Since its inception in 2009, Bitcoin has paved the way for the emergence of a new asset class – cryptocurrencies. As of 2023, there are over 10,748 active digital currencies that can be traded and invested in by anyone with an internet connection.
However, as the popularity of cryptocurrencies grows, so does the need for clarity on how they should be taxed. In the European Union (EU), each country has its own regulatory framework and tax treatment for cryptocurrencies.
This blog explores cryptocurrency taxes in European Union countries, shedding light on the regulatory frameworks and tax treatment of cryptos.
Understanding Cryptocurrency
Cryptocurrency is a digital currency that uses encryption techniques to secure transactions and regulate the generation of new units. Bitcoin is the most earliest and well-known cryptocurrency, but there are now thousands of altcoins.
The cryptocurrency market is often characterised by high volatility, making it attractive to traders and speculators. However, cryptocurrencies have also gained popularity as a means of payment and a store of value.
They offer cross-border payments, allowing people to send money worldwide without the need for intermediaries like banks. Additionally, cryptocurrencies provide an alternative to traditional money, which some people value for its security and privacy features.
There are different types of cryptocurrencies, including stablecoins, utility tokens, and security tokens.
- Stablecoins – Value is pegged to an external asset like fiat, gold, or others.
- Security tokens – Represent ownership or investment in a company.
- Utility tokens – Give holders a permit to a product or service in a blockchain.
Cryptocurrencies are not universally recognized as legal tender or equivalent to fiat currency. The regulatory status of cryptocurrencies varies widely by country, with some countries fully embracing them and others banning them outright.
In general, stablecoins and security tokens fall under most countries’ existing financial regulations. Utility tokens are typically not considered regulated unless they are defined as e-money.
It is to be noted that cryptocurrencies can be subject to taxes and other financial regulations depending on the country in which they are used. As the cryptocurrency market continues to evolve, users need to stay informed about the legal and regulatory in their jurisdiction.
Let’s see the overview of cryptocurrency tax in European countries in the following discussion.
Cryptocurrency Taxes in European Countries
Cryptocurrency tax regulations vary across European countries. In general, most countries consider cryptocurrencies as assets subject to capital gains tax. However, there are differences in the tax rates, exemptions, and reporting requirements.
We will take a look at the overview of cryptocurrency tax in various European countries.
Cryptocurrency Taxes in Germany
Germany has classified cryptocurrencies as crypto assets and allows individuals and businesses to buy or trade these digital assets through licensed exchanges and custodians. However, they are not recognized as legal tender in the country. Financial institutions are also allowed to hold these assets.
Currently, Germany’s crypto regulations are in their early stages. Virtual asset service providers (VASPs), such as crypto exchanges, must obtain a license from BaFin. This is to provide services to natural citizens or legal entities, in compliance with the German Banking Act regulation.
Germany has strict anti-money laundering (AML) and counter-terrorism financing (CTF) policies in place. VASPs are required to establish KYC (know your customer) and enhanced due diligence procedures and implement a risk-based approach.
Cryptocurrency Taxes in Estonia
Estonia has become a hub for cryptocurrency and start-up companies. With over 50% of the world’s registered virtual asset service providers (VASPs) operating in the country. Despite being at the forefront of the crypto industry, Estonia has tightened its regulations to ensure greater security.
Estonia was the first country to require crypto businesses to obtain operating licenses. With the Financial Supervision Authority now responsible for their supervision.
To maintain a crypto license, they must comply with AML, CFT, and Information Technology (IT) standards, alongside auditing and reporting duties. Additionally, anonymous accounts are prohibited, and all crypto businesses must now retain authorized capital of at least €250,000.
To ensure customer identification, Estonia requires crypto asset providers to implement a well-defined KYC procedure. All license holders must reapply for a new license, demonstrating their compliance with these regulations.
Cryptocurrency Taxes in France
France has defined crypto companies as digital asset service providers (DASP), or PSAN in French. While France seems to be a welcoming region for crypto providers, certain regulations need to be considered. One important regulation is that anonymous transactions are banned in France.
Previously, the country had required identity verification for transactions starting at €1000. However, now it has set the limit to zero, meaning that all transactions must be verified. Additionally, the country has expanded its KYC obligations, making it mandatory for all crypto exchanges to perform KYC procedures.
France mandates all crypto businesses to align their AML and CFT requirements with the EU’s AML Directive. And also to comply with the identification and verification of customers and owners, and enhanced due diligence, among other requirements.
These laws require crypto service providers to register with the Financial Markets Authority, which is a French financial regulator. Therefore, if you are a providing crypto service in France, it is imperative to comply with the regulations and register with the AMF to avoid any legal complications.
Cryptocurrency Taxes in Switzerland
Switzerland has a positive and welcoming attitude towards cryptocurrencies, although it doesn’t recognize them as money or legal tender. While there is no comprehensive law in place for crypto businesses, the current Swiss anti-money laundering ordinance is applicable.
The crypto industry is subject to strict AML and KYC procedures. Every transaction of 1,000 CHF (1,024 €) or more requires a Know Your Customer procedure. Note that Switzerland doesn’t impose an income tax or VAT on capital gains on cryptocurrency assets, except for business assets.
This means that individuals who invest in cryptocurrency for personal gains are exempt from tax liabilities. Overall, Switzerland seems to be a crypto-friendly country that encourages innovation so that the financial sector is safe and secure.
Final Words
Cryptocurrency taxes in European Union countries can be complex and constantly evolving. Some countries have favorable tax policies towards crypto, while others remain cautious due to concerns about money laundering, terrorist financing, volatility, and investor protection. The path to standardization and mass adoption of cryptocurrency regulations will involve different stages for each country. As this EU market continues to mature, startup founders must stay informed and seek advice from cryptocurrency exchange development company experts, if you are intend to start a crypto trading business.
