Cryptocurrencies and taxes - an overview
Digital currencies such as Bitcoin, Ethereum or Ripple have long since found their place as an alternative form of investment. However, the increasing popularity of these assets raises new questions - particularly with regard to tax treatment. Individuals and Businesses alike would do well to familiarize themselves with the current rules.
What types of cryptocurrencies are there?
There are three main types for tax purposes:
- Payment tokens (e.g. Bitcoin): primarily serve as a means of payment.
- Investment tokens: can embody participation rights (similar to shares) or contractually regulated cash payments.
- Usage tokens: offer access to digital services without containing monetary rights.
Depending on the structure, there are different tax consequences, whereby the following tax principles apply.
Tax treatment for Individuals
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Wealth tax: Cryptocurrencies are considered movable, intangible assets and must be declared at market value as at December 31. The Federal Tax Administration (FTA) publishes official tax values for many common cryptocurrencies every year. Market values from trading platforms can be used for non-listed tokens.
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Income tax: Profits from the sale are tax-free - provided there is no commercial activity. However, if criteria such as short holding periods or high transaction volumes are met, capital gains are considered taxable income.
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Other income: Income from staking, airdrops or mining is subject to income tax. Compensation in the form of cryptocurrencies (e.g. from the employer) also counts as taxable income.
And what about Businesses?
Legal entities must account for their cryptocurrencies correctly. Two valuation approaches are possible:
- Acquisition cost principle: Valuation at the original purchase prices, any losses in value must be taken into account.
- Market value principle: Valuation at current prices, provided there is an active market. This allows a realistic presentation in the balance sheet. Losses and gains must be recognized in the income statement.
Income from staking, airdrops or sales also counts as taxable business income. Proper documentation of all transactions is essential.
Conclusion
While Individuals can benefit from tax-free profits under certain conditions, Businesses are subject to clear rules for recognizing profits in the income statement. Developments in the crypto sector are progressing rapidly - making it all the more important to stay on the ball when it comes to tax.
