By now, you’ve probably filed your 2020 taxes since the May 1 deadline set by the Dutch Tax and Customs Administration is long overdue. With the Netherlands being among the fastest cryptocurrency adopters, you’re required to declare your digital currencies’ activities when filing your taxes. In addition, the Dutch tax authority, the Belastingdienst, regularly publishes guides and updates on taxation around cryptocurrencies to help you understand the taxpayer's role. That notwithstanding, some grey areas remain unclear to date and may require case-by-case follow-ups.
Herein, we show you how to handle your cryptocurrency tax events professionally to help you avert penalties and fines.
Taxation of cryptocurrencies in the Netherlands
Mining and trading of cryptocurrencies in the Netherlands are treated as property ownership and taxed as capital gains on assets. Therefore, based on the changes during the year (from January 1 to December 31), you will either be required to declare a capital gain or loss.
In other words, if you bought a Bitcoin today and it gains value by the close of the year, you’ll be required to pay taxes on the profit made between January 1 and December 31.
How to record taxes on Cryptocurrencies
During a tax year, gains or losses on your cryptocurrency activities are recorded in Box 3 of the return form. The applicable tax bracket will be evaluated based on total gains less total losses during the year of return. Once you do that, you’ll either end up with a net income or loss. Losses are not subjected to taxes, and gains are taxed based on the applicable tax bracket.
Note that tax brackets are generally cumulative – this means that even if your taxable income exceeds the first tax bracket, you’ll be required to compute for all the previous brackets as you move along. As such, you’ll calculate tax on the lower brackets up to the last tax bracket covering your net gains.
Tax treatment of business Cryptocurrency Activities
When undertaking cryptocurrency activities as a business, the tax treatment will be different from the one above. In such a case, your digital assets’ activities will be considered income-generating and not assets. This is because your business will be taken to be an investment or mining company engaging in a profit-generating venture. However, the cryptocurrency transactions may need to pass a threshold test to be considered as business activities. Talk to a Dutch accountant or tax attorney if you’re not certain about the treatment of your crypto transactions.
Exempted cryptocurrency Transactions
Like with your conventional business transactions involving fiat currencies, not all crypto activities are subjected to Dutch taxes. For example, consider the transactions below tax-free in the Netherlands:
· A cryptocurrency purchase using fiat such as the Euro. Buying BTC using Euro on NEXT. Exchange is tax-free. The same applies to most other Dutch exchanges. For example, if you purchased NEXT. Coin worth EUR 100 and held throughout the year, the transaction would not be taxable. However, as earlier indicated, the tax would only apply to any profit gained from the purchase during that year.
· Donations and contributions to charities or tax-exempted organizations. Sending crypto contributions to charities or tax-exempted organizations does not amount to taxable activities. For instance, a gift of Ethereum worth EUR 1,000 to a homeless shelter is not subjected to tax.
· Issuing cryptocurrency as a gift (as long the amount does not exceed EUR 12700 or USD 15,000). The Dutch tax authority sets a maximum non-taxable gifting threshold at EUR 12700, and the same applies to equivalent crypto amounts. Nonetheless, transactions after that may be subjected to applicable taxes. So, for example, if you gifted your son BTC worth EUR 500, it is not a taxable event. However, if he uses the donation say to invest, they’ll be taxed on any resulting gains.
· Wallet-to-exchange or vice versa transfers. Sending crypto to your wallet from an exchange or vice versa does not result in a taxable activity, as long as they are not traded or exchanged upon transferring. For example, moving your BTC from NEXT. Exchange to your wallet is a non-taxable transaction. However, if you exchanged the coins and made any gain (profit), taxes would apply.
There you have it - I sure hope you grasped a tip or two on handling crypto tax matters.
As a side note, tax treatments tend to change with each tax year, be sure to check with your tax accountant or attorney before making any conclusions.
Until then, happy crypto investing!!!