No uniform approach has been adopted on the taxation of virtual currencies in any one region and this includes the European Union too. During the G20 summit which was held recently evidence emerged that there?s no worldwide consensus on how to go about this issue leaving each jurisdiction to its own devices.
In Europe since there aren?t any pan-European guidelines with regards to how incomes and profits related to cryptocurrencies should be treated, some member-states have been following a decision which was made by EU?s Court of Justice. The decision which was made in 2015 indicated that there is no difference between fiat currencies and digital currencies when the latter are used in making payments.
Value Added Tax
The ruling by the Court of Justice was recently cited by Germany?s finance ministry, which indicated that there would be no value added tax imposed on bitcoin (BTC) when it was exchanged with fiat currencies. However when the cryptocurrency is used in paying for goods and services then tax will be charged.
Authorities in Germany have also said that cryptocurrency exchanges can get tax breaks related to their crypto trading activities. The authorities have also said crypto mining should be exempt from taxes. But in the case of individuals they are subject to the capital gains tax when they trade in virtual currencies. When profits or capital gains are less than 600 euros from long term holdings, then they are exempted from paying tax. In this case the definition of long term holdings are those digital assets that have been in the possession of an individual for more than one year.
Estonia and Slovenia
Other governments in Europe have followed the same precedent. In Estonia for instance virtual currencies are subject to value added tax as well as capital gains tax. Authorities in the tiny European country see digital coins both as investments and means of payment.
In the case of Slovenia capital gains made by individual investors who engage in the trading of virtual currencies are not taxed since they are not considered income. But incomes derived from cryptocurrencies for both businesses and individuals ought to be reported as well taxed. The tax rates are based on the annual income and they range from 16% for incomes that are less that 8,000 euros to 50% for annual incomes which are more than 70,000 euros.
Financial Services Authority
Denmark on the other hand has disclosed that virtual currency firms will face tax rates that are similar to other businesses. Per the Financial Services Authority of Denmark individuals who engage in the trading of virtual currencies will not have to pay any tax. But the regulator has also called for the adoption of laws which will assist in the taxation and regulation of digital currencies.
With regards to Spain, tax breaks are being considered for business enterprises which use virtual currencies and blockchain technologies. While it is not clear what kind of exemptions will be given a bill by the ruling party has been introduced seeking to offer small firms in the virtual currency sector incentives.
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