In 2024, El Salvador became the first country to accept bitcoin as legal tender. While the rest of the world has still not accepted cryptocurrency as legal tender, it has become a popular and profitable option for investment and speculation. One can say that cryptocurrency has seen explosive growth in the past few years.
There is no denying the fact that cryptocurrencies are extremely volatile. Their prices fluctuate frequently and can be easily manipulated. People looking to make quick money can benefit heavily from this volatility. With this rising awareness, governments of different countries have started introducing laws to regulate them. Different countries have different regulations regarding taxes on the sale of cryptocurrency. Some tax them under capital gains, while others under an investment sale.
Cryptocurrencies have been around for a while. While bitcoin was the first decentralized currency that garnered attention, the idea was around for years. Bitcoin’s predecessors implemented the idea of the encrypted method of payments and no interference from any regulatory authority, but none was as brilliant as bitcoin. The idea was to revolutionize the payment system. To have complete control over our finances with no interference from banks and governments and no way of tracing the transactions.
Bitcoin achieved this and more by using blockchains and cryptography. Other cryptocurrencies soon followed. Today, the cryptocurrency market is worth trillions. Of course, governments felt the need to monitor their sale and purchase. While the transaction data cannot be accessed by anyone apart from the users, laws can tax the profits you make from selling them.
How Does Cryptocurrency Work?
Cryptocurrency works based on blockchain. Blockchain is a digital ledger that stores the data of all the transactions taking place. This data is private and ensures anonymity. The algorithm that manages blockchain is peer-to-peer.
Mining is the process that creates a new cryptocurrency as a reward for verifying transactions on the system. The entire system is decentralized and secure. If you are looking to invest in bitcoins, visit this app for accurate trading analysis and other benefits bitcoin-buyer-app.com/tr.
About Cryptocurrency Taxation
Cryptocurrencies are taxed differently in different countries. Countries like the US tax them as capital gains or ordinary earnings, Japan taxes them as miscellaneous income, and Switzerland doesn’t tax them at all. There are countries, such as China and Russia, that have banned cryptocurrency altogether.
Tax on Sale of Cryptocurrency in Different Countries
United States of America
The Internal Revenue Service (IRS) classified cryptocurrency as property back in 2014. This means that cryptocurrency will be taxed the same way your gold or any other asset you hold is. If you make purchases using any digital currency, it would be taxed as capital gains.
Buying, selling, purchasing things using crypto, exchanging cryptocurrency for fiat money, and exchanging one cryptocurrency for another, such as exchanging Ethereum for Bitcoins, are all taxable events in the US.
Whether the profit will be taxed as long-term capital gain or short-term depends on the period you held it for. Transactions such as buying cryptocurrency with cash, transferring it from one wallet to another, and donating to a tax-exempt organization, are not tax liable. Mining cryptocurrencies, accepting payment in cryptos, and receiving in the form of rewards, are some events where they are taxable as income.
Like the US, cryptocurrency is not considered a legal tender in the UK. As per the HMRC, all cryptocurrencies are taxable. Payments, purchases, mining, exchanging one cryptocurrency for another, an airdrop, or any other form of reward, all are taxable.
Holding cryptocurrency as a personal asset will be taxable under profits from investments. Any income you receive from selling these investments will be taxed as capital gain only when your profits exceed the exempt level. Losses from the sale are also allowed as a deduction from your tax liability.
The proposed crypto tax bill in South Korea will levy a 20 percent capital gains tax on annual gains exceeding 2.5 million won. Therefore, if you trade cryptocurrencies and your profit is above the exemption limit, you will be liable to pay a 20 percent tax on your profit. This bill will most likely come into effect in January 2024.
Dubai does not have any personal tax, which means any gain from cryptocurrency is not taxable there. The entire cryptocurrency network is much more efficient in Dubai as no extensive paperwork is involved. While other countries are trying to regulate the crypto market by imposing more and more regulations, Dubai is doing the same by making the process efficient and convenient. The UAE’s (United Arab Emirates) progressive policies have made it a hub for crypto investors and traders.
All the transactions related to cryptocurrencies, such as investment, trade, mining, and exchanging, are classified under miscellaneous income in Japan. The miscellaneous income attracts a tax rate of up to 55 percent. This is made up of the 45 percent miscellaneous income tax and 10 percent local inhabitant’s tax. Clearly, Japan is not encouraging any crypto-related activities, making cryptos unpopular there.
Cryptocurrencies are taxable in Australia. Sale, purchase, interest earned on cryptos are taxable under Australian tax laws. Similar to the US, Australia has classified cryptocurrencies as property, making them taxable under capital gains. If you are an investor, any profit on sale will be taxed under capital gains, and if you are a trader, it will be taxed as an income.
Germany does not recognize cryptocurrency as legal tender or stock and investment. Therefore, any profit from selling cryptocurrencies is not taxable there. There is just one catch. The tax-free income is dependent on the period you held the cryptocurrency for. If you are selling it after more than a year of purchase, gains are non-taxable. However, if you sell it within a year, gains exceeding the exemption limit are taxable.
Many countries impose taxes on the sale of cryptocurrencies. Countries that don’t yet have a law are introducing laws to tax your crypto profits. Remember to look up your country’s tax laws properly before making a sale.