Here's an overview of cryptocurrency taxation in Europe in 2023

Investments in cryptocurrencies such as bitcoin have exploded in recent years. To provide a better framework for them, or to some extent to profit from their rise, some European countries have defined tax rules that their citizens holding cryptoassets must comply with. In this article, we take a look at the differences between these countries’ tax regimes.

Why do we pay taxes on the sale of cryptos?

Paying taxes on the sale of cryptocurrencies is required in most OECD countries. All crypto holders living in these countries must comply with this provision for three main reasons:

• Taxable income: taxable income: gains from the sale of cryptocurrencies are generally considered taxable income, unless they are the result of a professional activity,
• Tax treatment of financial assets: cryptocurrencies are considered financial assets in most tax systems and are therefore subject to the same tax rules applied to assets such as real estate,
• Principle of tax equality: by collecting taxes on the sale of cryptoassets, the state ensures tax fairness between taxpayers and fights tax loopholes.

With this in mind, it’s interesting to note that tax regulations for cryptoassets vary widely from one European country to another.

Which European countries have the highest tax rates?

Earlier this year, insurance broker Hello Safe carried out a small survey on the tax rate on crypto capital gains in 27 European countries. The results provided a ranking of these countries, with rates ranging from 0 to 52.06%!

Denmark tops the list of countries 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 a tax rate of 28%.

Portugal is a particularly interesting case, as until last autumn it was a tax haven for cryptocurrency holders. Unfortunately for them, last year was marked by many twists and turns. In the end, the government decided to apply a 28% tax.

The next 10 spots 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%).

Let’s take a look at which of the 27 European countries surveyed have tax rates below 10%.

Which countries tax Bitcoin capital gains at a low rate, or even not at all?

According to the Hello Safe survey, 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:

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

In addition to the countries mentioned above, there are also countries where capital gains on digital assets are not taxed. Their tax rate is 0%! These are colloquially known as tax havens.

Here’s the list of tax havens in Europe for cryptocurrency holders:

• Malta,
• Cyprus,
• Greece,
• Slovenia,
• Estonia,
• Germany.

However, there is a subtlety to this last nation. In fact, the tax rate is set at 0% for capital gains of less than €600 or those that have been made on cryptocurrencies for more than a year. This measure was introduced in May 2022.

Luxembourg is adopting a tax system similar to that of Germany. As a result, holders of cryptocurrencies in general, and bitcoin in particular owning assets for more than six months, will have to pay a 25% tax on capital gains realized on them.

Why does taxation of crypto capital gains vary from country to country?

In France, the tax rate is 12.8% or according to the progressive income tax scale for capital gains on cryptocurrencies. However, a flat rate of 30% is applied for occasional investors. Capital gains of less than €305 per year are tax-exempt. It’s important to note that every account held on a crypto platform located outside France must be declared using Form n°3916 / Cerfa-3916. While this rate may seem high to some crypto asset holders, it’s far from the highest compared to other European countries.

In Belgium, for example, taxation is set according to profile, and can be as high as 50%. Or how about Denmark, where taxes on crypto capital gains range from 37% to 52.06%!

Through these various comparisons, we realize the extent to which crypto capital gains tax regimes vary from country to country. This is a very important detail for a crypto investor. The variation in tax regimes between countries can be explained by four main factors:

• National tax regulations: each country has its own tax system, with specific rules and scales that define how cryptocurrency gains are to be treated,
• The classification of cryptocurrencies: some countries regard cryptocurrencies as financial assets, others as goods, and still others in a completely different way. Each country’s position on the issue influences the tax treatment of capital gains,
• Tax and political objectives: some countries choose to adopt a more tax-friendly approach to encourage the adoption of cryptocurrencies. Alongside this, others will seek to preserve fiscal stability and discourage crypto-related activities,
• International cooperation: several international cooperation efforts are underway to harmonize tax rules. However, not all European countries apply them in full.

As a cryptocurrency holder, it’s your duty to understand these details to optimize your investment by applying the appropriate strategies. Some investors, for example, choose to set up in tax havens to better enjoy their capital gains. Others, for example, opt to convert cryptos into stablecoins. In all cases, it’s important to pay taxes on crypto capital gains in accordance with the provisions in force in your country of residence. Otherwise, you could expose yourself to serious penalties.