Cryptocurrency Taxes: How They Work in Europe

Cryptocurrency Taxes: How They Work in Europe

Investments in cryptocurrencies have increased in recent years. To provide a framework for their functioning and prevent the shadow turnover of funds, European countries have defined tax rules for citizens who conduct transactions with crypto assets.

We have reviewed the features and differences between the tax regimes of different countries and identified the states with the most favorable and strict investment climates.

Why Is It Necessary to Pay Taxes on Crypto Transactions?

Most European countries require paying taxes on cryptocurrency profits, and there are several reasons for this:

• Tax treatment of financial assets: cryptocurrencies are considered financial assets in most countries and are subject to the same taxation rules as other assets, such as real estate or securities.
• The principle of tax equality: by levying taxes on the sale of crypto assets, the state ensures tax equity between taxpayers and fights against tax loopholes.
• Income generation: any income from transactions with digital assets is subject to taxation if it does not result from professional activity.

At the same time, the tax rules for crypto assets differ significantly from country to country.

What Taxes Are Charged on Cryptocurrencies?

In Europe, there are two types of taxes on crypto: income and capital gains.
 You make a profit when you earn crypto tokens. Possible sources of income:

• Receiving a salary or fee in crypto;
• Receiving cryptocurrency in exchange for goods or services;
• Mining and staking cryptocurrency;
• Airdrops;
• Receiving various incentives (for example, referral bonuses in crypto).

Capital gains may occur as a result of the alienation of cryptocurrency. Possible cases:

• Selling coins for fiat currency (when you sell cryptocurrency at a higher price than you bought it).
• Exchanging one cryptocurrency to another to generate income.
• Purchasing goods or services with cryptocurrency (this is perceived as selling cryptocurrency).

No taxes are charged for the storage of cryptocurrencies. That is, if you bought a few Bitcoins to diversify your investment portfolio and increase your savings, you will not have to pay for keeping the coins in your wallet until you want to sell them.

Which Countries Have the Highest Tax Rates?

Denmark is at the top of the list of countries with the highest tax rates ranging from 37% to 52.06%. It is followed by Sweden with a rate of 30% and Portugal with a rate of 28%.
 The next 10 places 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%).

Until recently, Portugal was considered the most popular country where cryptocurrencies were not taxed. Since 2023, the country has been applying a 28% rate to short-term cryptocurrency gains held for less than a year. Long-term gains are still tax-free, as are cryptocurrency exchanges and NFT transactions. Remuneration for staking and mining is now treated as business income and taxed according to commercial tax rates.

Which Countries Have Low Crypto Taxes? 

Below Bulgaria in the ranking are Lithuania (with a tax rate of 5% to 20%), Belgium (0%-50%), and Finland (0-34%). These countries can apply a tax rate of 10% or lower under certain conditions. The other European countries follow them:

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

In some countries, the crypto tax rate is 0%. Investors call these countries “tax havens.” These countries include Malta, Cyprus, Greece, Slovenia, Estonia, and Germany.
 There is one caveat regarding Germany: the tax rate will be 0% if the capital gain is less than 600 euros or if the investor has held the cryptocurrency for more than a year before selling it.
 Luxembourg has a similar system. Cryptocurrency holders who have held assets for less than six months are exempt from tax, while all others must pay 25% of the capital gains from the sale.

Why Do Tax Rates Differ Across Countries?

For example, in France, no tax is levied if the profit from cryptocurrencies does not exceed 305 euros. In all other cases, a flat rate of 30% applies, which consists of income tax (12.8%) and social security tax (17.2%). In Denmark, transactions with Bitcoin and altcoins are taxed at up to 52.06% (37.1% for income of EUR 74,300 and + 15% if this amount is exceeded).
 Four factors can explain differences in tax regimes between different countries:

• National tax legislation: Each country has its own system with specific rules that determine how cryptocurrency income should be treated.
• Cryptocurrency classification: In some countries, cryptocurrencies are treated as financial assets, while in others, they are treated as commodities, which affects tax rates.
• Tax and policy goals: some countries adopt a more favorable approach to taxation to encourage the introduction of cryptocurrencies, while others try to maintain fiscal stability by creating difficult conditions for crypto investors.
• International cooperation: Europeans have developed some international cooperation measures to harmonize tax rules, but not all countries apply them in full.

As a cryptocurrency owner, you should understand the specifics of taxation to optimize your investments in the European market and avoid penalties.