Where You Live is What You Pay
Taxation is complicated, especially when you are active in the crypto space. There are so many rules, exceptions to rules and exceptions to exceptions to rules that you should always talk consult with tax experts about your own taxes. This article is written to give you a general understanding of the underlying concepts of taxation that are used all throughout Europe.
Your tax rate and even the amount of gains is calculated differently depending on where you live and where you pay taxes.
As many people know, US-citizens are taxed worldwide, so even living in Europe does not exempt you from paying taxes in the US — if you are a citizen there. The European system is a little less overbearing, though it does have its pitfalls as well.
In the following, we are going to look at different taxation principles that can be applied to your crypto portfolio. Since different methodologies are used, we are going to first explain the basic principles and then guide you towards further reading for your country of (tax) residence.
Feel free to skip the explanations and jump straight to the tables if you already know how the different methodologies work on principle.
If you’ve ever had a job in Europe that makes more than the absolute bare minimum to survive on (and in some cases even then), you’ll have paid income tax.
In most cases, income tax is a system that has tax brackets.
Tax brackets have been established to decrease the tax burden on people making less money and to increase the tax burden on people making more, not only in proportionate terms (as 25% of 100,000€ is already more than 25% of 50,000 €), but going beyond that.
Example of tax brackets in income tax
This is what a typical tax bracket might look like:
The amounts and percentages are not those of any real country, but rather serve an exemplary purpose.
One thing that many people have questions about is the way that those brackets work.
They are for example worried to go from earning 25,000 € to earning 26,000 € because of the higher tax rate. However, the higher tax rate only applies to the amount that is above the threshold.
For someone earning 26,000 € per year, they would pay 0% on 15,000 €, pay 15% on (25,000–15,001=)9,999 € and pay 25% on the remaining (26,000–25,000=)1,000 €. This results in a tax of (15,000*0+9999*15%+1000*25%=) around 4,000 €, or 15% overall, even though they are in the tax bracket of 25%.
Making more money might increase the income tax rate bracket that you are in, but it will not decrease your net earnings.
The only exception to this rule can be tax-exempt amounts i.e. in Germany where you might have a certain amount of gains that have no tax relevance but become relevant as soon as you go above that amount.
Countries with Income Tax on Crypto Gains
Capital Gains Tax
Capital gains taxes are different from income tax as they usually have a fixed rate more or less independent from your yearly income. Capital gains tax is usually applied when you make money from buying or selling stocks or other securities.
They are only applied to profits generated through a sale, so hodling Bitcoin should not lead to any capital gains tax because you have not actually realized any of your profits.
One thing that is often relevant is the amount of time that you hold an asset. There often is an increased tax burden on short-term investments and a reduced (or even no) tax rate for longer-term investments.
Example of Taxation with Capital Gains Tax
Imagine you own one Bitcoin that you bought in 2015 for 200 €. You didn’t touch your Bitcoin at all between 2015 and 2019. Therefore, there were no taxes even though your personal wealth changed significantly. In the summer of 2019, you sold it for 5,200 €.
Depending on your jurisdiction, you would then take the money you received, deduct the money you paid and realize that you made a profit of 5,000 € (ignoring transaction fees and other associated costs).
If you had a capital gains tax rate of 15%, you would then pay taxes of 750 €.
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A wealth tax is different in that it doesn’t calculate gains received through income or trading, but rather the value of the assets that you own at a certain time. So even if you are not buying or selling anything, if your assets appreciate in value (such as Bitcoin) and are worth a lot at the time of calculating your overall wealth, you will have to pay taxes on that value, even though you might not have sold any of your assets.
This means that you have very few possibilities to influence the amount you are taxed at. If you hold very volatile assets — such as most crypto portfolios, your taxation depends on the market at that time.
Example of Taxation with Wealth Tax
Imagine you bought 1 Bitcoin in 2015 for 200€. You are then taxed a certain percentage — let’s say 5% — every year. In year one, you might have to pay 10€ (5% of 200€), in year two, you would have to pay (2,000€ *5%=)100€ and in 2017, you would have to pay (15,000 € * 5%)=750€. After three years of hodling, you would have paid a sum of 860€ on an initial investment of 200€.
The only country on the list that doesn’t collect taxes on your crypto portfolio at all is Portugal.
If you are looking to start doing your taxes for 2019, provides tax reports for various jurisdictions. You can learn more about us here.