When Do You Have to Pay Taxes on Crypto? All You Need to Know

November 26, 2021

Crypto World

Ana Rojas

Find out when do you have to pay taxes on crypto gains. Discover how do taxes on cryptocurrency vary from country to country? Crypto taxes in the USA, China, India, etc. Keep reading the new StealthEX article to learn more about the taxation of cryptocurrency.

Is Cryptocurrency Legal?

Cryptocurrency is based on cryptography (the science of information encryption). Any data transmission system, including banking, is built on it. The peculiarity is that the architecture of digital coins consists of blocks in which any information can be placed – blockchain. The technology itself implies absolute transparency and openness of information to all people.

On the legal side, cryptocurrencies have been in a legal gray area until recently. At first, the governments of even the most advanced countries found themselves in some stupor when trying to give an intelligible definition of digital gold. Somewhere cryptocurrencies were recognized as a means of payment, somewhere – as a monetary unit, somewhere – as a commodity, and somewhere – as an investment or virtual asset.

Do You Have to Pay Taxes on Crypto?

Regardless of how cryptocurrencies are viewed, in most countries the following operations are subject to taxation:

1. Selling cryptocurrency for fiat currency.
2. Exchange of one cryptocurrency for another.
3. Using cryptocurrency to buy goods or services.
4. Getting cryptocurrency from mining, forks, or airdrops.

In general, it may seem outrageous to levy a tax on the growth of cryptocurrencies prices. We do not pay tax when exchanging, for example, a dollar for a euro or a pound. 

Why Are the Authorities Seeking to Tax Cryptocurrencies?

There are two main reasons for this:

1. Most of the popular cryptocurrencies are dependent on popularity and trade. The more wallet users, the higher the cost. This scheme has acquired a global scale and huge amounts of money are involved. Today, cryptocurrency is in use in almost all countries of the world. Cryptocurrencies cast a fairly large shadow on traditional financial systems, and governments of different countries are simply forced to respond to the current situation and introduce legal norms at the legislative level.
2. Cryptocurrency may contain data that is not related to the transaction itself, and there’s a risk of uncontrolled information leakage. This is especially easy if you are transferring data in parallel to trillions of similar operations. 

How Do Taxes on Crypto Vary From Country to Country?

Below we will briefly review various taxation options for transactions with cryptocurrencies and crypto tax rates in different countries.

Crypto Taxes in USA

In November 2021, the US Congress passed a massive infrastructure modernization bill, part of which was supposed to be devoted to taxes on cryptocurrency. Lobbyists in this area were dissatisfied with the document and tried to make changes but to no avail. The House of Representatives voted to adopt an unadjusted infrastructure plan in favor of the crypto industry.  

Cryptocurrency regulations will come into effect on January 1, 2024. They oblige crypto industry participants to report cryptocurrency transactions in excess of $10,000 to the Internal Revenue Service (IRS). The law expands the definition of “broker” in the US tax code to cover almost all entities in the industry, including “non-custodial” ones, and obliges them to comply with the KYC requirements. The definition of a broker includes miners, node operators, wallet developers, and liquidity providers in DeFi protocols. All of them are required to report to the tax office on user transactions. Crypto market participants criticize the law because it considers miners and other players who, by definition, have no clients, as brokers. 

In turn, the US Treasury Department says it does not intend to broadly interpret the definition of “broker” and apply it to all participants in the crypto industry. That is, when an individual owns a cryptocurrency, but simply transfers it to another exchange or a wallet for security purposes, he or she is not required to pay taxes on crypto gains. 

In general, from the point of view of the US Internal Revenue Service, cryptocurrencies are considered property. The IRS has been trying for years to oblige Americans to include transactions on cryptocurrencies in tax reporting, and now the fight against tax evasion through these mechanisms has been declared one of the priorities.

Difficulties With Regular Use of Crypto

Difficulties arise for those who regularly use cryptocurrencies to pay for goods or services. For example, an American paid with Bitcoins for pizza delivery. If at the time of buying a pizza, the Bitcoin rate turns out to be higher than at the time when the American acquired digital currency, then, from a tax point of view, he received a capital gains profit and must pay tax on it. It is clear that with a large volume of such operations, tax calculation may not be possible for everyone. So far, the authorities have few mechanisms to track such transactions.

In the United States, there are special services for accounting for the tax base. Depending on the format of use, income tax (15-35%) or full tax exemption may be levied.

How Is Crypto Taxed in Canada?

In Canada, cryptocurrencies are considered commodities. The purchase of goods and services for cryptocurrencies is considered as barter transactions and taxation of such transactions is applied at rates from 15% to 30%. 

South Korea Cryptocurrency Tax

Effective January 1, 2022, the authorities will tax profits from cryptocurrency trading in excess of 2.5 million Korean won (~$2,230). The tax rate will be 20%. Citizens will also have to pay taxes when inheriting or receiving gifts in digital assets.

Japan Cryptocurrency Tax

In Japan, cryptocurrencies are legal tender and taxed at a rolling rate of up to 55%.

Singapore Crypto Tax

In Singapore, cryptocurrencies are considered goods or services. As a security, cryptocurrency remains in a gray area and legal regulations are still being developed for dealing with digital assets. Therefore, in Singapore, local residents are not allowed to do business with cryptos, and access to the market for US citizens is also limited. There are several levels of taxation. Any commercial crypto activity is taxed at a rate of 17%. There is a tax-free barter system when exchanging cryptos for goods or services. When receiving income from the sale as a product or service, the tax is 7%. The legal framework is very multifaceted. There are legal provisions regarding double taxation, taxes on payments, dividends, and royalties.

China Cryptocurrency Tax

The existing Chinese legislation is contradictory. Business transactions (exchanges, ICOs) are prohibited. At the same time, citizens can own cryptocurrencies and conduct a direct exchange if it does not relate to commercial activities. It is possible to buy and sell crypto assets on international exchanges, such activities are taxed.

Tax on Cryptocurrency in India

Cryptocurrencies are considered digital products, and transactions with them are taxed at a rate of 18%. Operations with cryptocurrencies outside the country are considered as export-import operations with goods and are subject to a single fee for services and goods.

Taxes on Crypto in The United Kingdom

Cryptocurrencies traded on exchanges are treated as commodities. Taxes are imposed on trade, mining, as well as the sale of goods and services for digital assets, loans secured by cryptocurrencies, and staking when it comes to companies. The tax depends on income/expenses and net income. Private or home mining is tax-free.

Cryptocurrency Taxes in Germany

Cryptocurrencies are viewed as private money and a financial instrument, meaning any monetary value in digital form. Purchases made with cryptocurrency are tax-free. By and large, only commercial activities are taxed, that is a purchase/sale of coins in a short period of time (up to 1 year). Income tax is 14%-45%.

Cryptocurrency Tax in Switzerland

The legal status of cryptocurrencies is a virtual asset. Cryptocurrencies are subject to property tax (0.3%-0.5%), price increases are not taxed. Commercial activities, such as mining, are subject to taxation. 

France Crypto Taxes

Capital gains tax related to cryptocurrency transactions is levied at a flat rate of 30%, including social security contributions. 

Conclusion — How Is Cryptocurrency Taxed?

The authorities of different countries are actively working to impose a tax on the income received from the storage and trading of cryptocurrencies. In most jurisdictions, individuals and companies are required to declare profits on digital assets. 

In most countries, the exchange of one cryptocurrency for another is subject to taxation. In particular, the corresponding rules are effective in Germany, Canada, Great Britain. 

When calculating taxes, it is necessary to take into account losses due to changes in the crypto exchange rate, this can reduce income taxes. It is also advisable to use any reliable Bitcoin tax calculator. 

Failure to comply with legal requirements can lead to penalties in the form of fines and even prison sentences. Rules and regulations vary greatly from country to country, so it’s worth filing your tax returns very carefully.

Where to Buy Crypto With the Best Rates?

Those wishing to exchange cryptocurrencies can turn to an instant cryptocurrency exchange StealthEX. This service is free from registration and does not store users’ funds on the platform. 

Just go to StealthEX. It will automatically guide you to the «Swap crypto» window.

1. Choose the currencies you would like to swap. For example, BTC to ETH.
2. Enter your crypto wallet address.
3. Send the deposit to the address generated by StealthEX.
4. Once the deposit will be received, you will get your exchanged funds to the address provided in Step 3.

You can also buy ETH with your debit or credit card. To do so, you need to open the «Buy crypto» window instead of «Swap crypto».

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The views and opinions expressed here are solely those of the author. Every investment and trading move involves risk. You should conduct your own research when making a decision.

You are more than welcome to visit StealthEX exchange and see how fast and convenient it is.