20 Dec Income tax rules of cryptocurrencies
A comparison of the (income) tax treatment of cryptocurrencies in Luxembourg with neighboring European countries.
Currently, there are no standardized tax laws for the treatment of cryptocurrencies such as Bitcoin (BTC), Ethereum, Solana, Avalanche and Co. Nevertheless, some countries have already taken a more liberal approach than Luxembourg – today we compare the tax treatment of cryptocurrencies in Luxembourg with five selected European neighbors.
Governments around the world are developing laws to impose taxes on capital gains through cryptocurrencies such as Bitcoin Ethereum, Avalanche, Solana and Co. The most recent example is the Biden administration’s Infrastructure Bill with a stricter reporting requirement for crypto brokers to the IRS when transactions are made with a value of more than $10,000.
Often cryptocurrencies are frowned upon by regulators. Nevertheless, there are some countries that do not impose taxes on cryptocurrencies.
Why certain countries do not tax Bitcoin and other cryptocurrencies?
In most cases, these governments want to encourage innovation in the bitcoin and crypto space to attract capital to the country. The more crypto-friendly legislations allow investors to buy, sell or hold cryptocurrencies without paying taxes.
- The taxation of trade cryptocurrencies in Portugal
Portugal is one of the most crypto-friendly countries in Europe when it comes to taxes. Proceeds from the sale of Bitcoin, Ethereum and other cryptocurrencies by private individuals are tax-free since 2018 unless a commercial activity as a so-called “professional trader” is assumed.
However, companies that have their management or registered office in Portugal and trade or deal with cryptocurrencies e.g. accept them as payment for goods and services, are subject to tax.
2. The taxation of cryptocurrencies in Switzerland
Switzerland, which is also home to the well-known Crypto-Valley Zug, has an extremely progressive tax policy for cryptocurrencies. In principle, capital gains on movable private assets, which include Bitcoin, Ethereum, Solana, Avalanche and other cryptocurrencies are income tax-free in Switzerland. Accordingly, losses on cryptocurrencies are also not deductible for income tax purposes.
An exception exists for the professional trader. This can be identified analogously to the principles for a professional securities trader.
For the professional trader, the profits from trading cryptocurrencies ( are taxable as independent earned income. This is comparable to Portugal as a “Professional Trader”.
3. The taxation of trade cryptocurrencies in France
A flat tax applies to capital gains realized by individuals resident for tax purposes in France, directly or through an intermediary, on an occasional sale of cryptocurrencies. It is taxed at 30%, i.e. 12.8% income tax and 17.2% social security contributions.
Otherwise, holding or/and exchanging one cryptocurrency for another does not trigger a taxable event.
Only when the profits made with cryptocurrencies are converted into legal tender, such as euros, dollars or another “fiat” currency, does the cryptocurrency fall within the tax basis. Taxation is also provided for in certain cases, namely when the crypto currency is used to acquire a service or a good, or when a crypto currency is the subject of an exchange with a compensation payment.
4. The taxation of cryptocurrencies trade in the Netherlands
Cryptocurrencies held as private assets fall into the same category as savings and investments such as share deposits. A tax is levied on a notional return, regardless of whether a return on capital was actually generated. This is therefore a de facto wealth tax, which is levied on the taxpayer’s assets on the cut-off date of January 1 (at midnight). According to the tax office, the value is to be based on the market price of the platform used.
If the taxable capital (i.e. cryptocurrencies, shares, savings together.) is less than EUR 50,000, no tax is levied. If the taxpayer owns EUR 50. 000 or more, wealth tax is due at a tax rate of 0.59% – 1.71% (as of 2021), depending on the amount of capital assets.
5. The taxation of cryptocurrencies in Austria
n Austria, a draft tax reform for the taxation of cryptocurrency was published in November 2021. According to the draft, Bitcoin, Ethereum and other cryptocurrencies will be taxed like other traditional capital assets such as shares and investment funds. Gains from the sale of cryptocurrencies will be taxed at a special rate of 27.5% in the future. For this purpose, the current holding period of one year will be abolished (cf. in Luxembourg, the holding period is 6 months). In the future, the exchange of cryptocurrencies will no longer be taxable in Austria, but will only be converted into legal tender such as euros, dollars or another “fiat” currency when profits are realized. This regulation is the same as in France (see 3. Taxation of cryptocurrency trading in France). Furthermore, the payment of cryptocurrencies for the acquisition of products or services remains taxable.
6. The taxation of trading cryptocurrencies in Luxembourg
In Luxembourg, even the exchange of one cryptocurrency for another cryptocurrency triggers a taxable event. According to Article 99 in conjunction with Article 99bis of the Luxembourg Income Tax Law, disposals from cryptocurrency under the speculation period of 6 months are fully taxable at the personal income tax rate.
Conclusion
Looking at other European countries, it should be noted that Luxembourg is far less pragmatic in its tax treatment of cryptocurrencies and much has yet to be clarified.
Unfortunately, only one opinion from the Luxembourg tax administration from 2018 exists in Luxembourg so far.
t would be desirable if the Luxembourg tax administration would soon issue statements, so that a pragmatic and comprehensible approach for the taxpayers in Luxembourg is taken, as it has already been done in most other European countries. It would be desirable to have crypto-friendly regulations for Luxembourg e.g. regulations like in France or Austria that the exchange of cryptocurrencies is not a taxable event. Such a crypto-friendly regulation would make life easier for crypto investors. Another crypto-friendly regulation in Luxembourg could be that the realized gains from the sale of cryptocurrencies would be treated the same for tax purposes as traditional capital assets such as shares.
It remains to be seen whether Luxembourg will copy one or the other crypto-friendly regulation from its other European neighbors.