managing tax within the country, treats digital assets as property. Here, digital assets can be a cryptocurrency like Bitcoin, a stablecoin like Tether, or a Non-fungible Token (NFT).
If you check their website, you will see they give examples in which you may be subject to tax:
As you can see, the crypto tax in the US is not limited to the profits you may make from trading or investing in the crypto market. Even the tokens received after a hard fork or airdrop will be subject to tax and are considered income.
Something you should note is that crypto taxation usually includes both capital gains and losses, allowing you to reduce your payable tax if you’ve lost some money in the markets (which is more than common in a volatile market like cryptocurrencies). Considering this, crypto taxes may not be that bad after all!
Let’s check out some of the top crypto hubs in the world to see how much crypto tax is charged in each jurisdiction!
In the US, you may be subject to either Capital Gains Tax or Income Tax. Selling a cryptocurrency like Ethereum for a fiat currency like the US dollar will fall under the capital gains tax (given you’ve made money) while an airdrop is considered income tax.
Aside from this, the amount of tax you should pay is also determined by how long you’ve held these assets:
Just like the US, crypto assets are considered property in the UK. According to the HM Revenue and Customs (HMRC) guidelines, you may have to pay capital gains tax when you:
Give away your tokens to another person (unless it’s a gift to your spouse or civil partner)
However, unlike the US, it doesn’t matter how long you’ve been holding your assets and you will be subject to a tax rate between 10% to 20%.
Aside from this, you may have to pay Income Tax and National Insurance contributions as well. According to HMRC, any cryptocurrencies you receive from your employer or mining are considered income and subject to tax. You may have to pay up to 45% based on your income tax rate.
“Normal income tax rules apply to crypto assets and affected taxpayers need to declare crypto assets’ gains or losses as part of their taxable income.”
This makes cryptocurrencies subject to capital gains tax which is a part of income tax. The income tax can go as high as 45% based on the bracket you fall under.
In India, cryptocurrencies are considered Virtual Digital Asset and can be subject to capital gains tax and income tax. The definition of VDA was included in section 2 (47A) of the Income-tax Act.
India has set strict crypto tax rules. The country is asking for a 30% tax, with an extra 4% cess which simply means they are imposing a tax on tax!
Well, the United Arab Emirates (UAE) is indeed a crypto haven as it asks for zero tax! Crypto businesses and individuals who are gaining from crypto assets are not subject to tax.
This is in fact one of the main reasons why UAE has become one of the most desirable crypto hubs in the world with many crypto businesses moving their operations to this country.
Japan is another country that has imposed high crypto taxes on its residents. Crypto assets are considered properties and according to the Japanese National Tax Association (NTA)’s income tax guide 2022, they are subject to Miscellaneous income tax.
The amount of tax is determined by the income tax bracket you may fall under. The income tax in Japan can go as high as 45%, but it doesn’t stop there. Residents should pay a 10% Municipal tax on top of their income tax which increases the possible tax rate for crypto assets to 55%!