Taxation of cryptocurrencies in Europe: an overview

What is cryptocurrency?

The term "cryptocurrency" emerged as a reference to a Bitcoin-style digital currency whose ownership (at issue and following any subsequent transfers) is recorded as a chain of digital signatures on a blockchain, secured by cryptography.  The "coin" carries value which can be transferred, although since that value is purely speculative (and not supported by underlying assets, economic activity or a central authority such as a bank), it can be very unstable.  For that reason it is often considered to be a digital or crypto asset rather than currency. However, the rights attaching to any particular cryptocurrency "coin" (including whether it is transferable) will depend on its terms of issue and not all "coins" are intended to operate as a form of money.  In some cases, a coin is simply equivalent to a voucher, which the holder can redeem for identified goods and services provided by the issuer.

The tax treatment of cryptocurrency differs depending on its terms, but this overview focuses on Bitcoin-style cryptocurrency intended to operate as a transferrable asset carrying value.

Generally, in almost all jurisdictions there are no specific tax laws on the taxation of cryptocurrencies. The tax treatment is based on general principles and any guidance issued by Tax Authorities. The guidance issued by some jurisdictions’ Tax Authorities is more comprehensive than others and some jurisdictions have, so far, not issued any guidance. This is reflected in the overview below.

Belgium

Direct Taxes

• For private individual investors, when the investment has a speculative character realised gains are taxed at 33% plus local surcharges. When the investment is not speculative and is outside any professional activity, gains on such investments may be exempt from tax and losses are not tax deductible.
• For professional individual investors, the gain may be taxable as professional income (subject to progressive rates from 25% to 50%, plus local taxes and social security contributions).
• For companies subject to the ordinary corporation tax regime (the ordinary tax rate is currently 29.58%, reducing to 25% from 2020), the profits on exchange movements between currencies (including cryptocurrencies) are included in the taxable profits and losses are deductible.

VAT

• The Belgian Minister of Finance has confirmed that exchange on Bitcoin-style cryptocurrency is exempt from VAT.
• The Belgian Tax Authorities have not given any other guidance on cryptocurrencies.

Transfer Taxes

No transfer taxes are payable in Belgium on cryptocurrencies.

Other

Cryptocurrencies portfolios are not taxable assets under the new Belgian tax on portfolios. 

France

Direct Taxes

• One-off profits made on Bitcoin-style cryptocurrencies are regarded as capital gain realised on the sale of intangible assets and taxed at a flat rate of 19% plus 17.2% social contributions (an aggregate rate of 36.2%).
• Profits from cryptocurrency speculation and mining are treated as industrial and commercial profits subject to the progressive income tax schedule (45% of marginal plus social contributions).
• For companies, profits from cryptocurrencies (including currency speculation and currency mining) are liable to tax under the general corporation tax regime for profits and losses. Currently, corporate income tax is levied at the rate of 33.33% (28% for taxable income up to Euro 0.5m). The standard rate is to be gradually reduced to 25% in 2022.

VAT

There is no specific VAT law or guidance on the VAT treatment of cryptocurrencies.

According to the French Supreme Court, cryptocurrency assets are associated for tax purposes to intangible assets which means that, for now, their VAT treatment should be the following:

• Revenue received from cryptocurrency mining activities is subject to VAT as a supply of services.
• When cryptocurrency is exchanged for fiat currencies, such as Euros or Dollars, no VAT is due on the value of the cryptocurrency and in respect of the fees, if any, charged by the intermediary.
• Charges made over and above the value of the cryptocurrency for arranging or carrying out any transactions in Bitcoin, except forex transactions with official currencies, are subject to VAT.
• Acquisitions of goods or services via cryptocurrency payments are also subject to French VAT (the value of the supply on which VAT is due will be the Euro value of the cryptocurrency at the point the transaction takes place).
• The sale of cryptocurrencies is not subject to VAT unless made for the purpose of obtaining income therefrom on a continuing basis.

Transfer Taxes

No transfer taxes are payable in France on cryptocurrencies.

Other

Cryptocurrencies portfolios are not taxable assets under the new French real estate wealth tax.

Germany

Direct Taxes

The tax treatment is not fully settled by law. Depending on the facts, profits may be taxable as capital gains, current income or not at all.

• Cryptocurrencies will generally be regarded as an asset for tax purposes.
• The scope of taxation will in particular depend on whether the cryptocurrency is held as a private or business asset, although corporations are treated as holding all their assets as business assets.
• If held as a business assets, all profits will be subject to tax, including trade tax. This includes situations in which non-residents are trading in Germany through a permanent establishment.
• If held as a private asset, profits from lending are generally taxable as income. Capital gains are only subject to tax if the acquisition and sale take place within one year (or in the case of prior lending, within ten years).
• Payments made in cryptocurrencies are treated as a sale of the cryptocurrency and lead to the tax consequences described above.
• Mining of cryptocurrencies can be subject to tax as business income, depending on the circumstances.

VAT

The German Tax Authority has issued the following guidance on the VAT treatment:

• Revenue received from cryptocurrency mining activities is generally outside the scope of VAT.
• Revenue received for the provision of “wallets” for which specific charges are made are subject to VAT.
• When cryptocurrencies are exchanged for Euros or for fiat currencies, such as Sterling or Dollars, the transfer of cryptocurrency is exempt from VAT.
• Charges for the provision of a platform for trading in cryptocurrencies is considered a technical service subject to VAT.
• Payments in cryptocurrency are not considered a service for VAT purposes and are therefore outside the scope of VAT. For payment in cryptocurrency as consideration for goods or services, cryptocurrency is translated to currency of the country in which the transaction takes place at the exchange rate at the time of transaction.

Transfer Taxes

There are no transfer taxes in Germany on cryptocurrencies.

Other

The issue or transfer might be subject to inheritance tax or gift tax – each would be considered “transfer taxes” in the meaning of German tax law.

Italy

Direct Taxes

There are no specific cryptocurrency tax rules in Italy. The Italian Tax Authority has, though, provided the following guidance:

• For individuals, only speculative activities are taxed – at 26%. The Italian Tax Authority considers there to be speculative activity if, during the fiscal year and for at least 7 consecutive days, the threshold of ownership of cryptocurrency exceeds circa Euro 51,000.
• Traders in cryptocurrencies are subject to tax on profits as income. This includes non-residents trading in Italy though a permanent establishment.
• For companies subject to corporation tax, the profits or losses on exchange movements between cryptocurrencies and other currencies are taxable.

VAT

There are no specific VAT rules in Italy covering cryptocurrencies. According to guidance from the Italian Tax Authority:

• The purchase and sale of cryptocurrency in exchange for Euros or other currencies is considered to be a foreign currency transaction and the transaction margin is exempt from VAT.
• For payment in cryptocurrency for goods or services, the value of the supply on which VAT is due will be the Euro value of the cryptocurrency at the point the transaction takes place.

Transfer Taxes

There are no transfer taxes in Italy on cryptocurrency. Cryptocurrencies are unlikely to constitute a “security” for Italian stamp duty purposes.

Spain

Direct Taxes

• For individuals, if the cryptocurrency is held as an investment, the cryptocurrency will be regarded as an asset for capital gains tax. The capital gain is chargeable when the cryptocurrency is handed over by the taxpayer.
• For companies subject to corporate taxes, profits or losses derived from exchange movements between cryptocurrencies and other currencies are taxable. Like individuals, for companies the income derived from crypto mining is and associated expenses are deductible.

VAT

• Charges made over and above the value of the cryptocurrency for arranging or carrying out any transactions in cryptocurrency are exempt from VAT.
• Revenue received from cryptocurrency mining activities is generally outside the scope of VAT.

Transfer Taxes

• There are no transfer taxes in Spain on cryptocurrencies. The law exempts the delivery of money in exchange for goods.

Other

• It is necessary to include cryptocurrency as part of the taxpayer's wealth for Spanish Net Wealth Tax. There are specific regimes depending on the autonomous region of residency of the taxpayer, which means that in some cases no Wealth Tax is due.
• Obtaining cryptocurrency by way of an inheritance or a gift would be subject to tax in the same way as any other asset. 

Sweden

Direct Taxes

The Swedish Tax Authority has issued guidance on the tax consequences for individuals disposing of cryptocurrencies:

• An individual’s sale or exchange of cryptocurrencies would normally trigger capital gains taxation. If the cryptocurrency is held as stock, any gain on disposal would be taxed as income from business operations.
• Mining of cryptocurrencies by individuals can be taxed either as income from business operations or as income from employment. If the mining meets certain thresholds, income from the mining is taxed as income from business operations.
• Companies mining and disposing of cryptocurrencies should normally be taxed as income from business operations. There is, however, limited guidance from the Swedish Tax Authority.

VAT

According to Swedish Tax Authority guidance:

• The exchange of cryptocurrencies for foreign currencies (including Krona) is exempt from VAT.
• Payment in cryptocurrency for goods or services is regarded as payment, providing that the cryptocurrency has the same function as a legal tender.
• Revenue received from crypto mining activities is generally outside the scope of VAT.

Transfer Taxes

There are no transfer taxes in Sweden on cryptocurrencies.

The Netherlands

Direct Taxes

• Where an individual buys and sells cryptocurrency as part of a business activity, any gains will be taxable as business income (and losses are allowable). The same applies to gains from mining cryptocurrencies.
• Where an individual holds cryptocurrency as a private asset the tax treatment will depend on whether gains form a “source of income” as defined by legislation (the source being income from other activities). This will depend on the facts and circumstances of each case.
• If the gains from cryptocurrencies are not taxed under the rules above, they are taxed as income from savings and investments (at a flat rate based on a weighted notional yield on net assets).
• Where a company makes gains from selling or mining cryptocurrency, this will be subject to corporate income tax.

VAT

• The exchange of cryptocurrency for foreign currencies is exempt from VAT.

Transfer Taxes

• There are no transfer taxes in The Netherlands on cryptocurrencies.

United Kingdom 

Direct Taxes

Depending on the facts, profits may be taxable as capital, income or not at all:

• For individuals, where cryptocurrency held as an investment it will be regarded as an asset for capital gains taxation.
• Individuals who are trading in cryptocurrencies will be subject to tax on their profits as income. This includes non-residents trading in the UK though a permanent establishment, subject to the possible application of the investment manager exemption (application of that exemption to crypto trading is presently unclear).
• It is possible that profits from highly speculative transactions, akin to gambling, may not be subject to taxation (nor losses relievable).
• Non-domiciled UK residents are subject to tax only on non-UK source income and gains on the “remittance basis”. The “source” of cryptocurrency is unclear and there is no view expressed by the UK Tax Authority.
• For companies subject to corporation tax, the profits or losses on exchange movements between currencies (including cryptocurrencies) are taxable as income.

VAT

The UK Tax Authority has issued guidance on the provisional VAT treatment of cryptocurrencies, as follows:

• Revenue received from crypto mining activities is generally outside the scope of VAT.
• Revenue received by miners for other activities, such as for the provision of services in connection with the verification of specific transactions for which specific charges are made, is exempt from VAT.
• When cryptocurrency is exchanged for Sterling or for other fiat currencies, such as Euros or Dollars, no VAT is due on the value of the cryptocurrency.
• Charges made over and above the value of the cryptocurrency for arranging or carrying out any transactions in Bitcoin are exempt from VAT.
• For payment in cryptocurrency for goods or services, the value of the supply on which VAT is due will be the Sterling value of the crypto at the point the transaction takes place.

Transfer Taxes

There are unlikely to be any UK transfer taxes due on the issue or transfer of cryptocurrencies.

Osborne Clarke comment 

The guide above sets out the current known tax treatment across several major European jurisdictions, but this is an evolving area. It is likely that for each jurisdiction, further law or guidance will be issued.