The lack of regulation around crypto investment, trading, and assets have, until recently, meant that many found they could dabble in NFTs or purchase crypto tokens free of tax or reporting obligations.
As governments and regulators get to grips with the growth of crypto, this has begun to change rapidly. More and more countries are introducing new rules, including recently announced Portuguese crypto tax reforms.
Here we recap how crypto assets and investments may be subject to taxation in key locations worldwide and why your tax residency position can impact your overall tax exposure.
Crypto Taxes for Investors and Traders in the UK
UK HMRC treats crypto as an asset – the tax office does not consider cryptocurrency tokens a form of currency, which means that any gain made from the sale or transfer of crypto is exposed to capital gains taxes.
From April 2023, the annual capital gains allowance fell from £12,300 to £6,000. It will be reduced further to £3,000 in 2024, meaning that any realised gain above these thresholds will be subject to taxation.
The exact tax charge will depend on whether you are a resident taxpayer and your income tax bracket, with capital gains charged at 20% for all higher or additional-rate taxpayers. Those within the basic income tax bracket pay a 10% capital gains tax on profits.
Crypto capital gains tax calculations are not always straightforward since HMRC may categorise several types of transactions as profitable events. For example, selling crypto tokens in exchange for fiat currency constitutes a transaction, but using crypto to purchase something may also comprise a disposal.
Some non-domiciled, but resident taxpayers may be able to claim exemption from UK taxation, provided the proceeds of their crypto trades are not remitted to the UK. Anybody who is resident and domiciled is subject to UK tax against all of their income and gains worldwide.
US Taxation Rules for Cryptocurrency Assets
The IRS treats cryptocurrencies as property assets and applies the same tax principles to crypto trading and profits.
However, there is the potential for further reforms, with two new guidance publications announced in August 2023 relating to taxes on crypto staking and the treatment of crypto brokerage activities.
Most US taxpayers are liable to pay up to 37% tax against short-term capital gains, including income derived from crypto. Longer-term gains are also taxed, with rates of up to 20%. However, NFTs may be treated differently if categorised as collectable assets, with a potential tax of 28% on profits.
The specific rate of tax depends on the value of the gain, the details of the transaction, and the length of time you have held a crypto asset before it is sold, transferred or exchanged.
US expats living overseas are obliged to report any income linked to cryptocurrency, on the same basis as any other property sale.
Taxpayers must also submit declarations to the IRS when they use crypto to make a purchase, through the forms linked to Sales and Dispositions of Capital Assets, where the information provided is used to calculate the capital gains tax payable, where applicable.
Changes to Cryptocurrency Tax Regimes in Europe
Just as regulations and crypto tax treatment vary globally, EU countries do not yet have a standardised system. Below we compare the tax rules in Spain, Malta and Portugal as an overview – but it is important to highlight that other European countries may have different taxation bases.
Spanish Crypto Taxes
The Agencia Tributaria normally levies taxes against crypto as a capital asset. However, gains made on crypto may be taxed the same way as interest earnings or could be subject to standard income tax rates depending on the nature of the transaction and what crypto is sold or exchanged for.
Income taxes depend on the municipality where you live. They are based on the national income tax rate in Spain, plus the tax rate set by the autonomous regionall government, with effective income tax bands of up to 47%. Generally:
- Staking rewards are treated as investment income, taxed at 19% or professional income with a tax applied of 24%.
- Rewards gained from mining are treated as a business activity, and subject to income tax.
Resident Spanish taxpayers must report any crypto assets worth over €50,000 in another country via Model 721, from 2023 onward. If you are considered a tax resident, you may also be exposed to wealth tax if your combined assets, including crypto, are over €700,000.
Non-residents pay a general income tax rate of 24% and 19% capital gains tax on asset transfers and interest earnings. While Spain allows resident traders to offset a limited 25% of capital losses against their tax liability, non-residents cannot offset losses.
Crypto Taxes in Malta
Maltese crypto tax is a very different scenario – because the Maltese tax authority treats cryptocurrencies as a store of value, similar to any other currency or monetary asset. While crypto activities are not necessarily tax-exempt, some transfers or exchanges do not constitute a taxable event.
Therefore, if you sell or exchange crypto, regardless of how much your tokens have appreciated, you may not be subject to capital gains tax, depending on the specifics of the transaction and the parties on either side of the exchange.
Should you transfer crypto for payment in foreign currency, you would also not incur a tax liability since Malta does not tax foreign capital gains – although if you remain a tax resident in another country, including the UK or US, you may still be liable to pay taxes there.
Portuguese Crypto Taxation Reforms
In Portugal, crypto assets are categorised in one of two ways. Some NFTs and other unique tokens fall outside the scope of the newly announced reforms and, therefore, are excluded from changes to Portuguese taxation. From this tax year onward, other crypto assets will be subject to capital gains tax on profits at a standard 28% flat rate.
However, crypto is only taxable if it has been held for less than one year or is transferred in return for a fiat currency or another payment method, excluding other types of crypto tokens.
Other crypto activities such as token validation and mining are now treated as business incomes, and taxed according to commercial tax rates, and invested crypto that returns a gain, will be subject to the same taxation as any other investment.
More details about these changes are available through our earlier guide to Crypto Taxation Rules in Portugal.
As these summaries show, crypto is taxed and treated differently depending on the jurisdiction, where your crypto gains arise, and your tax residency – with the potential to be taxed as a capital gain, interest earnings or general personal income.
It is important that any crypto investor, trader or hobbyist seek professional guidance to ensure they are declaring their crypto activities correctly and paying the appropriate tax – with further reforms very likely to be announced in the coming years. Please contact Chase Buchanan Wealth Management for any expat financial advice support you may require.
*Information correct as at September 2023