Cryptocurrencies And Digital Assets: The Tax Implications in The USA, Switzerland, Thailand, And Vietnam

In Brief!

"Nothing is inevitable in life, except death and Taxes" (Benjamin Franklin). The same is applicable to investments in cryptocurrencies and digital assets.

Taxation was introduced into the global cryptocurrency and digital assets conversation in the most controversial and unconventional way in 2021.

The debate started in America when the Biden administration was trying to figure out how to offset the 3 Trillion infrastructure bill. Fortuitously for the democrats, it was the bull run season and the crypto market appeared to be the providential milk cow.

For crypto analysts, the idea to apply tax to crypto was not the issue. Taxation was expected sooner or later. But sneaking crypto taxation in a bill that has fundamentally nothing to do with traditional taxation policy, has ignited a serious polemic in the US Senate and House of Representatives!

Some senators such as Ted Cruz were very vocal against the bill and made clear that it was the most embarrassing piece of legislation in American history!

For him, this particular tax law knows no embarrassment! Cruz was very harsh and pointed out the anomaly of creating a tax for cryptocurrencies while there was no law or regulation defining what is a cryptocurrency. At the same time, the SEC and Ripple were locked in a strange and ruinous lawsuit just to determine if cryptocurrencies were commodities or securities!

The senator wondered how it was possible to pass a taxation law on cryptocurrencies "without in the hell knowing what cryptocurrency is"?

Despite the chaos, the initiative of the US government regarding the introduction of taxation for the crypto industry has set a precedent as governments around the world have joined the bandwagon and are still grappling with the challenges of regulating and taxing digital assets.

Cryptocurrency and taxation is now a very hot topic that deserves particular attention from investors to avoid problems with tax authorities.

As the saying goes fines and penalties are what is paid to the government when activities are done without compliance with the law. Taxes are what is paid to the government when business is done right!

Tax authorities in different jurisdictions have different views on the tax implications of digital assets and cryptocurrencies such as Bitcoin, Ethereum, Ripple, and many others.

It is interesting to have a closer look at the USA (not so crypto-friendly), compared with crypto-friendly countries such as Switzerland, Thailand, and Vietnam when it comes to applying taxation to digital assets activities and operations.

The Taxation Regime of Cryptocurrencies in the USA

As already pointed out, in the United States, the issue of cryptocurrency taxation has sparked controversy and debate, particularly in the context of the $3 trillion infrastructure bill.

Some argue that taxing cryptocurrencies is necessary to ensure government oversight and revenue generation, while others view it as an encroachment on individual freedom, a potential threat to the growth of the market, and a way to stifle innovation.

Beyond the debate, taxation of cryptocurrencies in the USA has become a reality that investors in digital assets have to cope with.

For the opponents of crypto taxation, the US government appears to do everything to hold back cryptocurrency innovation and protect the traditional banking and financial sectors, with the "regulation by enforcement" war waged by the SEC, and the "taxation by extortion" war waged by the IRS.

Ultimately, the issue of cryptocurrency taxation is likely to remain a contentious one for the foreseeable future in the USA as the market continues to evolve.

It is essential for investors to stay informed. By doing so, they can position themselves to capitalize on the potential opportunities presented by cryptocurrencies while navigating the potential risks and challenges of this emerging market.

The General Guidelines of the IRS

The taxation of cryptocurrencies and digital assets in the US is determined by the Internal Revenue Service (IRS), which treats them as property for tax purposes. This means that any gains or losses resulting from the sale or exchange of cryptocurrencies must be reported on the taxpayer's tax return.

Here are some key points to keep in mind:

1. Capital Gains Tax: Cryptocurrencies that are sold or exchanged for a profit are subject to capital gains tax. The capital gains tax rate depends on the taxpayer's income and the length of time they held the cryptocurrency.
2. Holding Period: The IRS distinguishes between short-term capital gains (assets held for less than a year) and long-term capital gains (assets held for more than a year). Long-term gains are generally taxed at a lower rate than short-term gains.
3. Mining Cryptocurrencies: The IRS also taxes mining income as ordinary income. If the taxpayer mines cryptocurrencies as a trade or business, they may be required to pay self-employment tax.
4. Gifts and Donations: If a taxpayer gifts or donates cryptocurrency, they may be subject to gift tax or income tax depending on the circumstances.
5. Reporting Requirements: Taxpayers who buy, sell, or receive cryptocurrency must report these transactions on their tax returns. Failure to do so can result in penalties and interest.

According to the IRS, capital gains from cryptocurrency trading are taxable, similar to traditional investments. However, the tax rate depends on several factors such as the length of time the asset was held, the type of transaction, and the taxpayer's income.

If the cryptocurrency is held for more than a year before it is sold, the taxpayer is subject to long-term capital gains tax rates, which are lower than short-term capital gains tax rates.

The Cryptocurrencies Tax Rates In the USA

The rates of taxation of cryptocurrencies and digital assets under the IRS in the United States vary depending on several factors, including the taxpayer's income and the length of time they held the asset. Here are some indications:

1. Short-term capital gains: Cryptocurrencies held for less than one year are subject to short-term capital gains tax, which is calculated based on the taxpayer's ordinary income tax rate. In other words, short-term capital gains are taxed at the same rate as the taxpayer's income tax rate.
2. Long-term capital gains: Cryptocurrencies held for more than one year are subject to long-term capital gains tax. The long-term capital gains tax rate depends on the taxpayer's income. For taxpayers in the highest income tax bracket (currently 37%), the long-term capital gains tax rate is 20%. For taxpayers in the lower income tax brackets, the long-term capital gains tax rate is either 0%, 15%, or 20%.
3. Mining income: Income earned from cryptocurrency mining is subject to ordinary income tax rates. This means that the tax rate will vary depending on the taxpayer's income level.

Although official guidelines can be helpful for more detailed information we strongly recommend seeking advice from a US tax attorney.

The Taxation Regime of Cryptocurrencies in Switzerland

Despite its current banking crisis, Switzerland remains one of the world’s most popular banking and financial centers. The country has been at the forefront of the adoption of cryptocurrencies for financial transactions since 2016.

The country is also emerging as an important center for blockchain and cryptocurrency businesses, which has led many companies to establish headquarters in the country.

A Crypto-Friendly Country

Switzerland is categorized as one of the most crypto-friendly countries in the world, and its tax regime reflects this. The Swiss Federal Tax Administration (SFTA) classifies cryptocurrencies as assets subject to wealth tax. However, capital gains from cryptocurrency trading are tax-exempt in Switzerland. This means that Swiss residents can trade cryptocurrencies tax-free. However, they are required to report their crypto holdings in their wealth tax returns, which vary from canton to canton.

The taxation authorities have a relatively hands-off approach toward cryptocurrency and blockchain technology. However, the government is currently working on clarifying the regulations to provide more detailed guidelines and promote transparency.

The Cryptocurrencies Tax Rates In Switzerland

In Switzerland, cryptocurrencies are regarded as asset tokens, utility tokens, or payment tokens, depending on their function.

Asset tokens are subject to securities law and are treated like traditional securities.

Payment tokens (like Bitcoin) are regarded as a means of payment.

Utility tokens are used to access a service or product, and they are not regarded as securities.

The SFTA has given clear guidance on Switzerland's crypto taxes.

For the most part - private investors won't pay Capital Gains Tax on their crypto gains, it's only businesses and self-employed traders who would pay Capital Gains Tax. So for many investors, in the so-called 'crypto nation' - you'll only pay Wealth Tax on your crypto, as well as potential Income Tax depending on the investor's specific crypto investments.

Although official guidelines can be helpful for more detailed information we strongly recommend seeking advice from a Swiss tax attorney. Alex Naray is a renowned Swiss expert in that matter.

The Taxation Regime of Cryptocurrencies in Thailand

In Thailand, digital assets and cryptocurrencies are regulated under the Digital Asset Business Emergency Decree B.E. 2561 (2018). The decree defines digital assets as rights to assets that are not legal tender, securities, or derivatives and are tradable online using electronic data storage devices.

The regulatory framework compels any person or entity operating a digital asset business to apply for a license and meet several requirements such as minimum capital and cybersecurity infrastructure compliance.

Cryptocurrencies in Thailand are regarded as intangible personal property under Thai law.

As far as taxes are concerned, the Revenue Department in Thailand considers cryptocurrency trading as a taxable income subject to personal income tax at a rate of 15-35% for Thai residents. Non-residents may also be liable for withholding tax of 15% on gains from cryptocurrency trading. VAT is not imposed on cryptocurrency transactions.

A Crypto-Friendly Country

Thailand is also categorized as a crypto-accommodating country. The Kingdom was one of the first countries in Asia to regulate cryptocurrencies within its borders in 2018.

According to the Digital 2022 Global Overview Report, 20% of the Thai population owns crypto-currencies, which is the highest proportion worldwide. Even though the use of digital assets for payments was banned in March 2022, Thai regulators remain tolerant and more likely to encourage the development of the crypto industry with flexible tax rules that may attract investors and create an ecosystem favorable for the digital assets business operation industry.

The Crypto Taxation Guidelines of The Revenue Department

The country's Revenue Department issued a regulation on cryptocurrency taxation. The law stipulated that cryptocurrency transactions are subject to a 15% withholding tax for corporate taxpayers and personal income tax for individuals.

The regulation, however, has been criticized for being unclear, and the management of the system has been challenging. Nevertheless, the Thai government has shown a willingness to support the blockchain and cryptocurrency sectors, attracting investments, and boosting the country's economy.

Definitions

The Thai Revenue Department (RD) gives a definition of cryptocurrencies and digital tokens (described together as “digital assets”) as follows:

• “Cryptocurrency” refers to electronic data built on systems or electronic networks to be used as currency for the exchange of goods and services, in compliance with the regulations of Thailand’s Securities and Exchange Commission (SEC).
• “Digital Token” refers to digitally recorded instruments built on systems or electronic networks, which have an intrinsic value and grant their holders rights to tradable assets or utilities.

Personal Income Tax (PIT)

Profits derived from digital assets are taxed under the progressive PIT up to 35%. In February 2022, the RD has launched official guidelines concerning the PIT on digital assets which apply to the tax year 2021. The transactions have been split into 5 categories:

• Trading means the sale, exchange, transfer, or disposal of digital assets.
• Mining is not considered an assessable income until the digital asset is traded.
• Remuneration means employment, self-employment, or performance of work income. Any WHT deducted from the remuneration must be included for calculation.
• A gift means awards, gifts, prizes, and cash equivalents.
• Return on investment from digital assets.

An individual taxpayer is required to include any income from digital assets when filing annual returns (PND90, PND91). A taxpayer can also use the WHT amount as a tax credit to offset against the calculated PIT.

Calculation

PIT is calculated using either the First In First Out (FIFO) or Moving Average Cost (MAC) methods. For mining, using the FIFO method is mandatory and the mining costs (bills, wages, computer maintenance…) can be deducted as expenses.

PIT owed due to remuneration, gifts, and return on investment is calculated using either: (i) the trading price on the payment date; or (ii) the average daily price on the payment date.

The FIFO method assumes that the digital assets purchased first are sold first. For example, a purchase of 100 X-coins in February at $1 each and 400 X-coins in August at $1.5 each. If you sell 300 X-coins in October at $2 each, you will make a taxable profit of $200 (100 x ($2 - $1) + 200 x ($2 - $1.5).

The MAC method adds up the prices of all digital assets purchased during the year and divides the sum by the total digital assets owned.

For example, a purchase of 100 Y-coins in February at $1 each and 400 Y-coins in August at $1.5 each. The average price of a coin is: $1 x 100 + $1.5 x 400 / (100 + 400) = 700 / 500 = $1.4. If you sell 300 Y-coins in October at $2 each you will make a taxable profit of $180 (($2 - $1.4) x 300).

Tax must be calculated by each coin type. Once a method has been selected, it must be kept during the whole fiscal year. Any loss from digital asset trading can be offset against profits incurred in the same tax year if such trading is conducted through the exchange platforms approved by the SEC.

Withholding Tax (WHT)

All gains made from digital assets trading are subject to a 15% WHT, this concerns:

• Individuals (resident and non-resident)
• Foreign companies or juristic persons who do not conduct business in Thailand but receive assessable income paid from or in Thailand.

If the transaction is conducted via digital asset exchanges approved by the SEC, the payer does not have to deduct WHT.

Value-Added Tax (VAT)

A digital asset is considered a type of electronic service, therefore companies that sell products or provide services to clients related to digital assets must collect VAT at 7% of the sale price.

However, the Royal Thai Government Gazette has formally announced a VAT exemption for the transfer of digital assets traded in the exchange platforms approved by the SEC and for the transfer of digital currencies launched by the Bank of Thailand (Retail Central Bank Digital Currency).

This exemption is in place from April 1, 2022, until December 31, 2023.

Calculating taxable income with the indicated methods can be very complex.

Therefore we recommend the assistance of professionals for preparing and filing PIT returns and also for creating a crypto-asset-related business in Thailand.

The Taxation Regime of Cryptocurrencies in Vietnam

Vietnam stands out as a very unique country regarding the cryptocurrency sector. The country's cryptocurrency industry has been growing rapidly in recent years, with many businesses and startups entering the market without any local legal or regulatory framework.

The landscape of cryptocurrencies and digital assets in Vietnam is a testimony that regulation is not necessary to allow the crypto industry to blossom.

But the lack of crypto regulation in Vietnam creates a paradoxical situation. On the one hand, it allows for innovation and growth in the industry, which are bringing economic benefits and creating jobs. On the other hand, it also creates uncertainty and risk for investors and consumers, who may be unsure of how to navigate the legal and financial implications of cryptocurrency transactions.

To go around this situation, many projects are legally established in foreign jurisdictions while operating in Vietnam.

Some experts have called for the Vietnamese government to establish clearer regulations and guidelines for the cryptocurrency industry. This could help to provide more certainty and stability for businesses and investors, while also ensuring that the industry operates in a safe and secure manner.

Cryptocurrency As a Property

in June 2019, the Vietnamese government passed a law that recognized cryptocurrencies as a form of property. This law provided legal recognition for cryptocurrency transactions and ownership rights and allowed individuals and organizations to use cryptocurrencies as collateral for loans.

The recognition of cryptocurrencies as a form of property was a significant development for the cryptocurrency industry in Vietnam, as it provided a legal basis for transactions and ownership. However, it's worth noting that the law did not provide a comprehensive regulatory framework for the industry, and many issues related to cryptocurrency trading and taxation are still being worked out by the government.

Overall, the regulatory environment for cryptocurrencies in Vietnam is still evolving, and it remains to be seen how the government will continue to balance the potential benefits and risks of this rapidly growing industry.

Regulations of Cryptocurrencies By Taxation

In absence of specific crypto regulation in Vietnam, it is fair to say that the country has adopted what may be referred to as "Regulation by Taxation".

In July 2021, the Ministry of Finance in Vietnam proposed a draft plan for the taxation of cryptocurrencies. According to the proposal, individuals and organizations that conduct cryptocurrency transactions would be subject to a 1-3% tax on the transaction value. This tax would be applied to both domestic and overseas transactions.

The proposal also suggests that cryptocurrency mining and trading activities should be considered business activities and would be subject to corporate income tax. The tax rate would depend on the level of profit earned by the individual or organization.

Furthermore, the proposal suggests that cryptocurrency exchanges should be required to register with the government and obtain a license to operate. These exchanges would also be subject to taxation.

It's also worth noting that the Vietnamese government has been taking steps to regulate and monitor cryptocurrency transactions in recent years. In 2018, the State Bank of Vietnam banned the use of cryptocurrencies as a means of payment, and in 2019, the government passed a law that recognized cryptocurrencies as a form of property. This means that for the time being the general regime of taxation in Vietnam will also apply to cryptocurrencies and activities on digital assets.

Conclusion

Tax implications of digital assets and cryptocurrencies vary from country to country. Each jurisdiction approaches cryptocurrency taxation differently, reflecting their differing policies, economic priorities, and regulatory philosophies.

Consequently, investors in cryptocurrency must seek the advice of specialists, on taxation rules, and regulations applicable in their country of residence, as well as the jurisdictions of the crypto exchanges they use.

The USA, Switzerland, Thailand, and Vietnam have different approaches to taxing cryptocurrency investment, holding, and transactions.

While the USA taxes capital gains from cryptocurrency trading based on the type of transaction and the length of time the asset was held, Switzerland exempts capital gains tax from cryptocurrency trading, Thailand imposes personal income tax on gains from cryptocurrency trading, and Vietnam assimilates digital assets as property for the purpose of taxation.

It is essential for individuals and businesses trading in cryptocurrencies to be aware of the tax implications of their transactions to avoid any legal repercussions.

End

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