The emergence of a new asset class is an unusual phenomenon. Which is why regulators and governments struggle to grapple with the emergence of Bitcoin and digital assets in recent years. While some countries have clamped down on this industry before it blossoms, others have embraced it and made it part of the tax code. This cements its position as a legitimate asset class for investors.
Here are the many ways crypto-friendly countries across the world tax Bitcoin transactions and digital assets.
For tax purposes, the Canada Revenue Agency treats cryptocurrency like a commodity. That means transactions with digital assets are considered either business income or as a capital gain depending on the circumstances. If cryptocurrencies are used to purchase goods or services, the CRA considers it a “barter transaction,” which involves its own set of tax implications.
It’s worth noting that Canada’s stock market is one of the few major exchanges in the world with publicly-listed Bitcoin and Ethereum ETFs. These ETFs may qualify for investors’ tax-free savings accounts.
The IRS proactively collects information regarding crypto transactions. Every American taxpayer must answer the question “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” in their annual tax return. Virtual currencies are taxed as property, or as an investment, in the U.S.
Other parts of the world are arguably more lenient with taxes on digital assets. Nearly seven countries do not tax crypto transactions.
The German government, for instance, doesn’t consider digital assets “currency.” As such, these transactions are exempt from Value-Added Tax and investments in Bitcoin held for more than a year qualify for the capital gains tax exemption. Similarly, Singapore considers short-term crypto transactions as business income and taxes it accordingly. However, if the digital assets are held for a longer duration they can be sold without tax implications because Singapore doesn’t have capital gains taxes.
Malta’s efforts to brand itself as “Blockchain Island” have helped it deliver some of the most investor-friendly taxes in the world. Crypto transactions are not taxed on this island. However, if the transaction occurs within a single day, it is considered as business income from day trading, which has some tax implications.
Other countries with low or minimal crypto taxes include Portugal, Belarus, Malaysia and Switzerland. These lenient tax rules have helped these nations attract crypto talent, wealthy migrants, entrepreneurs and capital from across the world.
Tax authorities may have been unprepared for the emergence of a new digital asset class. This is why crypto transactions are classified and taxed differently across the world. As the industry matures, these tax rules could potentially be more aligned. However, the current disparity pushed talent and capital to crypto-friendly jurisdictions for now.