Author: Chloe, PANews

With Trump's victory and return to the White House, along with cryptocurrency-friendly candidates entering the U.S. Congress, there are expectations that cryptocurrency will thrive in a favorable regulatory environment, causing Bitcoin prices to soar past $90,000. According to a CNA report on November 18, Taiwanese legislators recently raised concerns about the taxation of cryptocurrency in Taiwan, discussing whether personal transactions involving cryptocurrency should be taxed.

During the inquiry, legislators questioned the Ministry of Finance's taxation measures on personal gains from cryptocurrency transactions, stating that currently, only business tax and profit-seeking enterprise income tax are levied on cryptocurrency exchanges, and there are no clear taxation regulations for individuals or corporations profiting from transactions. They emphasized that the Ministry of Finance should take proactive measures to improve Taiwan's cryptocurrency taxation mechanism.

Currently, 26 virtual asset operators in Taiwan have completed the declaration of compliance with anti-money laundering laws to the Financial Supervisory Commission (FSC), all of which have registered for tax purposes and paid business tax and profit-seeking enterprise income tax. However, legislators still believe that the taxation on cryptocurrency primarily targets operators, and the taxation and auditing of personal transactions remain insufficient.

Director-General of the National Taxation Bureau, Song Xiuling, pointed out that according to current tax laws, cryptocurrency is not considered currency but rather a digital asset. Any gains from asset transactions must be taxed, but since it is self-reported, auditing needs to be strengthened. The Ministry of Finance will also cooperate with the FSC to establish specific laws for virtual assets, and new auditing measures will be introduced in the future. "Currently, the tax department has auditing tools available to examine the trading of digital goods and promises to study the taxation methods for cryptocurrency transaction gains within three months," Song Xiuling stated.

Finally, the Ministry of Finance indicated that it will continue to monitor international trends in the taxation of cryptocurrency and digital services and will adjust the tax system in a timely manner based on Taiwan's actual situation.

The issue of cryptocurrency taxation has become a focal point for various countries in recent years. PAnews has compiled a brief overview for readers regarding how different countries/regions handle the taxation of crypto assets.

Global Efforts to Enhance Transparency in Cryptocurrency Taxation

In 2023, the U.S., EU, and other regions have introduced new tax information reporting requirements for cryptocurrency brokers and other intermediaries, aiming to increase transaction transparency. The Organization for Economic Cooperation and Development (OECD) released a cryptocurrency asset reporting framework (CARF) in June last year and updated the Common Reporting Standard (CRS) for financial institutions to include new types of financial products.

Countries are gradually implementing cryptocurrency tax information reporting to avoid becoming tax evasion tools. PwC's "2024 Global Cryptocurrency Tax Survey" indicates that as of December 1, 2023, 54 major cryptocurrency market jurisdictions have stated they will quickly adopt the OECD's "Cryptocurrency Asset Reporting Framework" (CARF), with an expected implementation of an automatic exchange mechanism for cryptocurrency transaction information by 2027. Transactions that need to be reported include exchanges between cryptocurrencies, exchanges between cryptocurrencies and fiat currencies, and transfers of cryptocurrencies for goods or services valued over $50,000.

Regarding the cryptocurrency taxation issue recently raised by Taiwanese legislators, the current situation in Taiwan mainly focuses on KYC and anti-money laundering, meaning that cryptocurrency-related practitioners must grasp customer information and must proactively report large withdrawals (over NT$500,000). In Taiwan, aside from the anti-money laundering legislation, there are no clear guidelines or income tax regulations applicable to cryptocurrency.

For general trading users, buying and selling cryptocurrency currently does not require transaction tax; profits are treated similarly to gains from other asset transactions (such as forex trading), and "must be reported" as property transaction income, which is included in personal comprehensive income tax.

In simple terms, the current principle of cryptocurrency taxation in Taiwan is that "profits realized" count; as long as the investor's profit funds are not withdrawn to a bank account, there is no actual profit. Once cryptocurrency profits are transferred to a bank account, meaning a withdrawal has occurred and reached a certain amount, taxation will apply.

Additionally, cryptocurrency dealers whose monthly sales exceed NT$40,000 are considered regular trading dealers and must complete tax registration and pay business tax and profit-seeking enterprise income tax.

The U.S. Treats Cryptocurrency as Taxable Property, with Different Calculation Methods Across States

The U.S. government defines virtual currency as any digital asset that represents value recorded on a secure decentralized ledger. Digital assets are not considered true legal tender, as they are not U.S. coins or paper currency, nor are they legal tender issued by any country's central bank.

Furthermore, the Internal Revenue Service (IRS) views cryptocurrency as taxable property. If the market value of cryptocurrency changes and exceeds the value at which the investor initially purchased it, capital gains or losses will arise when the investor withdraws funds from a transaction. If there is a profit, the holder must pay taxes on the sold cryptocurrency. Additionally, if one party receives payment in cryptocurrency as part of a business activity, that party must report it as business income and pay taxes.

For example, if Party A purchases 1 BTC for $5,000 and sells it three months later for $7,000, then according to the short-term capital gains tax rate, Party A must pay taxes on the $2,000 profit. If the asset is sold within a year, for the 2023 tax year in the U.S., the tax rate ranges from 0% to 37%, depending on the amount of actual income reported by the taxpayer.

In addition to trading profits, other income within the cryptocurrency ecosystem is also subject to taxation. For instance, cryptocurrency rewards obtained from mining activities, rewards from staking, and interest earned through lending platforms are typically classified as ordinary income and taxed at regular income tax rates. In 2023, the IRS clarified the timing of income recognition for staking rewards through a series of new regulations and defined NFTs as collectibles, subjecting them to special tax treatment rules.

Mid-year, the IRS released the final draft of the cryptocurrency tax system, stating that starting in 2025, cryptocurrency brokers will need to submit Form 1099-DA to the IRS to report customer transaction information. This new system is expected to significantly enhance tax compliance while also imposing more compliance requirements on market participants.

At the state level, different states have varying methods for calculating taxes, but currently, there is no consensus on the definition and taxation of NFTs across states.

Significant Tax Rate Variations Among EU Countries, with Denmark as High as 52%?

In Europe, EU countries are continuously updating their cryptocurrency tax systems. If one aims to minimize the tax burden on cryptocurrency, Slovakia, Luxembourg, Bulgaria, Greece, Hungary, or Lithuania would be more favorable options, as these countries currently have the lowest rates for cryptocurrency holders within the EU.

In contrast, Denmark, Finland, the Netherlands, Germany, and Ireland are less friendly towards cryptocurrency trading. Denmark treats cryptocurrency gains as personal income and imposes high tax rates ranging from 37% to 52%. Below are the types of taxes and rates in EU countries. Capital Gains Tax primarily targets investment income and usually has a fixed rate, while Personal Income Tax employs a progressive tax rate system related to the taxpayer's total income.

Hong Kong and Singapore Currently Do Not Tax Personal Capital Gains

Finally, in Asia, Japan classifies gains from cryptocurrency transactions as "miscellaneous income," which must be taxed at progressive rates based on personal income. The tax rate in Japan ranges from a minimum of 5% to a maximum of 45%. For example, individuals with annual incomes exceeding 40 million yen (approximately $276,000) may face a tax rate as high as 45%. Notably, the Japanese government stipulates that cryptocurrency losses cannot be deducted from the taxpayer's income or other assets; only losses from real estate, business, and forestry income can be deducted, and cryptocurrency does not fall into these categories.

In South Korea, the country plans to impose a 20% tax on cryptocurrency profits applicable to gains exceeding 2.5 million won (approximately $1,800), but the implementation has been repeatedly delayed, originally set for after 2023, then postponed to 2025, and now to 2028. The delays are primarily due to market volatility considerations and concerns that premature implementation could affect investor sentiment due to the past lack of appropriate tax infrastructure.

Additionally, both Hong Kong and Singapore currently do not impose capital gains tax on individuals. First, Hong Kong does not have specific tax law provisions targeting digital assets, but the Hong Kong Inland Revenue Department updated the "Departmental Interpretation and Practice Notes" (DIPN) No. 39 in March 2020 to include chapters related to digital asset taxation.

However, this guidance does not yet cover staking, DeFi, or Web3-related content (such as NFTs and tokenization of physical assets). Nevertheless, Hong Kong adopts a territorial tax principle, imposing a 16.5% capital gains tax on profits derived from trade, profession, or business income generated within Hong Kong, but excluding capital nature profits. Whether cryptocurrency trading income is classified as income or capital nature needs to be determined based on specific facts and circumstances.

The Singapore Inland Revenue Authority (IRAS) does not impose capital gains tax on individual cryptocurrency transactions. Profits from long-term investments in cryptocurrency are tax-exempt. However, if an individual frequently trades cryptocurrency or operates a cryptocurrency-related business, that income may be considered trading income and taxed at a maximum progressive rate of 22%.

Tax policies in various countries have significantly influenced cryptocurrency investment strategies, with lower tax rates attracting multinational companies to invest in those countries. Conversely, high tax rate policies in the U.S., Japan, France, and Spain may deter some investors. According to Coincub's survey, the U.S. alone could collect approximately $1.87 billion in taxes from cryptocurrency last year.

The situation in European countries is mixed, with some offering favorable conditions for long-term holders while others maintain high tax rates, which may affect investor behavior. Overall, the level of cryptocurrency tax rates in European countries is higher than the global average, reflecting a part of the overall fiscal system of the EU.

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