Taxation
Taxation of bitcoin and other cryptocurrencies is a thorny subject. Proponents believe Governments should keep their noses out. Whereas we all know the powers-that-be want to tax everything in existence.
The rapid rise, popularity and adoption of Bitcoin around the World in recent years has created a regulatory vacuum.
Countries everywhere initially followed a wait-and-see approach, trying to fathom the longevity and sustainability of the Digital Currency.
Whilst many are still largely undecided on the legal and tax classification of Bitcoin, the largest Economies have started introducing formal directives in this regard.
Albeit not the final say in the matter by any measure (global developments on Bitcoin are ever-changing) what follows hereunder is the current state of affairs in major countries.
United Kingdom
In prior years you had to pay Value Added Tax (VAT) when acquiring Bitcoins as it was considered to be “vouchers” by Her Majesty’s Revenue and Customs (HMRC); however, the rule was changed by HMRC Brief 09/14 and currently no VAT is payable when purchasing Bitcoins.
If you are holding Bitcoin for investment or speculation purposes, then the normal taxation rules for currencies apply.
All other taxation rules – personal and business income – are unchanged; for tax purposes, Bitcoins are simply calculated at Sterling values on the receipt or payment date.
United States of America
The Internal Revenue Service (IRS)treats Bitcoin values as property (not currencies) for the taxation of investment and speculation activities.
Normal taxation rules apply for personal and business income; Bitcoin receipts and payments must be declared in their Dollar equivalent by taxpayers.
Australia
General Sales Tax (GST) on the acquisition of Bitcoins was abolished with effect from 1 July 2017. Prior to this date the 10% tax was levied as Bitcoin transactions were classified as “bartering of goods”.
As far as business and personal income go, Bitcoin receipts are converted at fair value and taxed in terms of Australian Dollar rules and regulations.
Gains and losses in terms of Bitcoin investments are assessed according to normal Capital Gains Taxation (CGT) rules.
Germany
Germany treats Bitcoin speculation similar to other investment instruments such as stocks or shares and normal tax rules apply.
As far as business and personal income go, Bitcoin receipts are converted at fair value and taxed identical to fiat-currency (Euro) rules and regulations.
Japan
Japanese Consumption Tax (JCT) on the acquisition of Bitcoins was abolished with effect from 1 July 2017. Prior to this date the 8% tax was levied, but has now been rescinded after Bitcoin was redefined as having “asset-like values”.
As far as business and personal income go, Bitcoin receipts are converted at fair value and taxed identical to fiat-currency (Yen) rules and regulations.
Gains and losses in terms of Bitcoin investments are assessed according to normal capital gains rules.
China
China seems to be trying to remove bitcoin from the country rather than tax their citizens. They have called on Chinese exchanges to stop trading in bitcoin and other cryptos, outlawed ICOs and put forward proposals to discourage bitcoin mining.
South Korea
The government is split on how to treat Bitcoin. Some sections want to ban all trading in the currency outright because it is seen as a way to evade tax. Other sections want to embrace regulation and are proposing a capital gains tax on trading profits.
The latest taxation practices of only limited countries are quoted above. The general expectation is that most economies will continue to stick closely to their classic (fiat) taxation rules until Bitcoin – as part of the cryptocurrency family – has been assigned a true identity. Even then, it is probable that the Digital Money will attain “currency” status as far as the major taxation regimes are concerned.
