Cryptocurrencies are becoming increasingly integrated into the modern financial reality, and like any other asset, they are subject to taxes.
As a relatively new and rapidly growing asset class, cryptocurrencies attract increasing interest from investors and governments. As the global economy adapts to this digital innovation, countries take different cryptocurrency regulation and taxation approaches. How do cryptocurrency tax policies work around the world?
Which countries require you to pay taxes on cryptocurrencies?
In the United States, it is simply impossible not to pay taxes — the authorities are very strict about this and tax almost everything, including digital assets.
Crypto is treated as property, not currency. This means taxpayers must pay capital gains taxes when selling cryptocurrencies. The profit is subject to either short-term or long-term capital gains tax rates depending on how long the asset is held (less than one year or more).
In the UK, the picture is much the same — cryptocurrencies are taxed like other assets. Capital Gains Tax (CGT) applies to income above a tax threshold. If the revenue from cryptocurrency trading exceeds a certain amount, the taxpayer must file a tax return and pay tax.
The Australian Tax Office also classifies cryptocurrencies as assets. Investors must pay capital gains tax if they sell their tokens at a profit. However, there is a minor clarification — in some cases, cryptocurrencies used to purchase goods and services may be exempt from tax if the transaction amount does not exceed $10,000.
Overall, Europe is leading, with Switzerland taking the lead: some residents of that country can not only pay for their purchases with cryptocurrency but also their taxes, the Federal Tax Administration (FTA) explains:
“If the salary or ancillary salary benefits are paid to the employee in the form of payment tokens, these are taxable as income from gainful employment 5 and must be shown on the salary certificate.”
Why do some countries not have to pay taxes on cryptocurrencies?
Several countries encourage the use of cryptocurrencies due to the absence of mandatory taxation — this is how the authorities try to attract investors and create cryptocurrency startups.
Portugal became one of the few countries where citizens are exempt from paying taxes on income received from cryptocurrency trading. There are exceptions when cryptocurrency is used in professional activities or business.
In Germany, cryptocurrencies held for over a year are not subject to taxation when sold. This creates an incentive for long-term investment in crypto assets. However, the profit will be subject to capital gains tax if the crypto is sold before this period.
Malta is actively developing its crypto industry and offers favorable taxation conditions. Cryptocurrencies are only taxed if they are sold or exchanged for fiat currency; otherwise, the tax does not apply.
However, there are countries where there is no need to pay taxes on cryptocurrencies simply because they are banned.
Countries where cryptocurrencies are banned
China is one of the most famous countries that ban cryptocurrencies. All cryptocurrency transactions were banned in 2021, and regulators were actively cracking down on mining. This has created significant problems for investors and crypto companies in the country.
In Algeria, the use of cryptocurrencies, including trading and mining, is strictly prohibited. The African country does not allow cryptocurrency transactions, including exchange and sale, making it impossible to carry out such transactions in the country.
Cryptocurrencies are also banned in several other countries, most of which are in the MENA and Asia regions, such as Morocco, Pakistan, and Indonesia.
Why do some countries not pay taxes on cryptocurrency?
In addition to the ban and investment attractiveness, some countries do not pay taxes on cryptocurrency for a straightforward reason: the authorities have not yet developed regulations for digital assets.
For example, although Japan has recognized Bitcoin (BTC) and other cryptocurrencies as a legal means of exchange, many aspects of their regulation are being developed. Although the country has several rules regulating crypto exchanges, there are many gaps in the legislation regarding specific taxation factors.
In Nepal, cryptocurrencies are still not clearly regulated, but they are de facto banned. Since the government has not developed legislation to regulate this class of assets, cryptocurrencies remain in a legal void.
What’s next for cryptocurrency taxation?
Cryptocurrency taxation varies from country to country, leading to different approaches to regulating and taxing these digital assets. While some countries actively develop tax policies and regulations for handling cryptocurrencies, others remain in legal limbo, and some altogether prohibit their use. However, according to Chainalysis, cryptocurrency adoption continues to grow globally.
Cryptocurrency taxation is, therefore, likely to continue to evolve towards greater clarity and regulation, providing stability for investors and market participants. However, changes may occur unevenly depending on the region and political environment.
