Cryptocurrency Taxation in Japan, HK, Singapore

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Differences between Major Countries

The European Union

Although the laws vary from one country to another within the E.U, we will just take a look at some countries and their laws on cryptocurrency taxation. In the United Kingdom in 2014, the government of Britain withdrew their Value Added Tax (VAT) against digital currencies, just like some other nations do.

Cryptocurrencies are viewed as assets and not as legal currencies. Cryptocurrencies are treated as assets and as such income is taxed in the traditional manner and gains or losses are subject to capital gains/losses.

It is important to note that the circumstances surrounding each transaction will determine how it is taxed depending upon the price of transaction, the level of AML as well as the state of present regulatory environment.

Also, cryptocurrency mining is viewed as a business and so miners will pay a flat corporation tax of approximately 20% of the profits. Individuals are also required to pay capital gains tax on the profits they make from any cryptocurrency investments.

Estonia has the most competitive taxation regime in the developed world as per the International Tax Competitiveness Index. It has a low corporate tax rate of 21 percent and imposes no double taxation on dividend income. It also has an almost flat rate of 21 percent income tax rate, a property tax that does not include the value of buildings and structures that sit on the land, and a territorial tax system with a 100 percent exemption on foreign profits. Its neutrally structured tax system indeed encourages saving and investment.

In addition, Estonia does not levy an estate tax, transfer tax, wealth tax, or financial transaction tax, unlike other OECD (Organisation for Economic Co-operation and Development) countries.

In Switzerland cryptocurrencies are categorized as a “foreign currency”. It is subject to the regulations and tax implications that are applicable to foreign currencies in the country. It is to be noted that capital gains upon cryptocurrencies are not applicable to resident individuals in this country. Just like the tax evasion rules in most countries, failure to pay tax when due is a federal offense which may land the offender in jail.

In Germany, just like in the United Kingdom, VAT taxes are not applicable to digital currencies. Each cryptocurrency trader has a threshold of capital gains up to 800 Euros.

If gains exceed that amount, then a flat tax-rate of about 25% will be applicable. You don’t pay taxes for simply holding on to your cryptocurrencies without trading with them. Taxes apply immediately once it is traded. Also, large scale cryptocurrency mining is taxed here.

The government of the Netherlands categorizes digital currencies as “barter items”. This makes cryptocurrency lovers comparatively less constrained with their digital assets. There is no need to comply with any tax laws or license any activity. Individual cryptocurrency investors are taxed according to their corresponding basic income. Their stand on cryptocurrencies may change in the future though.

Italy and Russia do not have any tax laws governing cryptocurrencies as of now, but their governments are working to draft regulations as it is now emerging as the future of transactions.

Australia

In Australia, cryptocurrencies are viewed as a “form of property”, thus they are taxable. Here is what a report from Australia on the taxable nature of digital currencies mentioned: “Any financial gains made from the selling of Bitcoin (or any other cryptocurrency) will generally be subject to capital gains tax (CGT) and must be reported to the ATO.”

The ATO (Australian Taxation Office) has embarked on a campaign to find and prosecute any individuals who aim to evade tax. Since it is very easy to evade tax when dealing in virtual currencies, a statement from one of ATO’s spokesperson made that truth more glaring. It stated that“the ATO is here to help those that are genuinely trying to meet their tax obligations. However, where people attempt to deliberately avoid these obligations, we will take strong action.”

Tax evasion is also viewed as a serious violation of federal law in Australia.


China

China believes that the way local currencies are treated should be different from how cryptocurrencies are viewed. No wonder 2017 saw China restrict cryptocurrency activities by banning all exchange and ICOs indefinitely. Right after that move, appropriate regulatory bodies made it clear that the main reason behind the ban was the issue of money laundering and tax evasion. 
Will the Chinese government ever lift this ban? 
Yes, but when it does, expect some laws guiding cryptocurrencies.

Different countries have varying laws on the operations of cryptocurrencies. As we have seen from the little we have covered so far in this lesson, regulatory bodies and judicial system does take a “soft handed” approach when it comes to non compliance either by ignorance or purposeful behaviour.

Did You Know? China is the only country to declare cryptocurrency as illegal. This declaration came in 2017 when it closed all exchange sites and ousted all ICOs on the basis of fraudulent activities. Some countries that are unsure of the prospects of cryptocurrencies placed several restrictions but created a framework to allow cryptocurrencies to operate. It is only China that has declared it as illegal.

1.3 Difference between Personal & Company Level

The Concept of Personal Taxation

This is the tax paid on one’s personal cryptocurrency income, which is different from the tax paid on a company’s cryptocurrency earnings. It involves all taxes that are paid by the individual, of which income and capital income taxes are a part of.

Some countries allow a form of separate assessment, which means that everyone arranges to pay taxes from their personal cryptocurrency income. It doesn’t matter how many people make up the family, the size of the family has nothing to do with it, nor is the gender of the breadwinner a determining factor on how much is paid as taxation. All that is taken into consideration is the income realized by the person earning any sort of income.

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The Concept of Company Taxation

Company taxation is the tax levied against a firm, a corporation, a company or a legal entity by the government. It is a percentage of the gains they make in a particular year. This gain is the difference between their selling price and their purchase price (where the purchase price is less than the selling price). Each company must comply with the tax regulations of the place they operate from. 
It is worth noting that if a company loses money during a financial year, they are likely to receive a taxation credit from the government equal to the taxation they would have paid had the amount they lost actually been a gain.

Generally, the regulations governing the taxing of individuals is not always the same with that for corporations.

Depending on the country, some organizations may be exempt from taxes because of certain reasons while some actions by a particular company may not be taxable.

1.4 Taxation as a Part of Personal Financial Decision Making

There is one universal certainty to be aware of, when you make or lose money, there is taxation.

If you are not compliant with the relevant taxation laws you will be punished heavily regardless of intention. When making financial decisions taxation must be taken into consideration too. In this part of the module, we will see how taxation is part of personal expenditures.


Comparison with Traditional Employment

Personal Income Tax (PIT) is imposed on an individual for the gross income he or she makes during a particular year. This amount to be paid is not a fixed amount; rather it is a variable amount. Personal income most of the time is commonly understood to be income from one’s employment. But we must also know what constitutes an employment.

An employment could be any of the following:

  • An individual holding a public office.
  • A position that someone occupies giving him/her a fixed periodic payment.
  • An individual employed directly or indirectly by another person on a long term basis.

So, when someone makes money as a result of any of the aforementioned reasons, they must pay tax based at the rate set by the regulatory body of the country where they live and work from (most times we live and work in the same country).

Comparison with Capital Gains

As a way of reminder, Capital Gains Tax (CGT) is the tax paid on the gains or profits that one makes when they sell or exchange certain types of assets. They are in most cases assets that you hold for a longer time (or so when the laws were created).

They are taxed differently from your personal income as they could be shares of stocks, a work of art, an inheritance that yields consistent dividends or a piece of land. Most developing countries have a designated flat rate for this, which is typically 10% of the capital gain/loss. Some more economically stable countries may require a person to pay as much as 50% capital gains taxation.

1. Determine the actual value of the asset in question when first received. 
2. To get your net sales, deduct your country’s set allowable expense from the ‘actual value’. 
3. To arrive at your Capital Gain, deduct the actual cost of acquiring the asset from your ‘net sales’ value. Or in other words, what it cost you to acquire the asset in the first place. 
4. Calculate 10% of the Capital Gain. That means you multiply the value by 10%.

An individual may have many long-term assets and as such, they are all taxable only when a transaction occurs such as selling your house. Many countries have slightly different rules and regulations surrounding discounts, capital losses, and the length of time in which they can be carried or transferred; It is always a prudent idea to consult a qualified and experienced accountant about your taxation affairs.

Influence on Spending Decisions

We all make decisions every day, decisions as to what we buy, how we saveIf you want to know more – buy the full course and get the profession of a future. UBAI.co

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