Article source: Chloe
Author: Chloe, PANews
With Trump's victory and the entry of cryptocurrency-friendly candidates into the U.S. Congress, there are expectations that cryptocurrencies will thrive in a favorable regulatory environment, leading Bitcoin prices to soar above $90,000. According to a report by CNA on November 18, Taiwanese legislators recently inquired about cryptocurrency taxation issues, discussing whether individual trading of cryptocurrencies should be taxed.
During the inquiry, legislators questioned the Ministry of Finance's measures for taxing individuals' cryptocurrency trading income, stating that currently, only business tax and profit-seeking enterprise tax are imposed on cryptocurrency exchanges, with no clear tax regulations for individuals or corporations profiting from trading, emphasizing that the Ministry of Finance should take proactive measures to refine Taiwan's cryptocurrency tax system.
Currently, 26 virtual asset operators in Taiwan have completed the anti-money laundering compliance declaration to the 'Financial Supervisory Commission', all of whom have registered for tax purposes and paid business tax and profit-seeking enterprise tax. However, legislators still believe that taxation on cryptocurrency primarily targets businesses, while personal transaction taxation and audits are still not sufficiently refined by the Ministry of Finance.
The head of the tax authority, Song Xiuling, pointed out that under current tax laws, cryptocurrency is not considered currency but rather a digital asset sale. Any income from asset sales is subject to taxation, but since it is self-reported, audits need to be strengthened. The Ministry of Finance will also coordinate with the Financial Supervisory Commission to establish specialized laws for virtual assets, leading to new audit measures in the future. 'Currently, the tax department has auditing tools to review digital goods trading situations and promises to study taxation related to cryptocurrency trading income within three months,' said Song Xiuling.
Finally, the Ministry of Finance stated it will continue to monitor international trends on taxation of cryptocurrencies and digital services taxes and will adjust tax systems as necessary based on Taiwan's actual situation.
The taxation of cryptocurrency transactions has become a focal point of interest for various countries in recent years. PAnews has compiled a brief overview for readers on how different countries/regions handle taxes on crypto assets.
Globally, the transparency of tax information related to cryptocurrency transactions is gradually increasing.
In 2023, the U.S., EU, and other regions have gradually proposed new tax reporting requirements for cryptocurrency brokers and other intermediaries, aiming to increase trading transparency. The Organisation for Economic Co-operation and Development (OECD) released the Crypto Asset Reporting Framework (CARF) in June last year and updated the Common Reporting Standard (CRS) to include new financial products.
Countries are gradually implementing tax reporting for cryptocurrency assets to prevent them from becoming tax evasion tools. PwC (2024 Global Cryptocurrency Tax Survey) points out that as of December 1, 2023, 54 major crypto market jurisdictions have indicated that they will quickly adopt the OECD's 'Crypto Asset Reporting Framework' (CARF), with an anticipated automatic exchange mechanism for cryptocurrency transaction information to be implemented before 2027. Transactions that need to be reported include: exchanges between cryptocurrencies, exchanges between cryptocurrencies and fiat currencies, and transfers of cryptocurrency for goods or services valued over $50,000.
Regarding the cryptocurrency taxation issue recently queried by legislators in Taiwan, the current situation primarily focuses on KYC and anti-money laundering, meaning that cryptocurrency-related practitioners need to grasp customer information, and significant withdrawals (over 500,000 NTD) must be reported proactively. Thus, in Taiwan, aside from the anti-money laundering legislation, there are no clear guidelines or income tax regulations applicable to cryptocurrencies.
For general trading users, there is currently no transaction tax for buying and selling cryptocurrencies; profits are treated similarly to gains from trading other assets (such as forex trading). 'Income from property trading must be reported' and included in personal comprehensive income tax.
In simple terms, the current principle of cryptocurrency taxation in Taiwan is that 'profit realization' counts; as long as the investor's profit funds have not been withdrawn into a bank account, there will be no actual profit generated. Once cryptocurrency profits are transferred to a bank account, i.e., a withdrawal that reaches a certain amount, taxes will be applied.
Moreover, cryptocurrency dealers whose monthly sales exceed NT$40,000 are classified as regular trading dealers and must complete tax registration and pay business and profit-seeking enterprise taxes.
The U.S. views cryptocurrencies as taxable property, with varying methods for calculating state taxes.
The U.S. government defines virtual currency as any digital representation of value recorded on a secure decentralized ledger. Digital assets are not real legal tender because they are not coins or paper currency issued by the United States or any country's central bank.
Additionally, the IRS views cryptocurrencies as taxable property. If the market value of a cryptocurrency changes and its current price is higher than the value at which the investor initially purchased it, capital gains or losses will arise when the investor withdraws funds during a transaction. If profits are realized, the holder must pay taxes on the sold cryptocurrency. Furthermore, if one party receives payment in cryptocurrency due to commercial activities, that party must consider it as business income and pay taxes.
For example, if Party A purchases 1 BTC at a price of $5,000 and sells it for $7,000 three months later, then under short-term capital gains tax rates, the party must pay tax on the $2,000 gain. If the profit is from assets held for less than a year, for the 2023 U.S. tax year, the tax rate ranges from 0% to 37%, depending on the amount of reported substantial income.
In addition to trading profits, other income within the cryptocurrency ecosystem is also taxable. For example, cryptocurrency rewards obtained from mining activities, rewards from participating in staking, and interest earned through lending platforms are generally classified as ordinary income and taxed at standard income tax rates. In 2023, the IRS clarified the timing for recognizing staking rewards as income and defined NFTs as collectibles, subjecting them to special tax treatment rules.
In mid-2023, the IRS released the final draft of the cryptocurrency tax system, stating that starting in 2025, cryptocurrency brokers will be required to submit Form 1099-DA to the IRS, reporting client trading information. This new system is expected to significantly enhance tax compliance and bring more compliance requirements for market participants.
At the state level, different states also have varying methods for calculating taxes, but currently, there is no consensus among states regarding the definition and taxation of NFTs.
There are significant differences in tax rates among EU countries, with Denmark's rate reaching as high as 52%?
Moreover, in Europe, EU countries are continuously updating their cryptocurrency tax systems. If one aims to minimize the tax burden on cryptocurrencies, Slovakia, Luxembourg, Bulgaria, Greece, Hungary, or Lithuania may be more favorable options, as these countries currently have the lowest tax rates for cryptocurrency holders among EU countries.
In comparison, Denmark, Finland, the Netherlands, Germany, and Ireland are less friendly towards cryptocurrency transactions. Denmark treats cryptocurrency gains as personal income and imposes high tax rates ranging from 37% to 52%. The following are the types of taxes and rates across EU countries. Capital Gains Tax primarily taxes investment gains and typically has a fixed rate, while Personal Income Tax adopts a progressive tax rate system related to the taxpayer's total income.
Currently, neither Hong Kong nor Singapore imposes capital gains tax on individuals.
Lastly, in various Asian countries, Japan, for instance, classifies the income generated from personal trading on cryptocurrency exchanges as 'miscellaneous income', which must be taxed according to a progressive tax rate. The rates depend on individual income, with Japan's cryptocurrency tax rate ranging from a minimum of 5% to a maximum of 45%. For example, individuals earning over 40 million yen (approximately $276,000) may be subject to the top rate of 45%. Notably, the Japanese government stipulates that cryptocurrency losses cannot be deducted from taxpayers' income or other assets; only losses from real estate, business, and forestry income can be deducted, and cryptocurrency does not fall into those categories.
In South Korea, the country plans to impose a 20% cryptocurrency profit tax applicable to profits exceeding 2.5 million KRW (approximately $1,800). However, the implementation time has been repeatedly postponed, originally set for after 2023, now pushed to 2025 and again to 2028. The delays are mainly due to market volatility considerations and past concerns about the lack of proper tax infrastructure potentially impacting investor sentiment.
Additionally, neither Hong Kong nor Singapore currently imposes capital gains tax on individuals. First, Hong Kong currently does not have specific tax laws concerning digital assets, but the Hong Kong Inland Revenue Department updated the (Tax Ordinance Interpretation and Implementation Guidelines) (DIPN) No. 39 in March 2020, adding tax-related chapters for digital assets.
However, the guidelines have not yet covered staking, DeFi, Web3-related content (such as NFTs and tokenization of physical assets). Nevertheless, Hong Kong adopts a territorial tax principle, imposing a 16.5% capital gains tax on profits derived from trade, profession, or business income generated within Hong Kong, excluding profits of a capital nature. Whether cryptocurrency trading income is classified as income or capital depends on specific facts and circumstances.
The Inland Revenue Authority of Singapore (IRAS) does not impose capital gains tax on individuals trading cryptocurrencies. Profits from long-term investments in cryptocurrencies are tax-exempt. However, if individuals frequently trade cryptocurrencies or operate cryptocurrency-related businesses, such income may be classified as trading income and taxed at a maximum progressive rate of 22%.
Tax policies across countries have significantly influenced cryptocurrency investment strategies, with lower tax rates attracting multinational companies to invest in those countries. Conversely, high tax policies in the U.S., Japan, France, and Spain may deter some investors. According to Coincub's survey, the U.S. could collect approximately $1.87 billion in taxes from cryptocurrency last year.
The situation in European countries is mixed; some countries offer favorable conditions for long-term holders, while others maintain high tax rates, which may affect investor behavior. Overall, the cryptocurrency tax rate in European countries is higher than the global average, reflecting part of the EU's overall fiscal system.