Tour of European cryptocurrency taxation in 2023

2023-07-10 by

Hugues Marty

Investments in cryptocurrencies like Bitcoin have skyrocketed in recent years. In order to regulate these investments more effectively or, to some extent, benefit from their growth, several European countries have established taxation rules that their citizens holding crypto assets must adhere to. In this article, we will explore the existing differences between the tax regimes of these different countries, incorporating information from recent sources to provide an up-to-date perspective.

Why are taxes paid on cryptocurrency sales?

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

  1. Taxable income: Gains realized from the sale of cryptocurrencies are generally considered taxable income unless they result from professional activities.
  2. Financial asset treatment: Cryptocurrencies are regarded as financial assets in most tax systems and are therefore subject to the same tax rules applied to assets like real estate.
  3. Principle of tax equality: By collecting taxes on the sale of crypto assets, the state ensures tax fairness among taxpayers and combats tax evasion.

Building upon this foundation, it is interesting to note that tax regulations concerning crypto assets vary significantly across European countries.

Which European countries have the highest tax rates?

At the beginning of the year, insurance broker Hello Safe conducted a study on the capital gains tax rates for cryptocurrencies in 27 European countries. The results revealed a range of tax rates from 0% to 52.06%!

Denmark tops the list with the highest tax rates ranging from 37% to 52.06%. It is followed by Sweden with a tax rate of 30% and Portugal with an imposition of 28%.

The case of Portugal is particularly interesting because, until last autumn, it was a tax haven for cryptocurrency holders. However, last year was marked by numerous developments, and the government ultimately decided to impose a 28% tax.

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

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

Now let’s turn our attention to European countries among the 27 studied that apply tax rates below 10% or none at all on Bitcoin capital gains.

Which countries have low or no taxation on Bitcoin gains?

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

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

In addition to the aforementioned countries, there are also countries where gains on digital assets are not taxed at all, with a tax rate of 0%! These countries are colloquially referred to as tax havens.

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

  • Malta
  • Cyprus
  • Greece
  • Slovenia
  • Estonia
  • Germany

However, Germany has a subtlety. In fact, the tax rate is set at 0% for gains below €600 or for gains made on cryptocurrencies held for over a year. This measure was implemented in May 2022.

Luxembourg has a tax system similar to Germany’s. Cryptocurrency holders, particularly Bitcoin, who have held assets for more than six months, are subject to a 25% tax on any realized capital gains.

Why does cryptocurrency capital gains taxation vary from one country to another?

In France, the tax rate is 12.8% or follows the progressive income tax scale for cryptocurrency capital gains. However, a flat rate of 30% is applied for occasional investors. Capital gains below €305 per year are exempt from taxation. While this tax rate may seem high to some cryptocurrency holders, it is far from being the highest compared to other European countries.

For example, in Belgium, the tax rate is determined based on the profile and can reach up to 50%. And what about Denmark, where taxes on cryptocurrency capital gains are levied at rates ranging from 37% to 52.06%!

Through these comparisons, we realize the extent to which cryptocurrency capital gains taxation regimes vary from one country to another. This detail is crucial for cryptocurrency investors. The variation in tax regimes across countries can be explained by four main factors:

  1. National tax regulations: Each country has its own tax system with specific rules and scales that define how gains from cryptocurrencies should be treated.
  2. Classification of cryptocurrencies: Some countries consider cryptocurrencies as financial assets, while others view them as commodities or use entirely different classifications. Each country’s stance on this matter influences the tax treatment of capital gains.
  3. Tax and policy objectives: Some countries choose to adopt a more favorable tax approach to encourage cryptocurrency adoption, while others aim to maintain tax stability and discourage cryptocurrency-related activities.
  4. International cooperation: Several international cooperation efforts are underway to harmonize tax rules. However, not all European countries fully implement these measures.

As a cryptocurrency holder, it is your duty to understand these details in order to optimize your investments by employing appropriate strategies. For example, some investors choose to reside in tax havens to maximize their capital gains. Others may opt to convert cryptocurrencies into stablecoins. In any case, it is important to pay taxes on cryptocurrency capital gains in accordance with the provisions in effect in your country of residence. Failure to do so may result in severe penalties.