Right from its inception, cryptocurrency values have been volatile. Many people are aware that a majority of the tax agencies expect for taxes to be paid in cryptocurrencies. Tax agencies always lookout for individuals and businesses who evade taxes. Tax agencies in a majority of the countries worldwide have excessive regulations and stigma associated with cryptocurrencies. These stringent rules and regulations ultimately bleed down to the average user. For example, in the United States, evading the taxes levied on cryptocurrencies carries a five-year jail term.
Process Of Recording Crypto Transactions
Taxpayers are expected to track their cryptocurrency purchases carefully. Each crypto investment or purchase must be kept in a separate online wallet and appropriate records must be maintained and documented with regard to when the wallet was created. The details of all cryptocurrency transactions are stored on a blockchain, which is a decentralized, immutable (tamper-proof) digital ledger where all the transactions to and from the online wallet are stored permanently along with the date and time. Online tools have recently been developed to assist taxpayers in this process.
What Is A Cryptocurrency?
As most of us are aware, Bitcoin was the first cryptocurrency which was founded in 2008 by Satoshi Nakamoto. Since then, it has risen manifold in terms of popularity and value. A cryptocurrency is a digital or virtual currency which is difficult to counterfeit because of its secure nature. Cryptocurrencies help make safe and transparent payments online between two parties and eliminate the need for intermediaries or a trusted third party such as banks or credit card companies.
Countries Charging 0% Tax On Crypto Investments
There has always been confusion on the category under which cryptocurrencies must be classified: currency or asset or commodity. In spite of this constant doubt, many regulators, federal judges, and central bankers are of the opinion that crypto dealing must be taxed.
Though many countries have all types of crypto taxes like VAT, GST, Service Tax, and Capital Gains Tax (CGT), this article will talk about the countries which do not have CGT as that is what matters the most for end-users or investors. Let us now delve deeper to identify the countries which consider cryptos completely legal and levy 0% tax on cryptocurrency investments.
In Germany, capital gains tax is not levied on Bitcoin sales. When compared to many developed nations, Germany considers Bitcoin and altcoins as private money and not as stocks, currencies, or commodities. Private sales within 600 Euros are exempted from tax. What is more interesting is that one who holds Bitcoin, Ethereum, Ripple, or other alternate coins for more than a year, need not pay tax. Bitcoin transactions are also excluded from VAT in Germany. Businesses will, however, still need to pay taxes on the gains derived under the category of corporate income taxes.
The Taxation Agency of the Singaporean Government proposed in June this year about removing the goods and services tax (GST) from crypto transactions. Bitcoin is not considered as a currency or a commodity in Singapore. Businesses which are involved in cryptocurrency trading are taxed based on the profits derived from their businesses. There is no specific rule for individuals who are engaged in cryptocurrency trading. Long-term regular investors will certainly not be subjected to tax when they cash out. Some of the factors determining the existence of trade are the length of ownership, frequency of transactions, motive, mode of financing, etc. If you reside in Singapore, you can bypass the crypto gains by bypassing the factors mentioned above.
Similar to Singapore, Malaysia also has a zero-tax policy when it comes to crypto investments. Malaysia does not levy capital gains tax on cryptocurrencies. The recent budget of 2019 also did not have a proposal for taxes, but the changes which might occur in the future budgets are currently unknown. Bank Negara Malaysia recently announced that guidelines regarding cryptocurrencies would be revealed by the end of this year, if they decide to make any alterations. All cryptocurrency transactions are tax-free in Malaysia as the authorities do not consider cryptocurrencies as legal tender or assets.
Malta follows a progressive approach when it comes to cryptocurrencies. It has positioned itself as a global leader in the context of crypto regulations. In Malta, cryptocurrencies are not recognized as legal tender. They are recognized by the government as “a medium of exchange, a unit of account, or a store of value.” Cryptocurrencies are not subjected to tax legislations in Malta. A VAT is also currently not applicable to transactions where fiat currency is exchanged for crypto. Crypto exchanges are considered legal in Malta.
In Portugal, cryptocurrencies are exempted from VAT and personal income taxes. They do not have legal tender. They are not treated as physical money, electronic money, or Fiat currency. They are mostly seen only as an alternative payment method of a contractual nature resulting from private agreements between participants of crypto transactions and those which replicate some core traits of traditional currencies such as the unit of account, medium of exchange, and storage of value. This rule, however, applies only to individuals and personal activity. If cryptocurrencies relate to a business income, the usual rates of taxation are applied for business profits. Cryptocurrency trading and investing can be enjoyed on a tax-free basis in Portugal.
In today’s context, blockchain technology in general, and cryptocurrencies, in particular, are the topics which are closely followed in the domain of financial technology. These currencies have drawn the attention of many governments, owing to their potential and capabilities. Considering their rapid growth within a decade, we can be certain that both blockchain and cryptocurrencies are here to stay.