Key Highlights
- The global tax payment rate for cryptocurrencies is estimated at 0.53% in 2022, with Finland having the highest rate at 4.09% and the Philippines having the lowest rate at 0.03%.
- The legal status of cryptocurrencies varies significantly from country to country, with some countries banning them while others fully legalizing and regulate them.
- Three main approaches to the classification of cryptocurrencies for tax purposes are identified in the report: currency, property, and hybrid. Tax rates and treatment of cryptocurrencies also vary greatly by country.
A report compiled by Divly, a company that provides tax software for cryptocurrency traders and investors, estimates that only 0.53% of crypto investors globally paid tax on their crypto in 2022. The report also revealed that 1.62% of cryptocurrency investors reported their crypto to the IRS in 2022. A doubling of the compliance rate since 2018 as it stood at approximately 0.8%.
As the global cryptocurrency market continues to grow, governments around the world are increasingly looking to regulate and tax the use of cryptocurrencies. The decentralized nature of cryptocurrencies makes it difficult for governments to regulate them effectively, but the rise of digital currency has led to the development of various tax policies and guidelines to provide a framework for the taxation of cryptocurrencies.
The report covers a range of topics, including the legal status of cryptocurrencies, the classification of cryptocurrencies for tax purposes, and the tax rates and treatment of cryptocurrencies. The report also provides a detailed analysis of the tax policies of 38 countries, highlighting the strengths and weaknesses of each country’s approach to cryptocurrency taxation.
Key Statistics
The research shows that crypto tax payment rates on cryptocurrencies vary by country and continent, with Finland having the highest rate at 4.09% and the Philippines having the lowest rate at 0.03%.
In the US, an estimated 1.62% of cryptocurrency investors declared their crypto to tax authorities in 2022. Therefore, the US has the 10th highest crypto tax payment rate out of the 24 countries analyzed.
Amongst the European countries looked at, Finland had the highest payment rate in Europe and Italy the lowest at 0.26%.
In Asia, Japan had the highest tax payment rate at 2.18%. Ongoing efforts by Japan’s government and the Japanese Crypto-asset Business Association (JCBA) to facilitate the crypto tax calculation and declaration process seem to be paying off. The Philippines, on the other hand, where paying taxes on cryptocurrency is mandatory but where regulations are ill-defined, sits at the bottom of the list of countries analyzed.
What You Should Know
The report highlights that the legal status of cryptocurrencies varies significantly from country to country. In some countries, cryptocurrencies are completely banned, while in others, they are fully legal and regulated. The majority of countries, however, fall somewhere in between these two extremes, with some level of regulation in place.
The report notes that the legal status of cryptocurrencies is often tied to their classification for tax purposes. In many countries, cryptocurrencies are treated as a form of property or asset for tax purposes. This means that they are subject to capital gains tax when sold or exchanged for fiat currency.
The report identifies three main approaches to the classification of cryptocurrencies for tax purposes; First is the currency in which cryptocurrencies are treated as a form of currency, similar to fiat currency. This means that they are subject to the same tax rules as traditional currencies, such as income tax and VAT. Second is property, which treats cryptocurrencies as a form of property or asset, similar to stocks or bonds. This means that they are subject to capital gains tax when sold or exchanged for fiat currency. Finally, the hybrid which is approach takes elements of both the currency and property approaches. For example, some countries may treat cryptocurrencies as a form of currency for income tax purposes, but as a form of property for capital gains tax purposes.
The report also notes that the tax rates and treatment of cryptocurrencies vary significantly from country to country. In some countries, such as Belarus and Germany, cryptocurrencies are exempt from capital gains tax if they are held for a certain period of time. In other countries, such as the United States and Canada, cryptocurrencies are subject to capital gains tax at rates similar to those for other types of property or assets.
One of the most significant issues highlighted in the report is the lack of clarity around the tax treatment of cryptocurrencies. Many countries have not yet provided clear guidance on how cryptocurrencies should be taxed, which has led to confusion and uncertainty among cryptocurrency traders and investors.
Implications of the Report
The Global Crypto Tax Report highlights the need for clear and consistent tax policies for cryptocurrencies. As the use of cryptocurrencies continues to grow, it is becoming increasingly important for governments to develop clear guidelines for the taxation of cryptocurrencies.
The lack of clarity around the tax treatment of cryptocurrencies has been a major challenge for both cryptocurrency traders and investors, as well as for tax authorities. Clear and consistent tax policies will help to provide certainty and stability for the cryptocurrency market, which is essential for its continued growth and development.
In addition to providing clarity for traders and investors, clear tax policies will also help tax authorities to collect taxes on cryptocurrency transactions more effectively. This is particularly important given the growing use of cryptocurrencies for illicit activities, such as money laundering and tax evasion.
The report highlights the need for collaboration and coordination among governments around the world in developing tax policies for cryptocurrencies. The global nature of the cryptocurrency market means that it is essential for governments to work together to develop consistent and coherent tax policies. This will help to prevent regulatory arbitrage, where traders and investors seek out countries with more favorable tax policies.
One of the key challenges in developing consistent tax policies for cryptocurrencies is the rapidly evolving nature of the market. As new types of cryptocurrencies and blockchain-based technologies emerge, governments will need to continually update their tax policies to keep pace with these developments.
Conclusion
The report aimed to estimate the tax payment rate for cryptocurrencies in various countries. According to the results, the tax payment rate for cryptocurrencies ranged from 0.03% in the Philippines to 4.09% in Finland. With the global tax payment rate being 0.53%.
The Global Crypto Tax Report also provides a comprehensive overview of the tax policies of 38 countries around the world. The report highlights the significant variation in the legal status, classification, tax rates, and treatment of cryptocurrencies across different countries. It also identifies the need for clear and consistent tax policies for cryptocurrencies, as well as the importance of collaboration and coordination among governments in developing these policies.
As the use of cryptocurrencies continues to grow, it is essential for governments to provide clear and consistent guidelines for their taxation. This will help to provide certainty and stability for the cryptocurrency market, as well as help to prevent illicit activities such as money laundering and tax evasion. By working together, governments can develop tax policies that support the continued growth and development of the cryptocurrency market while ensuring that it operates within the bounds of the law.
In addition to government action, traders and investors can also play a role in promoting clear and consistent tax policies for cryptocurrencies. By using tax software to comply with tax regulations more effectively and accurately, traders and investors can help to ensure that the cryptocurrency market operates in a transparent and accountable manner.
