Author: Chloe, PANews
With the election of Trump returning to the White House, alongside pro-cryptocurrency candidates entering the U.S. Congress, there are expectations that cryptocurrencies will thrive in a favorable regulatory environment, pushing Bitcoin prices to soar above 90,000 USD. According to a report on November 18 by CNA, Taiwanese legislators recently inquired about the cryptocurrency taxation issue in Taiwan, discussing whether personal transactions involving cryptocurrencies should be taxed.
During the inquiry, the legislators questioned the Ministry of Finance's taxation measures on personal trading income from cryptocurrencies, stating that currently, only business tax and profit-seeking enterprise income tax are levied on cryptocurrency exchanges, with no clear tax regulations regarding the profits of individuals or corporations from trading. They emphasized that the Ministry of Finance should proactively improve Taiwan's cryptocurrency taxation mechanism.
Currently, 26 virtual asset businesses in Taiwan have completed the anti-money laundering compliance declaration with the Financial Supervisory Commission, all have registered for tax purposes, and have paid business tax and income tax. However, legislators still believe that when it comes to cryptocurrency taxation, the focus is still on businesses, and personal transaction taxation and audits by the Ministry of Finance are still insufficient.
The head of the Taxation Administration, Song Xiuling, pointed out that according to current tax laws, cryptocurrencies are not considered currency but rather digital assets for trading. As long as there is income from asset trading, it must be taxed. However, since it is self-reported, there needs to be strengthened audits. The Ministry of Finance will also cooperate with the Financial Supervisory Commission to establish a special law for virtual assets, and new audit measures will be introduced in the future. "Currently, the tax department has audit tools available to examine the trading conditions of digital goods and promises to study the taxation of cryptocurrency trading income for three months," said Song Xiuling.
Finally, the Ministry of Finance stated that it will continue to monitor international trends in cryptocurrency and digital services taxation and will adjust the tax system in a timely manner based on Taiwan's actual situation.
The taxation of cryptocurrency trading has become a focal point of concern for various countries in recent years. Regarding the treatment of cryptocurrency asset taxation in different countries/regions globally, PAnews has compiled a brief summary for readers.
The global trend is gradually increasing the transparency of tax information related to cryptocurrency asset transactions.
In 2023, the U.S., EU, and other regions successively proposed new tax information reporting requirements for cryptocurrency brokers and other intermediaries to increase transaction transparency. The Organization for Economic Cooperation and Development (OECD) released the Crypto Asset Reporting Framework (CARF) last June and updated the Common Reporting Standard (CRS) to include new financial products within the reporting scope.
Countries are gradually implementing tax information reporting for cryptocurrency assets to prevent them from becoming tax evasion tools. PwC's (2024 Global Cryptocurrency Tax Survey Report) indicates that as of December 1, 2023, 54 major cryptocurrency market jurisdictions have stated they will quickly adopt the OECD's 'Crypto Asset Reporting Framework' (CARF), with an expected implementation of automatic exchange mechanisms for cryptocurrency transaction information 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 worth more than 50,000 USD.
In light of the cryptocurrency taxation issue recently raised by Taiwanese legislators, Taiwan's current situation mainly focuses on KYC and anti-money laundering, meaning that individuals engaged in cryptocurrency-related activities must grasp client information and must proactively report large withdrawals (over 500,000 New Taiwan Dollars). This implies that in Taiwan, aside from the anti-money laundering legislation, there are no clear guidelines or income tax laws applicable to cryptocurrencies.
For general trading users, currently, buying and selling cryptocurrencies does not require paying transaction taxes; profits are treated like profits from other asset trades (e.g., forex trading profits) and must be reported as property trading income, which is included in personal comprehensive income tax.
In simple terms, the current principle of cryptocurrency taxation in Taiwan is that only 'realized profits' count; as long as investors' profits are not withdrawn to bank accounts, there is no actual profit. Once cryptocurrency profits are transferred to a bank account, reaching a certain amount, then taxation will apply.
Additionally, cryptocurrency dealers whose monthly sales exceed 40,000 New Taiwan Dollars are classified as regular trading cryptocurrency dealers and must complete tax registration and pay business tax and income tax.
The United States views cryptocurrencies as taxable property, with different states having different methods of calculating taxes.
The U.S. government defines virtual currency as: any digital asset that represents value recorded on a secure decentralized ledger. Digital assets are not considered actual legal tender as they are not coins or paper currency of the United States, nor legal tender issued by any nation's central bank.
Furthermore, the IRS views cryptocurrencies as taxable property. If the market value of cryptocurrencies changes and the current price exceeds the value at which investors initially bought them, capital gains or losses arise when investors cash out in trades. If there are profits, holders must pay taxes on the sold cryptocurrencies. Additionally, if one party receives payment in cryptocurrency from the other party due to business activities, the recipient must treat it as business income and pay taxes.
For example, if Party A purchases 1 BTC at a price of 5,000 USD and sells it for 7,000 USD three months later, then according to the short-term capital gains tax rate, Party A must pay tax on the 2,000 USD profit. If the profit from the sale of the held asset is for less than a year, for the U.S. tax year 2023, the tax rate ranges from 0% to 37%, with the specific rate depending on the actual income declared by the taxpayer.
In addition to trading profits, other incomes within the cryptocurrency ecosystem also need to be taxed. For example, cryptocurrency rewards earned from mining activities, rewards obtained from participating in staking, and interest earned through lending platforms are typically classified as ordinary income and taxed at general income tax rates. In 2023, the IRS clarified the timing for recognizing staking rewards as income through a series of new regulations and defined NFTs as collectibles, making them subject to special tax treatment rules.
Earlier this year, the IRS released the final draft of the cryptocurrency tax system, stating that starting from 2025, cryptocurrency brokers will need to submit Form 1099-DA to the IRS, reporting customers' trading information. This new system is expected to significantly enhance tax compliance while also bringing more compliance requirements for market participants.
At the state level, different states have different methods of calculating taxes, but currently, there is no consensus on the definition and taxation of NFTs across states.
There are significant differences in tax rates among EU countries, with Denmark being as high as 52%?
In Europe, member countries of the European Union are continuously updating their cryptocurrency tax systems. If minimizing the tax burden on cryptocurrencies is considered, countries like Slovakia, Luxembourg, Bulgaria, Greece, Hungary, or Lithuania would be more favorable, as these countries currently have the lowest interest rates for cryptocurrency holders among EU nations.
In comparison, Denmark, Finland, the Netherlands, Germany, and Ireland are not very friendly towards cryptocurrency transactions. Denmark views cryptocurrency profits as personal income and imposes high tax rates ranging from 37% to 52%. Below are the types of taxes and rates in EU countries. Capital Gains Tax is mainly levied on investment profits and usually has a fixed rate, while Personal Income Tax adopts a progressive tax rate system related to the taxpayer's total income.
Neither Hong Kong nor Singapore currently imposes capital gains tax on individuals.
For Asian countries, in Japan, for individual trading, profits generated by cryptocurrency exchanges are classified as 'miscellaneous income' and must be taxed according to a progressive tax rate. The tax rate is determined based on personal income, with the lowest cryptocurrency tax rate in Japan being 5% and the highest being 45%. For instance, for annual income exceeding 40 million Japanese Yen (approximately 276,000 USD), the tax rate can be as high as 45%. Notably, the Japanese government stipulates that losses from cryptocurrencies cannot be deducted from taxpayer income or other assets; only losses from real estate, business, and forestry income can be deducted from income, and cryptocurrency does not fall into these categories.
In South Korea, the country plans to impose a 20% tax on cryptocurrency profits applicable to gains exceeding 2.5 million Korean Won (approximately 1,800 USD). However, the implementation date has been repeatedly postponed from originally scheduled 2023 to 2025 and now to 2028, primarily due to market volatility considerations and concerns that premature implementation may affect investor sentiment due to a lack of proper tax infrastructure in the past.
In addition, neither Hong Kong nor Singapore currently imposes capital gains tax on individuals. Firstly, Hong Kong currently does not have specific tax law provisions targeting digital assets, but in March 2020, the Hong Kong Inland Revenue Department updated the Interpretation and Guidelines on Taxation Ordinance (DIPN) No. 39, adding relevant chapters on digital asset taxation.
However, the guidance has not yet covered staking, DeFi, or Web3-related content (such as NFTs and tokenization of physical assets). However, Hong Kong adopts a territorial tax principle, imposing a 16.5% capital gains tax on profits derived from domestic income from trade, professional or business activities, excluding capital gains. As for whether profits from cryptocurrency trading are classified as income or capital gains, it needs to be determined based on specific facts and circumstances.
The Singapore tax authority (IRAS) does not impose capital gains tax on individual cryptocurrency transactions. Profits from long-term investments in cryptocurrencies are tax-exempt. However, if an individual frequently trades cryptocurrencies or operates cryptocurrency-related businesses, this income may be classified as trading income and taxed at a maximum progressive rate of 22%.
Tax policies in various countries have significantly influenced cryptocurrency investment strategies, with lower tax rates attracting multinational corporations to invest in those countries. In contrast, high tax rate policies in the U.S., Japan, France, and Spain may deter some investors. According to a Coincub survey, the U.S. alone could collect approximately 1.87 billion USD in taxes from cryptocurrencies last year.
The situation in European countries is mixed, with some countries offering favorable conditions for long-term holders while others maintain high tax rates, which may affect investor behavior. Overall, however, the level of cryptocurrency tax rates in European countries is higher than the global average, reflecting part of the EU's overall fiscal system.
