Crypto Tax Practices: Balancing and Competition Between the Real World and the Decentralized World
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Crypto Tax Practices: Balancing and Competition Between the Real World and the Decentralized World
There is still much room for discussion on how to tax crypto assets and whether they should be taxed at all.
Navigating Web3 tides with focused insightsBy imToken
Taxation of cryptocurrency assets has long been a focal point within the industry. According to PwC's report, "2024 Global Crypto Tax Survey," released on April 30, 2024, jurisdictions such as the United States and the European Union began introducing new tax reporting requirements in 2023 for crypto asset brokers and related intermediaries, aiming to enhance transparency in crypto tax information.
In June 2023, the Organisation for Economic Co-operation and Development (OECD) published the "Crypto-Asset Reporting Framework" (CARF) and updated the Common Reporting Standard (CRS) for financial institutions, expanding the scope to include new forms of financial products. As of December 1, 2023, 54 jurisdictions worldwide have committed to adopting the CARF, with plans to implement an automatic exchange mechanism for crypto transaction data by 2027.
Currently, what tax practices are being implemented across major global crypto markets? This article compiles publicly available information to provide a concise overview of the current state of cryptocurrency taxation in key global markets.
United States
The U.S. Internal Revenue Service (IRS) classifies crypto assets as “property.” On June 28, 2024, the U.S. Department of the Treasury and the IRS issued final regulations implementing bipartisan tax reporting requirements for digital asset sales and exchanges. These require digital asset brokers to report the total proceeds from all digital asset sales occurring in 2025 starting in 2026; beginning in 2027, brokers must also report cost basis information for certain digital assets sold in 2026.
On August 9, 2024, the IRS released an updated Form 1099-DA, which digital asset brokers will be required to submit to the IRS starting in 2025 to report relevant tax information.
Europe
European Union: In 2015, a legal case involving Swedish resident David Hedqvist—who sought to exchange fiat currency for BTC through a company providing swap services—influenced how many European countries approach crypto tax regulation.
The court inferred from the Chicago First National Bank case (C-172/96, EU:C:1998:354) that exchanging fiat currency for BTC or vice versa constitutes a taxable supply of services. However, under EU VAT regulations, such exchange services provided by companies are exempt from value-added tax (VAT).
For individuals holding crypto assets, there are significant differences among EU member states regarding which activities are taxable and at what rates.
Germany: Tax authorities classify cryptocurrencies as “assets.” Gains from selling cryptocurrencies are taxed as “other income.” Individuals who hold cryptocurrencies for more than one year benefit from a tax-free allowance of EUR 600 on gains realized upon sale.
According to a KPMG article published on June 21, 2022, Germany issued a 24-page circular on May 10, 2022, which for the first time clarified the taxation of cryptocurrencies. In addition to capital gains from sales, income earned through mining, staking, or lending activities is also subject to taxation.
Italy: Starting January 1, 2023, capital gains from trading cryptocurrencies are subject to a flat 26% tax rate, with no tax levied if annual capital gains do not exceed EUR 2,000.
Exchanging one cryptocurrency for another does not trigger a taxable event.
An article published by *The European Times* on January 5, 2023, noted this change followed parliamentary approval of a new budget law, reflecting Italy’s intention to strengthen oversight of a rapidly growing yet highly volatile market.
United Kingdom: UK tax authorities categorize cryptocurrencies as “assets,” subject to Capital Gains Tax (CGT) with a maximum rate of 24%. According to a report by blockchain media outlet The Block on December 30, 2024, acquiring cryptocurrencies via mining is considered taxable income subject to income tax, and receiving compensation paid in cryptocurrencies is also taxable.
Africa
Nigeria: Effective September 1, 2023, Nigeria’s Finance Act 2023 expanded the definition of “asset” under the Capital Gains Tax Act to include “digital assets,” subjecting them to a 10% capital gains tax.
In September 2024, the Nigerian Federal Inland Revenue Service proposed a new tax bill to Parliament that would impose a 7.5% VAT on cryptocurrency transactions.
Latin America
Brazil: Under Law No. 14754/2023 enacted on December 12, 2023, Brazilian residents must pay income tax—starting January 1, 2024—on income derived from foreign financial investments, including virtual assets, at a rate of 15%, calculated monthly.
Asia
Japan: Japan’s National Tax Agency currently treats crypto assets as “property.” Income from individual crypto trading falls under personal income tax as “miscellaneous income,” taxed progressively between 5% and 45%.
According to the Financial Services Agency’s (FSA) proposed tax reforms for fiscal year 2025 outlined in the section “Financial and Income Tax Integration” under the goal of “Doubling Asset Income” and becoming an “Asset Management Nation,” the tax treatment of crypto assets should be based on whether they qualify as financial assets open to public investment.
As reported by Japan News on December 15, 2024, the FSA is consulting with experts on secure crypto trading and considering amendments to laws such as the Payment Services Act and the Financial Instruments and Exchange Act. If crypto assets are formally recognized as financial assets (Financial Assets), Japan may reconsider its current tax framework, potentially lowering tax rates.
South Korea: As reported by *The Korea Economic Daily*, the planned implementation of a capital gains tax on crypto assets, originally scheduled for 2025, may now be delayed until 2027.
Singapore: The Inland Revenue Authority of Singapore (IRAS) identifies two potential taxable points when digital tokens are used as a medium of exchange: taxing the purchase of digital tokens and taxing their use to acquire goods or services.
However, per IRAS’s e-Tax Guide, since January 1, 2020, using digital tokens to buy goods or services in Singapore is no longer subject to Goods and Services Tax (GST).
Singapore does not impose capital gains tax; thus, profits from crypto transactions by individuals or businesses are not taxed.
Indonesia: Since May 1, 2022, providing crypto trading services has been classified as a VAT-taxable activity. Additionally, income from investing in crypto assets—by individuals or entities—is subject to a 0.1% income tax.
Hong Kong: On March 27, 2020, the Hong Kong Inland Revenue Department issued DIPN No. 39 – “Profits Tax: Digital Economy, E-commerce and Digital Assets,” outlining the tax treatment of digital assets (including Cryptocurrencies, crypto assets, or Digital Tokens, excluding those classified as “securities” under applicable laws).
Profits arising from disposing of digital assets acquired (e.g., via ICOs or exchanges) for long-term investment purposes are generally not subject to profits tax.
Additionally, a KPMG analysis published on April 5, 2020, stated that according to general principles under Section 14 of Hong Kong’s Inland Revenue Ordinance—and absent specific exemptions—profits from acquiring digital assets via ICOs could be subject to profits tax.
Employees in digital asset-related industries who receive salaries paid in Cryptocurrencies are subject to Hong Kong’s regular salary tax rules, with the taxable amount determined based on the market value of the Cryptocurrencies at the time of receipt.
Furthermore, according to Bloomberg news on October 28, 2024, the Hong Kong government proposed expanding tax relief policies for digital assets such as Cryptocurrencies.
Reuters reported on November 28, 2024, that Hong Kong plans to exempt hedge funds, private equity funds, and certain family offices from taxes on investment gains derived from Cryptocurrencies and other alternative assets, aiming to strengthen its position as a global wealth management hub.
Although numerous jurisdictions have begun implementing crypto taxation, it is evident from this brief review that many questions remain about whether and how crypto assets should be taxed.
Current tax practices primarily involve capital gains tax, income tax, and value-added tax. Taxable entities include individuals and enterprises holding or using crypto assets, as well as digital brokers offering crypto services.
Regarding taxable events, most jurisdictions practicing crypto taxation treat crypto assets as “property” or “assets,” with the sale of crypto assets for profit being the primary taxable activity. Consequently, in high-tax jurisdictions where income tax rates are already elevated, crypto-related tax burdens can appear particularly steep.
In regions promoting digital tokens as transactional mediums with payment functionality, using digital tokens to obtain goods or services is treated similarly to spending fiat currency and is therefore subject to consumption taxes.
Some jurisdictions also include income earned through mining or staking activities within the scope of taxable income. However, whether these on-chain activities should be taxed as income remains debatable. On one hand, in Proof-of-Work (PoW) blockchains, mining rewards serve as incentives; similarly, in Proof-of-Stake (PoS) systems, staking rewards incentivize validators to maintain network security. On the other hand, on-chain activities already incur inherent costs—such as Ethereum’s gas fees—making additional real-world taxation akin to double taxation.
That said, considering real-world goals like energy conservation and reduced electricity consumption, taxing mining operations from an environmental efficiency perspective might be justified—but not as income tax.
Overall, existing tax approaches to crypto assets lack clarity and largely fail to account for the structural needs of a decentralized Web3 ecosystem.
Nonetheless, it is reasonable to conclude that imposing VAT or business tax on digital brokers providing crypto services, and taxing the exchange of crypto assets for fiat currency—or even stablecoins—represents a balanced tax framework that supports harmonious development between the traditional financial system and the decentralized world. As for various on-chain activities—such as swapping between different crypto assets or transferring between wallet accounts—these should only become relevant taxable scenarios once crypto assets achieve widespread adoption in real-world applications.
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