For individuals that are not considered businessmen/professionals in crypto, income tax is applicable. Income may arise from different sources: employment, investment, sales transactions.
Income tax arises when you dispose of your crypto. If you have a profit from this transaction, you may pay income tax on it.
Main rule to remember – if you hold a crypto for more than a year, you pay no tax at all. No matter how much profit you have made when disposing of such a crypto. It will be tax-free.
Tax office call this 1 year period a holding period. It starts from acquiring the asset and finishes with the transfer of the crypto to a third party for a consideration – such as a sale, or exchange for fiat or other crypto, or for goods and services.
For the tax purposes, disposal means “getting rid” of your crypto by any of the following means: Example
: you bought Coin A for €3000 and later sell it for €4000. You'll need to pay tax on the resulting €1000 gain.
- swapping, trading, exchanging one coin to another;
: You bought 1 Coin A for €2000. You exchange 1 Coin A for 10 Coins B. The market value of 10 Coins B is €3000 at the moment. Initially you paid €2000 to acquire Coin A. €3000-€2000 = €1000 which is your Capital gain for the tax purposes.
- use crypto to buy goods and services;
: You buy Coin A for €5000. Later Coin A increases in value and you use it to buy a new device that costs €7000. The €2000 difference is you gain and you shall pay tax on it, unless you had been holding Coin A for more than a year by the time you buy a device.
Another important rule to remember is tax-free limit which is €600 for the year 2022. Note that it’s not a tax-free allowance which you can deduct from your gains (reduce your tax base by €600), you start paying tax on crypto gains starting from €601 and your tax base will be equal to all your crypto gains received in the current year.
If your total gains are less than €600, you don’t need to pay tax. You are actually not even obliged to report these gains to the tax authorities. However, it’s recommended to do it for the sake of transparency.
Note that for the tax purposes you shall always take the Euro value of your crypto. You may use the trading platform data to get this information.