One of the reasons why cryptocurrencies were introduced was to give users full control over their wealth without having to account to anyone about their income. Crypto traders had always wanted to hide their income away from the government so they wouldn’t have to pay taxes or be questioned about the source of their wealth. This purpose was realized using decentralized finance.
However, with the increasing popularity of cryptocurrency trading across the globe, the government has come to realize the vast wealth generated via cryptocurrency and therefore had to recognize it as digital assets. This means buying Cryptocurrency amounts to owning a digital asset and is therefore subject to taxation. While it was previously possible for crypto traders to avoid government scrutiny by using the decentralized exchanges for transactions, it is no longer possible to do so with the centralized exchanges as the latter are registered and monitored by the government. The government had made it mandatory today for crypto traders to pay tax on all capital gains made from cryptocurrency trading.
This work will help you to learn about the state of cryptocurrency trading in different countries, and what their laws state about paying taxes on gains made from cryptocurrency trading. You will also find a list of countries where cryptocurrency trading is taxable, as well as those that exempt crypto traders from paying tax.
What Are Cryptocurrencies?
Cryptocurrencies are digital assets built on a blockchain and designed to give users full control over their wealth without the government intervening. The first cryptocurrency, known as Bitcoin, was created as a revolt against the traditional banking system that was fully centralized and controlled by the government. People became displeased that the government monitored their wealth, and that the banks could easily freeze their accounts once requested to do so by the government. Hence, the anonymous inventor Satoshi Nakamoto created the first cryptocurrency to solve this problem.
Are Cryptocurrencies Taxed?
Even though cryptocurrency is not yet a legal tender across the globe, it has been recognized by the government across different countries as a digital asset subject to taxation. Crypto traders are required to pay tax on all the gains made from cryptocurrency trading. Most countries have now placed some fine on crypto traders who try to elude tax payments by not reporting their gains from crypto trading. In countries like the US, the trader will be charged an extra 30% fine once discovered for avoiding tax payments on gains made from cryptocurrency trading.
Notwithstanding, not all countries today require crypto traders to pay tax on gains made from cryptocurrency trading. We have highlighted below a list of countries where crypto traders are required to pay tax, and a list of those that exempt crypto traders from doing so.
When Are Crypto Traders Required to Pay Taxes?
Crypto traders are required to pay tax only when they sell their cryptocurrency holdings. The amount of tax to be paid is based on the profits made from trading. Only the profits are taxable as capital gains. For instance, a trader purchases Ethereum with an initial capital of $10,000 and sells them after a month when the value has increased to $15,000. Here, the taxable amount is the extra $5000 realized as profits when Ethereum was sold.
List of Countries Where Cryptocurrency Traders Are Required to Pay Tax
- Belgium
- India
- Norway
- US
- France
- South Korea
- Denmark
- Austria
- Iceland
- Estonia
- UK
- Philippines
- Japan
List of Countries That Do Not Charge Tax for Cryptocurrency Trading
- Singapore
- El Salvador
- United Arab Emirates
- Germany
- Malta
- Bermuda
- Belarus
- Puerto Rico
- Switzerland
- Malaysia
