Global cryptocurrency taxation is imminent. Which countries have taken the lead?

Since 2020, with the increasing interest of investment institutions in cryptocurrencies and the surge in cryptocurrency users, cryptocurrencies have also become an important target of regulation by governments around the world, and more and more governments have joined the ranks of introducing cryptocurrency tax laws.

Although the earliest cryptocurrency tax guidelines classified cryptocurrencies as "property", the problems faced by cryptocurrency tax policies have become increasingly complex since 2014. With the increase in Ether, stablecoins, DeFi, and many new currencies, the usual "property" classification may not apply to all cryptocurrencies. Regulators in various countries are also taking cryptocurrency tax policies more seriously and constantly updating guidance on cryptocurrency taxation.

At present, the tax status of cryptocurrencies varies from country to country. Some countries consider cryptocurrencies as commodities or investment assets and are subject to relevant laws for tax purposes; some countries do not consider cryptocurrencies as personal financial assets and do not impose taxes; some countries prohibit the use of cryptocurrencies for mining and operations, and prohibit the issuance and organization of cryptocurrency circulation; and some countries have not yet made a formal decision on the regulation of cryptocurrencies.

USA

In 2014, the U.S. Internal Revenue Service (IRS) issued a cryptocurrency tax guide, which included how to deal with tax issues related to virtual currency transactions, payments, mining, and other activities. According to the guide, trading cryptocurrencies for currencies such as the U.S. dollar is considered a taxable event. Cryptocurrency mining is also taxable because it is considered a type of income. In contrast, P2P transfers, small gifts, and purchases of cryptocurrencies are not subject to tax.

In October 2019, the IRS released new guidance for calculating taxes payable on cryptocurrency holdings. The guidance covers: tax situations when creating cryptocurrency forks; methods for evaluating cryptocurrency as income; and how to calculate taxable gains when selling cryptocurrency. In late December, the IRS added two new FAQs to the list, discussing the responsibilities of charitable organizations when accepting cryptocurrency as donations.

In August 2020, the IRS released a draft of Form 1040, "United States Individual Income Tax Return." A question about virtual currency was designed in the main form, asking taxpayers whether they sent, received, bought or sold virtual currency in 2020 and whether they earned interest from it. Previously, similar questions were set in the appendix.

In December 2020, the IRS released a draft of revised 1040 instructions that clarified what is covered by the term virtual currency. The IRS uses the term virtualcurrency to describe various types of convertible virtual currencies used as a medium of exchange, such as digital currencies and cryptocurrencies, and states that regardless of which term is used, if a particular asset has the characteristics of a virtual currency, it will be considered a virtual currency. The updated draft requires that if a citizen purchased cryptocurrency during 2020, they must check "yes" on the virtual currency question on page 1, although this may not trigger any taxable events.

According to the IRS’s cryptocurrency FAQ (Q5), updated on March 2, 2021, cryptocurrency purchases made with fiat currency are not subject to any type of IRS tax reporting.

South Korea

As early as 2017, South Korea expressed its intention to impose taxes on digital currency transactions and planned to levy capital gains tax in the process of trading cryptocurrencies.

In March 2020, South Korea passed an amendment to the "Law on Reporting and Utilization of Specific Financial Transaction Information (Special Financial Law)", which completed the definition of cryptocurrency, clarified the crypto exchange licensing system and bank support for real-name registration of crypto exchange accounts, and complied with some implementation standards recommended by the Financial Action Task Force (FATF) and the "FIU Virtual Currency Anti-Money Laundering Guidelines" formulated by the Financial Intelligence Unit (FIU) under the Financial Services Commission of Korea.

In July 2020, the Ministry of Strategy and Finance of South Korea announced the "2020 Tax Law Amendment" which includes a cryptocurrency taxation plan. According to the information, for virtual assets traded after October 1, 2021, the government will levy transfer income tax at a rate of 20% (plus 2% local tax, a total of 22%). Regarding the "income type" that has been debated in the industry before, the government plans to treat the income from cryptocurrency transfers as "other income" for taxation.

Regarding the "taxation policy for virtual asset transaction income" in the 2020 tax law amendment, the Ministry of Strategy and Finance of South Korea stated that "the Income Tax Law and the Corporate Tax Law do not include virtual asset transaction income of individuals (residents, non-residents) and foreign corporations in the taxable items" and "however, based on the practices of mainstream foreign countries and the taxation of other income (stocks, derivatives), in order to ensure fairness, it is necessary for the government to levy taxes on this part of income."

For investors who use overseas exchanges to avoid taxes, the amendment explicitly requires that investors' overseas trading income be included in the tax return, otherwise a maximum of 60% of the undeclared fine will be recovered. In addition, there are currently no direct laws and regulations on DeFi, stablecoins, and P2P, and related transactions are difficult to track and grasp.

Singapore

In 2019, the Inland Revenue Authority of Singapore (IRAS) published a draft on how to levy goods and services tax (GST) on payment cryptocurrency (DPT) transactions, which stipulates which cryptocurrencies can be exempted from GST and under what circumstances.

Specifically, using digital payment tokens to pay for goods or services will not trigger a taxable supply of tokens; exchanging digital payment tokens with legal tender or other digital payment tokens will be exempt from goods and services tax. The draft mentions that examples of DPT include Bitcoin, Ethereum, Litecoin, Dash, Monero, Ripple and Zcash, etc.

In April 2020, the Singapore Inland Revenue Authority published the "Cryptocurrency Income Taxation Guide" on the income tax treatment of digital tokens and initial coin offerings (ICOs). The guide focuses on three types of digital tokens, namely payment tokens, utility tokens, and security tokens, and further clarifies the tax treatment of tokens received in unconventional ways, such as through airdrops or hard forks.

According to the guidelines, transactions involving payment tokens are treated as barter transactions. The recipient of the payment token is taxed on the value of the underlying goods provided or services rendered. For ICOs, the proceeds will be taxed based on the rights and functions of the issued tokens. Meanwhile, since the proceeds from the issuance of security tokens are similar to the proceeds from the issuance of debt or equity, they are similar to gains of a capital nature and are not taxed. However, general income tax and withholding tax obligations will apply to dividends or interest paid to token owners.

U.K.

In December 2018, the UK's first digital currency guide was released. The UK Revenue and Customs (HMRC) considers digital currency as an asset, and capital gains tax is required for each purchase and sale of digital currency. However, digital currency used for charitable donations does not require capital gains tax. In addition, employers who use digital assets instead of cash, earn income from mining activities, and airdrops will also be taxed in accordance with the country's current income tax and national insurance contribution laws.

In January 2021, the UK Financial Conduct Authority (FCA) banned the sale of cryptocurrency derivatives and exchange-traded notes to retail consumers. The FCA believes that derivatives are not suitable for retail consumers because these products can cause harm to retail consumers.

India

In April 2018, the Reserve Bank of India forced all banks in the country to stop doing business with cryptocurrency exchanges. However, they later amended the law and proposed the following:

The purchase or sale of cryptocurrency will be treated as a service; the value of the cryptocurrency can be determined based on the transaction value in rupees or its equivalent in any freely convertible foreign currency; if the buyer and seller are in India, the transaction will be treated as software delivery; transactions outside India will be subject to Goods and Services Tax (GST) and will be treated as import or export of goods.

In December 2020, the Indian government is considering a proposal to impose an 18% goods and services tax on Bitcoin transactions, which is expected to collect about 4 billion rupees (53.4 million U.S. dollars) in taxes each year. The Central Economic Intelligence Bureau (CEIB) under the Ministry of Finance has submitted the proposal to the Central Board of Indirect Taxes and Customs (CBIC). According to sources from the Ministry of Finance, the Central Economic Intelligence Bureau recommends that Bitcoin be classified as an "intangible asset".

Switzerland

Despite the Swiss government's plans to impose controls on cryptocurrency businesses, there are no taxes on cryptocurrency businesses. In Switzerland, qualified individuals who buy, sell or hold cryptocurrencies for personal gain do not have to pay taxes on their capital gains. However, income from mining is considered self-employment income and will be taxed through income tax. Profitable cryptocurrency trading by qualified professionals is subject to corporate tax, and wages paid in Bitcoin must be declared for income tax.

In the future, Switzerland may introduce the following regulations: cryptocurrencies will be considered valuable property, so the fact of their ownership should be reflected in the tax return and taxed on their value; if cryptocurrencies qualify as private property (i.e. they are not used for business purposes), then according to current tax regulations, only the profits from the increasing price will be taxed.

China

Australia

Japan