Your crypto earnings are subject to taxation. It is still necessary to know at what height and according to which mechanisms. Here are some tips to avoid the fiscal cold shower.
Baptistin Alaime fell into the pot of bitcoin in 2017. That year, the tax lawyer saw the arrival in his office of a first wave of crypto-investors. These early fans had invested in bitcoin a few years earlier and had just made substantial gains following a dramatic surge in the cryptocurrency star. “At that time, I knew nothing about it,” admits the lawyer. He decides to take an interest in the mechanisms governing the world of crypto and registers on a few platforms to better understand the nature of these new digital assets. Gradually, he develops a specialty in crypto-taxation.
In 2021, a second wave of investors arrives at his office. The latter have invested in altcoins (alternative cryptocurrencies to bitcoin), generated income from mining (computer process aimed at securing the network), they talk to him about staking, liquidity pool, DeFi (decentralized finance)… Baptistin Alaime continues his investigations and experiments in the crypto sector. To the point of becoming a crypto-investor himself. “I consider that I invest as a good father”, smiled the lawyer. Today, he publishes “Cryptomoney, cryptic taxes. Blockchain, banks and taxation” (Editions Ertsberg) with his colleagues from Tuerlinckx Tax Lawyers, lawyers Dave van Moppes and Jan Van Hemelen. This highly accessible book provides practical advice for investors wondering how the tax authorities will treat their cryptocurrency earnings.
“The tax issue should not be overlooked. Some crypto-investors still think that they will be able to keep their operations secret indefinitely. But this is not the case.”
“The tax issue should not be overlooked, advances Baptistin Alaime, senior associate at Tuerlinckx Tax Lawyers. If you have made substantial gains, you have to take the problem head on. Some investors still think that they will be able to keep these operations secret indefinitely. But that’s not the case.” Nobody is safe from tax audit, even if there are still few of them in the field of cryptocurrency. Furthermore, the tools available to the administration will gradually be strengthened. “When the European directive DAC8 is adopted, the exchange of information that exists in the banking sector will apply to cryptocurrency exchange platforms. It will then be the end of the secret,” explains Baptistin Alaime.
Although Belgium has not yet adopted tax legislation specifically adapted to cryptocurrencies, the tax authorities have been interested in the question for several years. The essence of the position of the tax authorities in this matter is found in around thirty decisions of the SDA, the advance rulings service, which decides on requests for tax rulings. The lawyer draws his tax analysis from these decisions, his expertise and his practice with his clients. In his book, he explains how to show your credentials to the taxman.
1. What crypto earnings are taxable?
Any gain made in cryptocurrency is likely to be taxed. The only possibility of escaping it is to demonstrate that these gains were acquired within the framework of wealth management as a good father.. This assumes a limited number of transactions, the fact that a small part of the heritage is devoted to cryptos or even a long period between the purchase and sale of cryptos. “Unfortunately, these criteria are subject to the assessment of the tax authorities. They are not precisely defined”, observes Baptistin Alaime.
If management as a good father cannot be demonstrated, capital gains in crypto are considered professional income or miscellaneous income. A professional profile is characterized by a high frequency of operations (several transactions per day), advanced technical or academic knowledge, substantial investments in computer equipment or even the provision of financial advice to third parties. YouTubers offering crypto-trading advice are warned.
Professional income is taxed according to the classic tax brackets, which are relatively high: from 25% to 50%. On the other hand, good news: losses can be carried forward indefinitely. Note that the costs related to this professional activity are deductible. This is the case, in particular, of the transaction fees that burden each crypto operation.
If the crypto-investment does not fall into either of these two categories, taxation as miscellaneous income (33%) applies. In this case, the losses can also be carried forward, but over a maximum of five years.
“What predominates is legal uncertainty, which is a nightmare for taxpayers. At present, it is almost impossible to obtain a clear and precise answer on the tax qualification of cryptocurrencies.”
The lawyer advises investors to dissect the operations they carry out. The idea is to be able, from the outset, to categorize them as a good father, professional income or miscellaneous income. Another tip: document operations, in order to be able to show the tax authorities, if necessary, that the category chosen corresponds to reality. The ideal is to favor cryptocurrency exchange platforms that allowprint “account statements” containing a history of transactions.
2. When is the capital gain taxed?
Capital gains made in crypto are taxable when the investor converts his cryptocurrencies into euros. But that’s not all. According to Baptistin Alaime’s analysis, they are also taxable during a conversion from one crypto to another crypto. A purchase of ether with bitcoin that generates a capital gain is therefore subject to taxation. If the investor carries out many operations, the calculation of the capital gain can turn into a puzzle. The lawyer advises using specialized software (Koinly, Cointracker, etc.) to precisely calculate the gains made.
3. Is mining taxed?
Cryptocurrency mining makes transactions secure. It gives access to “rewards” for the miner who makes his computing capacities available to the network. These rewards are collected in crypto. According to the lawyer, this activity, which generally requires heavy investments in specialized equipment, as well as technical skills, has every chance of being considered a professional activity. He therefore advises the minor to start from the principle that his income will be taxed as professional income. And this, even if mining is not the main professional activity of the miner. In this case, the taxation is significant (25% to 50%, depending on the brackets). But the costs related to this activity, in particular the purchase of equipment, can be deducted.
4. Is staking taxed?
Staking is a particular method of investing, which consists of “blocking” your cryptocurrencies or “lending” them to a platform, in exchange for the payment of rewards in crypto. According to the lawyer, these rewards can be compared to the payment of dividends as we know it in the stock market. In this case, staking generates movable income, taxed at 30%. If we follow the analogy with the stock exchange, a withholding tax is also due. Otherwise, losses are not deductible.
5. Are airdrops taxed?
Airdrops are cryptocurrency rewards offered to investors who support a young project. According to Baptistin Alaime, since these airdrops are “gifts”, they don’t have any aspect of risk. They are therefore perceived as part of the normal management of a heritage as a good father and are not taxed.
“The Belgian tax authorities will soon be aware of the profits you make on your crypto accounts.”
6. Declare your crypto accounts
Accounts opened on cryptocurrency exchanges can be compared to foreign bank accounts. As such, they must be mentioned to the National Bank, via the central contact point, as well as in the tax declaration. For the moment, the IRS cannot do much with this information. But, in the more or less near future (a European directive is in preparation), trading platforms will be required to share information about their customers with the tax authorities. “In other words, the Belgian tax authorities will soon be aware of the profits you make on your crypto accounts”, warn the tax lawyers of Tuerlinckx in their book.
3 questions to Baptistin Alaime
Lawyer at Tuerlinckx Tax Lawyers, Baptiste Alaime is co-author of “Cryptomoines, cryptiques taxes.”
Is the Belgian tax system suitable for investments in cryptocurrencies?
No way. What predominates is legal uncertainty, which is a nightmare for taxpayers. At present, it is almost impossible to obtain a clear and precise answer on the tax qualification of cryptocurrencies. While bitcoin appeared in 2009, no legislation has yet been passed. The tax administration has not adopted a circular on the subject. No court decision has yet established the beginnings of case law. We have to rely on rulings from the Advance Rulings Service, which are based on individual cases and do not answer all the questions. This situation is problematic because, in theory, the tax must be predictable and justified. But, currently, it is unclear how a cryptocurrency investor will be taxed.
Is Belgium lagging behind other European countries?
Yes, Belgium is lagging behind its neighbors. In France, specific regulations have been adopted. It indicates, in particular, very clearly that the gains made during a crypto to crypto transaction are not taxed. It brings legal security. Same thing in Germany, where the behavior of a good father is defined in a law.
There are still few rules in Belgium. Isn’t that what crypto investors are looking for?
Most customers don’t know how to deal with the tax authorities. They come to us because they panic at the time of the tax declaration or because they want to regularize their situation. But then they face penalties. They pay more tax simply because the system lacks clarity.
- Crypto winnings are subject to taxation.
- It is still necessary to know at what height and according to which mechanisms.
- In “Cryptocurrency, cryptic taxes”, the lawyers of Tuerlinckx Tax Lawyers give advice to avoid the tax cold shower.