European tour of cryptocurrency taxation in 2023

Investments in cryptocurrencies like bitcoin have exploded in recent years. To better regulate them or, to a certain extent, take advantage of their growth, some European countries have defined taxation rules to which their citizens who hold cryptoassets must comply. In this article, we invite you to discover the differences between the tax regimes of these different countries.

Why do we pay taxes for the sale of cryptos?

Payment of taxes on the sale of cryptocurrencies is required in most OECD countries. All cryptocurrency holders living in these countries must comply with this provision for three main reasons:

• Taxable income: Taxable income: gains made from the sale of cryptocurrencies are generally considered taxable income, unless they are the result of a professional activity,
• Tax treatment of financial assets: cryptocurrencies are considered financial assets in most tax systems and are therefore subject to the same tax rules applied to assets such as real estate,
• Principle of tax equality: by collecting taxes on the sale of crypto-assets, the State ensures tax fairness between taxpayers and fights against tax loopholes.

Starting from this basis, it is interesting to note that the tax regulations relating to crypto-assets vary greatly from one European country to another.

Which European countries have the highest tax rates?

At the beginning of the year, the insurance broker Hello Safe conducted a small survey of the crypto capital gains tax rate in 27 European countries. The results made it possible to obtain a ranking of these countries, with rates ranging from 0 to 52.06%!

Thus, Denmark tops the list of countries with the highest tax rates with its tax rate ranging from 37 to 52.06%. It is followed by Sweden with a taxation of 30% and Portugal with a tax rate of 28%.

The case of Portugal is particularly interesting because, until last fall, this country was a tax haven for cryptocurrency holders. Unfortunately for them, last year was marked by many twists and turns. Finally, the government decided to apply a tax of 28%.

The next ten places in the ranking are occupied by the following countries:

• Austria (27.5%);
• Italy (26%);
• Ireland (20-40%);
• Latvia (20%);
• Slovakia (19-25%);
• Poland (19%);
• The Czech Republic (15-23%);
• Hungary (15%);
• Croatia (10%);
• Bulgaria (10%).

Let us now look at the European countries among the 27 studied which practice tax rates below 10%.

Which countries tax Bitcoin capital gains little or not at all?

According to the Hello Safe survey, Lithuania (with a tax rate of 5-20%), Belgium (0-50%) and Finland (0-34%) follow Bulgaria in the ranking. These countries may apply a tax rate of 10% or less under certain conditions. They are followed by the following European nations:

• The Netherlands (0-31%);
• France (0-30%);
• Spain (0-26%);
• Luxembourg (0-25%);
• Romania (0-10%).

Alongside the various countries we have mentioned so far, there are also countries where capital gains on digital assets are not taxed. Their tax rate is 0%! They are colloquially called tax havens.

Here is the list of tax havens in Europe for cryptocurrency holders:

• Malta,
• Cyprus,
• Greece,
• Slovenia,
• Estonia,
• Germany.

This last nation, however, has a subtlety. In fact, the tax rate is set at 0% for capital gains of less than €600 or those that have been made on cryptocurrencies for more than a year. This is a measure that was taken in May 2022.

Luxembourg adopts a tax system similar to that of Germany. Thus, holders of cryptocurrencies in general, and of bitcoin in particular, who have assets for more than six months, will have to pay a tax of 25% for the capital gains made on them.

Why does the taxation of crypto capital gains vary from country to country?

In France, the tax rate is 12.8% or according to the progressive scale of income tax for capital gains on cryptocurrencies. However, a flat rate of 30% is applied for occasional investors. Capital gains of less than €305 per year are exempt from tax. It is important to note that each account held on a crypto platform located outside of France must be declared using the Form n°3916 / Cerfa-3916. Even though this rate may seem high for some cryptoasset holders, it is far from the highest compared to other European countries.

Take, for example, in Belgium, taxation is fixed according to the profile and it can go up to 50%. What then can be said for Denmark, whose taxes on crypto capital gains are levied at a rate of between 37 and 52.06%!

Through these different comparisons, we realize how much the tax regimes for crypto capital gains vary from one country to another. This is a very important detail for a crypto investor. The variation in tax regimes between countries can be explained by four main factors:

• National tax regulations: each country has its own tax system, with specific rules and scales that define how gains on cryptocurrencies must be treated,
• The classification of cryptocurrencies: some countries consider cryptocurrencies as financial assets, others as goods and still others in a completely different way. The position of each country on the issue influences the tax treatment of capital gains,
• Tax and policy goals: Some countries choose to adopt a more tax-friendly approach to encourage cryptocurrency adoption. Alongside, others will seek to preserve fiscal stability and discourage crypto-related activities,
• International cooperation: several international cooperation efforts are being made to harmonize tax rules. However, not all European countries fully apply them.

As a cryptocurrency holder, it is your duty to understand these details to optimize your investment by applying the appropriate strategies. Some investors, for example, choose to settle in tax havens to better enjoy their capital gains. Others, for example, will opt for the conversion of cryptos into stablecoins. In any case, it is important to pay the taxes relating to crypto capital gains in accordance with the provisions in force in your country of residence. Otherwise, you would expose yourself to serious penalties.