How do I advertise my own crypto currency
How are investments in cryptocurrencies taxed?
Cryptocurrencies are particularly volatile. The resulting profits are now increasingly the focus of the Austrian tax office.
Investments in crypto currencies such as Bitcoin, Ethereum and Ripple have been subject to considerable price fluctuations in the last few years, sometimes in the four-digit percentage range. In some cases, investors have made substantial increases in value or have suffered major losses. In particular, the profits that have been made in some cases are now increasingly the focus of the Austrian tax office, as they are taxable in many cases.
What are cryptocurrencies?
To put it simply, cryptocurrencies are digital means of payment, although from a legal point of view they are not a currency or legal tender. Cryptocurrencies have a decentralized structure and are not controlled, for example, by an entity such as a central bank. Many cryptocurrencies are created with the help of so-called blockchain technology by means of "mining" by a digital community scattered around the world. The blockchain is a continuously expandable list of data records ("blocks") that are linked to one another using cryptographic processes. Each block typically contains a cryptographically secure hash (scatter value) of the previous block, a time stamp and transaction data.
Buying and selling coins
The Austrian Federal Ministry of Finance (BMF) classifies cryptocurrencies as other immaterial and non-depreciable assets. From an income tax point of view, cryptocurrencies such as bitcoins are therefore not recognized as a currency or means of payment in Austria. They are also (usually) not subject to the tax regime for investments such as stocks or bonds.
The most common case in practice is the purchase and sale of cryptocurrencies (coins) in private assets. The price gains achieved are income from speculative transactions. These are only taxable if the period between the acquisition of the asset and its sale (or other depreciation) does not exceed one year; thereafter the sale will no longer be taxed. The speculative income generated within the year, however, is subject to the progressive tax rate of up to 55 percent.
Particular caution is required if a cryptocurrency is not acquired with money but with another cryptocurrency. The Austrian tax authorities consider trading between crypto currencies as a realization process (exchange). When exchanging assets, there is a purchase of one asset (the purchased cryptocurrency) and a sale of the other asset (the cryptocurrency that was used as a "means of payment"). It is assumed that the exchanged coins will be sold at market value, which leads to taxation of the price gains made by the coins to date, although the investor has not finally achieved them.
Investors regularly hold cryptocurrencies that were purchased at different times and at many different daily rates. In the case of a realization, it is then decisive for the existence of a speculative transaction and for the amount of possible profits which “tranche” of the coins is currently being sold. The BMF allows the taxpayer to make any assignment if the inventory of the respective coins is fully documented with regard to the time of purchase and purchase costs. If this is not the case, the oldest tranches are to be regarded as sold first (first-in, first-out principle).
As an exception, a cryptocurrency can also represent an asset within the meaning of Section 27 (3) EStG - i.e. capital assets - if there is an interest-bearing investment of the cryptocurrency. In this case, the usual rules for income from capital assets apply.
Derived assessments, for example in (alternative) investment funds or derivatives with a reference to cryptocurrencies, are subject to the tax regime of the respective asset class.
Cryptocurrencies acquired or held as business assets (as well as those acquired by corporations) are not subject to private speculation taxation. Like any other business asset, they are usually to be capitalized in the balance sheet, valued on the balance sheet date in accordance with the applicable regulations, and the profits generated in the event of the sale (or other depreciation) are taxed accordingly.
Technically, private mining with its own stationary computing power was only interesting for experienced users in the early days of the blockchain. Today, on the other hand, international providers are promoting the rental of computer capacities on their computer farms located abroad with low electricity prices.
The Austrian tax authorities generally classify mining as an operational activity. The generation of cryptocurrencies through mining should therefore not be treated differently from the production of other economic goods within the framework of a company. As a result, mining is generally based on income from a business activity (income from commercial operations), which is subject to the progressive tax rate of up to 55 percent. The opinion, partly represented in the literature, that private mining is a game of chance that is subject to the gambling tax and is therefore not subject to income tax at all, does not correspond to the current view of the Austrian tax authorities.
Initial Coin Offerings (ICOs)
Based on an initial public offering (IPO), the term “ICO” refers to the creation and issue of virtual coins (also known as tokens) by an issuer, usually against payment in an already established cryptocurrency. In practice, the tokens are designed in a wide variety of ways by the issuer, for example as equity or borrowed capital or as vouchers for the subsequent purchase of goods or services. The tax implications for the investor depend on the specific structure of the respective ICO.
An investor who invests in tokens as part of an ICO will generally have an acquisition process. Income that is relevant for income tax purposes occurs when the tokens are sold (within the one-year speculation period in the case of tokens acquired as private assets). If, on the other hand, the investor purchases vouchers as part of the ICO, their use should generally no longer be relevant for income tax purposes.
Buying goods or services with cryptocurrencies
Some companies are now also accepting cryptocurrencies as a means of payment from their customers. If other goods or services are purchased with cryptocurrencies, this is also an exchange of assets, which is an unlimited taxable sale of the cryptocurrency in business assets and within the one-year speculation period in private assets.
Recovery of losses
Due to the recent decline in the prices of many cryptocurrencies, the question of the tax recovery of losses is particularly relevant for many investors. In private assets, strict restrictions apply to the utilization of losses from crypto currencies, because these can only be offset during the year with profits from other speculative transactions. If speculative transactions lead to an overall loss in a calendar year, this cannot be offset against other income (nor can it be carried forward into future years). In the rare case that interest-bearing cryptocurrencies are classified as capital assets, special rules apply to any losses from the sale of such coins, since such losses can be offset with certain income from capital assets - in particular dividends and capital gains. For cryptocurrencies held as business assets, however, there is a general loss compensation option.
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