Everything about crypto taxes
More and more people are taking a step into the fascinating world of cryptocurrencies, where names such as Bitcoin and Ethereum are becoming increasingly famous. But what about the taxes on these digital assets? The tax authorities use different approaches for crypto investors. Whether you actively trade in cryptos as a sole proprietorship or consider this as a supplementary activity, and even invest in cryptos as a private individual, the complex world of crypto taxes is explained in more detail below.
Crypto tax for sole proprietors
For sole proprietorships, tax on cryptos is quite complicated. There are two ways to deal with it: actively invest or consider it as an extra business activity. The Tax Authorities look at ‘normal asset management’ or ‘more than normal asset management’. With the first, it falls into box 3, with the second, the income is taxed in box 1. The criteria are not very clear, but it depends on your knowledge, experience, time spent and use of tools.
For a sole proprietorship there is no separate income and assets; everything is subject to income tax. Crypto trading via a sole proprietorship can be taxed in both box 1 and box 3. Excess liquid assets are important here, especially if they are permanently surplus and end up in box 3. When purchasing cryptocurrency with business assets, it must fall within normal business operations for tax in box 1, otherwise it is considered mandatory private capital (box 3).
Crypto tax for private individuals
Like sole proprietors, individuals can be involved in crypto trading in two ways: as passive holders or as active traders. The value of the crypto on January 1 is important for the tax return of passive owners. Suppose you bought crypto with a value of €300 in 2017 and you have to file a tax return before 2023. The value in 2017 is not important, but the value on January 1, 2023 is. If this value is €700, you indicate this amount in box 3. By relating it to 2023 you make it slightly more relevant.
Individuals who actively trade in crypto fall into the same category as those who trade in regular money, such as euros and dollars. The income is not stated in the tax return, unless additional income is generated from other sources. This income then falls under ‘other work’ or ‘profit from business’.
- A private individual can also receive crypto as salary, in which case the employer must indicate the value of the crypto at that time when paying out. For example, the crypto is included as wages in box 1 and is therefore taxed as such. The same applies to an entrepreneur who is paid in crypto; this is considered as business profit and taxed in box 1.
- An important point of attention that is considered ‘more than normal asset management’ is if you have more (inside) knowledge when buying or selling crypto shares. While this is rare due to its difficulty, it can lead to market abuse.
- A threshold of €57,000 applies to box 3. This means that the total assets in box 3 are taken into account, including bank accounts, real estate, investments and loans. Assets abroad are also included, although not everything is taxable. If you have less than €57,000, you are exempt from tax.