Exploring the current state of cryptocurrency taxation in the European Union

Disclaimer: This is not tax advice. Criteria are simplified to provide a contextual overview. Top line progressive income tax rates depend upon each private individuals’ situation and are generalized for means of comparison. Temporary tax cuts due to the coronavirus pandemic are not included.

Recently, there has been a lot of talk coming from within various European Union (EU) institutions relating to blockchain, cryptocurrency and, in particular, stablecoin regulation. The EU acknowledges the economic importance of a clear regulatory framework for the crypto-asset sector and wants to release a comprehensive framework for the crypto-asset sector by 2024.

But from a taxation perspective, there still exist significant discrepancies between EU member countries. In general, one can observe a split between West and East European countries on the matter of cryptocurrency taxation — with few notable exceptions, such as Portugal.

The European Union today

The foundation for the EU was created with the Treaty of Rome, which came into force in January 1958 and established the European Economic Community, with signatories Belgium, France, Italy, Luxembourg, Netherlands and then West Germany.

Since then, the economic and political union has continuously expanded, especially after the fall of the Berlin Wall and the end of the Cold War in 1989. Today, the EU consists of 27 member countries with a population of about 447 million.

Source: Wikipedia

A country-by-population split shows how a few countries — namely Germany, France, Italy, Spain and Poland — make up 66% of the EU population, with a combined population of about 295.3 million people.

Source: The Block Research

A similar imbalance can be observed in terms of economic power. Calculated on a Gross Domestic Product (GDP by PPP) basis, Germany, France, Italy and Spain account for 63.85% of the total, at about $9.9 trillion out of the EU’s total $15.5 trillion.

Source: The Block Research

General taxation in the European Union

In terms of general taxation, a split between high population and low population countries can be observed. Furthermore, it seems that the more advanced a country is in economic terms, the higher the top-line income tax rates are.

Another important factor is overall demographics, as older demographics require higher expenditures for social welfare as well as  healthcare and are often cross subsidized from income tax revenues.

Value Added Taxation (VAT) seems to be the exception. Notably, Hungary and Croatia sport some of the highest VAT rates, while Germany and France feature some of the lowest VAT rates across all EU member states.

Source: The Block Research

Top-line progressive income tax rates reveal a much broader country split. A minority of member-states, such as for example Romania and Bulgaria, feature flat income tax rates. However, the norm is progressive income taxation in the EU, meaning that the top-line rate only applies to the portion of income exceeding a predefined threshold. Thus, actual income tax rates are lower. Moreover, many countries offer several exemptions, such as for example to families. Hence, there is no single standardized tax rate per country.

In general, we can observe a much lower top line income tax rate in Eastern European countries.

Source: The Block Research

An even broader country split can be observed for top line corporate tax rates. Eastern European countries are once more leading in terms of lower tax rates.

Source: The Block Research

Overall, lower tax rates in Eastern European countries are meant to stimulate economic growth in order to catch up to the more advanced Western European countries. Especially in the recent past, this has led to young entrepreneurs favoring Eastern European countries due to the lower cost of living and significantly lower tax burden.

Cryptocurrency taxation in the European Union

Cryptocurrency taxation is highly individual on a country per country basis in the EU. Currently, no harmonized framework exists in the EU in terms of how to approach the taxation of different types of crypto-related activities, including retail trading, speculative trading, mining and token sales.

However, on October 22, 2015, the European Court of Justice (ECJ) ruled that no VAT shall be applied to crypto-to-fiat or crypto-to-crypto transactions in any EU member country. While only relating to bitcoin at the time, it is assumed that other cryptocurrencies fall under this ruling, too. No actions to challenge this assumption have been taken so far. As such, this was the first harmonized EU-level decision relating to cryptocurrencies, and was binding for all EU member countries.

Another common denominator seems to be the taxation of activities relating to crypto-asset activities for corporations. While some deductions as well as exceptions apply, in general, normal corporate income tax rates are applied to crypto-asset activities for corporations in all EU countries.

The most meaningful split between EU member countries exists in relation to the category under which profits relating to cryptocurrency activities of retail traders are taxed.

Some countries classify profits from cryptocurrency activities as capital gains, which are taxed separately from income tax, while others simply classify profits from cryptocurrency activities as part of their respective income tax systems. Moreover, most countries differentiate explicitly between retail and professional activities, with retail activities often taxed at a much more favorable rate.

Highly favorable tax rates exist in Cyprus, which taxes profits from cryptocurrency activities at 0%. Malta does not tax profits from cryptocurrency activities for private individuals if trades are not conducted the same day. Furthermore, Portugal currently does not tax profits from cryptocurrency activities as long as they are not the primary source of income and can be categorized as “windfall gains” — thus effectively taxed at 0%, but unlike Cyprus where it is officially 0%. Moreover, the Netherlands has a surprisingly favorable tax regime when it comes to profits from cryptocurrency activities, currently taxing them at a top line rate of about 1.6%.

(Notes for each specific country's treatment can be found the end of the article.)

As explained above, some EU member countries classify profits from cryptocurrency activities as capital gains.

Source: The Block Research

Other EU member countries simply classify profits from cryptocurrency activities for private individuals as part of their respective income tax systems.

Source: The Block Research

Below is a complete comparison table of the tax treatment of profits from cryptocurrency activities for private individuals for all EU member countries. Complementary notes on a country by country basis can be found below.

Source: The Block Research

Country notes in alphabetical order

These notes are meant to provide a contextual overview of the peculiarities of each country's tax system for crypto-asset activities.

In general, crypto-to-crypto transactions are taxed in all EU member countries except specifically stated otherwise.

However, large grey areas remain. For example, few countries have actually clarified the applicable tax regimes for mining activities as well as token sale activities — with staking, lending pool and yield farming activities not yet even on the radar of many. Furthermore, losses tied to cryptocurrency activities are not always deductible and are sometimes even treated differently within a country.

Corporate activities are taxed under normal corporate tax rates in all EU member countries.

Austria

Austria features an exemption of €440 (~ $520) for speculative transactions on an accumulated yearly basis. Moreover, trades are tax-free in case there is more than one year between the purchase and sale of the respective cryptocurrency. Otherwise, standard progressive income tax rates apply.

Income from frequent speculative trading activities is taxed up to 55% depending on the income and thus actually even higher than the top line progressive tax rate. Businesses are required to pay an additional 27.5% KEst for distribution of profits. Mining activities are classified as commercial activity with the corresponding tax consequences.

Belgium

In Belgium, cryptocurrency trading is deemed a speculative activity and capital gains taxes apply. However, for professional traders, cryptocurrency trading activities are taxed as professional income under the progressive income tax system.

Bulgaria

Bulgaria simply applies its normal income tax rate. Also, mining activities are considered to be taxable activities, but only if the service is directly related to the remuneration received.

Croatia

Croatia taxes profits from cryptocurrency activities as capital gains. Residents of capital city Zagreb are taxed at 18%, while the rest of the country is taxed at 12%. Moreover, mining activities are taxed at 24%.

Cyprus

Cyprus officially taxes profits relating to cryptocurrency activities at 0%.

Czech Republic

The Czech Republic taxes profits from cryptocurrency activities under their capital gains tax system. Mining activities are considered business activities and, as such, are taxed under the corporate tax system.

Denmark

Denmark taxes profits from cryptocurrency activities under its progressive income tax system. Private individuals can deduct transaction fee costs from cryptocurrency activities. However, businesses cannot deduct losses from cryptocurrency activities. Also, Denmark prohibits Invoices issued in cryptocurrencies as they do not represent legal tender.

Estonia

Estonia taxes profits from cryptocurrency activities under its income tax system. On top, mandatory social security contributions are added. Notably, taxation of any corporate profits, also those relating to cryptocurrency activities, are deferred until profits are actually distributed to shareholders. This enables tax-free reinvestment of profits into the business.

Finland

Finland taxes profits from cryptocurrency activities for private individuals under its progressive capital gains tax system.

France

France does not tax on cryptocurrency to cryptocurrency trades, enabling profit reshuffling similar to Estonia — but for both private individuals and businesses. Moreover, capital gains taxes in addition to mandatory social contributions of about 17.2% apply. In aggregate, about 36.2%. France categorizes commercial profits from “frequent” cryptocurrency trading as well as general mining activities taxed under its income tax system.

Mining activities are subject to VAT. Furthermore, VAT is due in case cryptocurrencies are used to purchase goods and services.

Lastly, cryptocurrencies are taken into account for wealth and gift taxation purposes.

Germany

Germany features an exemption of €801 (~ $945) for speculative transactions on an accumulated yearly basis. Moreover, trades are tax free in case there is more than one year between the purchase and sale of the respective cryptocurrency. Otherwise, standard progressive income tax rates, including mandatory solidarity surcharges, apply.

Greece

Greece differentiates between token sale and mining activities, which are taxed at progressive income tax rates, including mandatory solidarity surcharges, and cryptocurrency trading activities which are taxed in the capital gains system.

Hungary

Hungary charges an additional health contribution tax of 22% in the maximum bracket on top of its income tax rate for activities relating to cryptocurrencies.

Ireland

Ireland charges capital gains tax on profits relating to cryptocurrency activities for private individuals. Moreover, gifting cryptocurrencies also triggers capital gains tax.

Italy

Italy taxes speculative activities relating to cryptocurrencies at 26% for private individuals. 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 cryptocurrencies exceeds €51,000 (~ $60,300). Activities of professional traders are subject to progressive income tax rates.

Moreover, VAT is due in case cryptocurrencies are used to purchase goods and services. Corporate tax is split between the national rate of 24% and top line municipal rate of up to 3.9%.

Latvia

Latvia taxes profits from cryptocurrency activities for private individuals under its progressive income tax system.

Lithuania

Lithuania features an exemption of €2,500 (~ $2,950) for non-regular sales of cryptocurrencies on an accumulated yearly basis. Moreover, cryptocurrencies are classified as property for which the standard “income” tax rate is 15%.

Luxembourg

Luxembourg features an exemption of €500 (~ $590) for speculative transactions on an accumulated yearly basis. Furthermore, trades are tax free in case there are more than six months between the purchase and sale of the respective cryptocurrency. Otherwise, standard progressive income tax rates, including mandatory solidarity surcharges, apply. Moreover, cryptocurrencies are also taken into account for wealth taxation purposes.

Malta

Malta does not tax profits relating to cryptocurrency activities for private individuals if trades are not conducted the same day. However, trades carried out within the same day are subject to a business income tax of 35%.

Netherlands

The Netherlands classify profits generated from cryptocurrency activities for private individuals as part of the "Box 3" — income from savings and portfolio investments, measured exclusively on January 1 of every calendar year and taxed at 30%. Box 3 features three cumulative brackets. For simplification, in 2020, the third bracket starts at €1,005,572 (~ $1,189,000). It is calculated by taking the net gains and deducting any related losses from income from savings and portfolio investments of the current tax year.

Above €1,005,572, 100% is taxed at a 5.33% investment rate. This results in a top rate of 5.33% * 30.0% = 1.6%.

Poland

Poland classifies profits generated from cryptocurrency trading as income from property rights for private individuals and taxes these at the progressive income tax scale, including mandatory solidarity surcharges.

Portugal

Portugal currently does not tax profits relating to cryptocurrency and mining activities as long as they are not the primary source of income and can be categorized as “windfall gains”.

Professional traders are taxed at progressive income tax rates, including mandatory solidarity surcharges. Businesses dealing with cryptocurrencies are taxed up to 35% on capital gains.

Romania

Romania features an exemption of 3 * 200 RON (~ €41, ~ $48) for speculative transactions on an accumulated yearly basis. Above, the standard income tax applies.

Slovakia

Slovakia taxes profits relating to cryptocurrency activities under its progressive income tax system.

Slovenia

Slovenia considers profits relating to cryptocurrency and mining activities for private individuals as "personal business income" under ZDoh-2. "Costs" are deductible and net gains are subject to progressive income tax.

Under certain conditions, personal business income may be determined on the basis of lump-sum cost accounting, whereby 80% of the income is subject to a flat tax rate of 20%.

Spain

Spain considers profits relating to cryptocurrency and mining activities for private individuals as capital gains. Profits below an accumulated €50,000 (~ $59,100) on a yearly basis are taxed at a rate of 19%. Profits in excess of an accumulated €50,000 (~ $59,100) on a yearly basis are taxed at a rate of 23%.

Sweden

Sweden taxes profits relating to cryptocurrency activities for private individuals under its progressive income tax system. Losses are deductible up to 70% for private individuals. Furthermore, income generated by mining activities — depending on the exact purpose — is either subject to income tax for employment or business operations.