Italy’s 26% Crypto Tax Signals Diminish Havens

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Italy’s 26% crypto tax highlights different global approaches to crypto taxation.

When crypto assets first exploded onto the world stage, governments rushed to tax the fast-moving and often highly profitable industry. But given its newness, it wasn’t immediately obvious how best to approach it, and the different tax regimes ended up taking different forms.

As is often the case when it comes to regulating crypto, the challenge is whether tokens are treated as securities or currencies.

In the latter case, profits from trading virtual assets are only subject to income tax for individuals or corporate tax for corporations. For the former, however, traders and investors are also required to pay capital gains tax, a levy on the profit they make when they sell an asset for more than they paid. .

In this context, several countries, including the United States and the United Kingdom, have chosen to treat crypto assets as securities, and therefore subject to capital gains tax. Indeed, Italy’s move to tax crypto profits brings the country in line with other mainstream economies and ends its era as a crypto tax haven.

And with crypto investing far more commonplace than it was in the early years, not to mention heightened investor outrage amid the ongoing fallout from the FTX scandal, crypto tax havens are on the rise. more and more in the spotlight and make this decision timely.

The rise and fall of crypto tax havens

While several EU member states still have much more favorable policies that allow crypto profits not to be taxed, Italy’s new crypto tax follows a similar move by Portugal last year. to crack down on tax evasion and close tax loopholes.

Additionally, the various EU initiatives to regulate crypto exchanges and crack down on exchanges operating without a license aim to give tax authorities more leeway to identify the owners of crypto assets. And an upcoming anti-money laundering directive that should limit the use of private coins should also effectively limit their use as a means of concealing taxable income.

All in all, Italy’s 26% tax on crypto profits is far from the most onerous imposed in the world. For example, compared to Iceland’s 46% rate on gains over $7,000, Italian crypto traders are still getting a bargain.

And with major economies increasingly taxing crypto assets the same way they tax other non-cash assets, traditional tax havens like Bermuda, Liechtenstein, and the Bahamas, perhaps unsurprisingly, have so far opted to pursue a low-to-no tax approach to crypto. .

For example, now-defunct cryptocurrency exchange FTX ran its global operations from the Bahamas, raising questions about whether regulators could have prevented its mismanagement.

However, the problem is not isolated to a single jurisdiction. Rather, it seems to stem from the fact that the legal and technological frameworks for effective cross-border oversight of the crypto industry, including its taxation, are still not in line with the standards of traditional financial assets.

But as the crypto-economy matures, the international regulatory architecture needed to support, support and effectively tax should grow, closing the gaps, clarifying the rules and setting the accounting standards for businesses and individuals who own and operate transactions with digital assets.

Italy’s move to bring crypto under the capital gains tax umbrella is just the latest development in this journey.

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