If you are trading in cryptocurrencies, are you aware of how they are taxed? While cryptocurrency is a fairly new invention, governments worldwide have been taking steps to regulate it. These regulations come in many forms and vary by country.
In the United States (US), for example, the Internal Revenue Service (IRS) has not specifically defined cryptocurrencies as “currency” or “property” but has determined that they should be treated as property for tax purposes. This means that if you convert cryptocurrency to fiat and generate an income, you are taxed using your marginal tax rate on the currency’s fair market value at the time of receipt.
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The US is the only country in our survey that does not declare cryptocurrency to be legal tender. The Internal Revenue Service (IRS) treats all crypto gains and losses as taxable. This means that your gain or loss on the transaction is taxable every time you sell cryptocurrency, even if you buy cryptocurrency later with those gains.
Crypto is considered taxable property by the IRS, like bonds or stocks. Each year, you report your total capital gains and losses on form 8949 and carry those amounts to Schedule D of Form 1040. You pay tax at your capital gains rate. Long-term assets are taxed at a maximum of 15%, while short-term gains—held for less than one year—are taxed as regular income.
Note that if you purchase cryptocurrency and spend it within the same day of buying it, this would be considered a “like-kind exchange” and would not be subject to taxation. However, since US authorities do not treat cryptocurrency as money, merchants do not accept it as payment for goods and services anyway.
In general, in Germany, crypto assets are treated as private money. For example, if you buy crypto with a credit card and hold it for more than one year, there’s no tax to pay on it.
However, if you held your cryptocurrency for less than a year and then sold it at a profit, you’d have to pay income tax on the profit at up to 45 percent. That’s because cryptocurrencies are considered shares in Germany and taxed the same way.
In Japan, cryptocurrency owners are taxed based on their capital gains and losses, just as if they’d been trading stocks. Gains or losses made by using cryptocurrencies as a payment method aren’t taxed.
Those who make more than ¥40 million ($364,000) in profits per year from trading crypto will be subject to a 20% tax rate on their gains. The same rate applies to stock market trades. Lesser amounts of profits will see you taxed at 5-10%.
Because cryptocurrencies are not recognized as legal tender in India, no sales tax or capital gains tax is imposed on crypto transactions. However, just because crypto isn’t considered money, that doesn’t mean it’s completely free from taxes.
For example, if someone earns cryptocurrency by mining, he will be required to pay income tax for the amount earned. However, crypto is not recognized as legal tender in India.
Similarly, if someone invests in cryptocurrencies and later sells that investment at a higher price than they paid for it, they will be required to pay capital gains tax on their profits. This will be taxed just like any other form of capital gains and can be either short-term or long-term, depending on how long the investor held the asset before selling it.
And because Indian law considers cryptocurrency trading as self-employment income, anyone who is involved in this type of activity must register for taxes. The investor would also need to file an ITR form every year with their earnings from cryptocurrency trading, which could lead to a payment of up to 45 percent!
South Korea is one of the most crypto-friendly countries in the world, with more than a quarter of the population owning some sort of cryptocurrency. It’s safe to say that assuming you’re in Korea right now, you probably know plenty about blockchain and cryptocurrencies.
South Korea is also similar to the U.S. in taxation for cryptocurrencies, requiring crypto holders to pay capital gains tax on their crypto profits. The tax rate you’ll pay varies depending on how much money you make during the year: If your annual income is under $12,000, then no taxes. If it’s between $12,000 and $46,500 (or 46 million won), then six percent. If it’s over that amount, then 20 percent is taken out.
As far as taxes go, things in Singapore are pretty straightforward. If you buy and hold a cryptocurrency for investment purposes, it’s not taxed until you sell it. When your crypto is sold, your profit from the sale will be taxed at 20% under the personal income tax code.
There’s no sales tax or value-added tax (VAT) on purchases of cryptocurrency exchange market. The government has stated that there are currently no plans to levy VAT on them or to regulate cryptocurrencies, so this situation might be subject to change in the future.
Traders who operate as businesses may be subject to corporate income tax instead of personal income tax. And their profits may be treated differently than individuals who trade crypto as investments because trading profit is seen as “income arising.” Therefore, if an individual trader operates as a business with employees, they’ll have to pay corporate taxes instead of personal taxes on their trades’ profits.
The U.K.’s crypto tax law follows the U.S.’s system closely and is enforced by the HMRC, so if you’re in the UK and you’re trading cryptocurrencies, you will only owe taxes on your gains. That is, if you’ve reached the taxable income threshold.
As with all things related to taxes in the UK, there are a lot of loopholes that could be exploited by wealthy people looking to avoid their full tax liability, but overall it’s pretty straightforward for regular people. It is simple for those who buy cryptocurrencies as long-term investments and don’t engage in day trading activity.
Because cryptocurrency is a novelty, tax laws vary widely between countries and sometimes change over time within a country. Be sure to keep up with the latest rules and regulations, especially if you’re traveling to another country.