Bitcoin / Cryptocurrency tax

Bitcoin and other virtual means of payment
Virtual payment methods, such as bitcoins, are stored on your computer. You can only use them as means of payment on the Internet. You declare the fair value of these means on January 1 of the year of declaration."

Source: Belastingdienst Nederland

Explanation of cryptocurrency taxation

Of course, the emergence of cryptocurrencies has not escaped the tax authorities either. After all, a new category of assets also requires new regulations on how to tax them. Although, due to the (semi) anonymous nature of cryptocurrencies, it may seem tempting to evade taxation, it is probably not wise. In the event of a sudden rise in value, you will be left with a large amount of black money. Should you ever intend to make a substantial profit from your investments, you will need to be able to explain your money flows. However, for many people it is still unclear exactly how this works. In this article, we will discuss declaring Bitcoin, Ethereum and other cryptocurrencies to the tax authorities and the taxes that apply to them.

Basis Savings and Investments / Crypocurrency tax

For the average investor, cryptocurrency should be declared under the "other assets" category . This ultimately means that the coins are taxed in Box 3. This is similar to other investments such as stocks, bonds, and real estate. The implication is that tax must be paid on the total value of your assets minus the tax-free assets. For 2017, the tax authorities have set this amount at €25000 or €50000 for people with a tax partner. The part of the capital that remains after deducting the levy-free part is called the "basis savings and investments." Finally, you still have the option to declare certain debts, for example study debt, in box 3. This will also reduce the assets on which you pay tax. The condition is that the debts are higher than €3000,- or €6000,- for people with a fiscal partner. The remaining capital is then subject to wealth tax.

Note the Reference Date

An important detail to mention is that the value of your assets is determined based on the price on January 1 of the year you file your tax return. Thus, if you will soon fill out your 2017 tax return, you will need to enter the value of your number of coins times the price on January 1 of that year. For 2017, that seems to be very advantageous for investors in the most common coins. The price was slightly above $430 for Bitcoin, for example, and for Ethereum it was barely even above $8. However, it can also happen that the price drops from the reference date. This could put you in a situation where you have to pay taxes on a larger amount than you own at the end of the year. For this reason, it is wise to think about the amount of tax you will have to pay and to choose a favorable moment to put money aside to pay it.

Calculating your Wealth Tax

Wealth tax used to be very easy to calculate. The government assumed a notional 4% return on assets and charged 30% tax on that return. This effectively amounted to 1.2% tax on the entire taxable capital. So you do not pay over the actual profit you managed to make, but only over the return that the tax authorities adopted as the standard. Herein also lies the logic of gauging assets at the beginning of the year. After all, returns are calculated on the value at the beginning of the year.

In 2017, tax on income from assets was transformed into a slightly more complicated, but more progressive system. In doing so, the tax authorities have assumed that more returns can be made on higher assets, because relatively speaking, more money can then go into investments compared to savings. The new system is divided into three brackets, these are as follows:

DiskYour (part of the) basis
savings and investments
Percent
1.63%
Percent
5.39%
Percent
average
return
1Up to and including €75,00067%33%2,871%
2From €75,001 to €975,000.21%79%4,600%
3From €975,0010%100%5,39%

In this, the percentages give the notional return (previously 4%) on which 30% tax is then levied. So in bracket 1 you effectively pay 2.871 * 0.3 = 0.8613% tax and in brackets 2 and 3 1.38% and 1.617% respectively.

Case study

Now suppose you have €216125 in taxable assets and no deductible debts.

For 2016, you paid:

0,012 * 216125 = €2593,50

For 2017, you will pay over this amount:

75000 * 0,008613 + (216125 - 75000) * 0,0138 = €2593,50

From this it can also be deduced that in the new system you will have to pay more in taxable capital from €216125,- than in the old situation.

Wealth tax in box 3
 through 2016 2017 
Taxable assets€ 216.125 € 216.125 
 0.012xSee table=
Wealth tax€ 2.593 € 2.593 
Calculating wealth tax box 3 - 2017
  Savings Share  Investment portion 
1st slice67%€ 50.250 33%€ 24.750 
2nd bracket21%€ 29.636 79%€ 111.489 
3rd bracket0%€ 0+100%€ 0+
Basis € 79.866  € 136.239 
Calculation efficiency 1,63%x 5,39%x
Basis € 1.302  € 7.343 
Wealth tax30%x (€ 1.302 + € 7.343) =€ 2.593 

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