Taxes

Brazil signs overseas crypto tax bill into law

Under the new rules, Brazilian citizens will pay the state up to 15% of their crypto profits.

The President of Brazil, Luis Inácio Lula da Silva, has signed a law introducing taxes on crypto assets held abroad by Brazilian citizens.

Lula signed the law on Dec. 12, which was then published the following day in the Diário Oficial da União, or the Official Diary of the Union. The law will come into force from Jan. 1, 2024.

The new taxes will not apply exclusively to crypto but also to profits and dividends gained by Brazilian taxpayers from investment funds, platforms, real estate or trusts abroad. The Brazilian government intends to collect around 20 billion reals ($4 billion) of new taxes in 2024.

US accounting standards board rules will reflect institutional crypto assets’ fair value

The U.S. FASB has decided that crypto assets will be represented at their fair value in accounting beginning late next year.

Crypto companies and institutions holding crypto assets will be able to record the value of their crypto more realistically under accounting rule changes in the United States.

The Financial Accounting Standards Board (FASB) finalized the new rules on Dec. 13. The FASB is the organization that sets accounting and reporting standards for the U.S. Generally Accepted Accounting Principles (GAAP). GAAP-standard financial reports are required from companies that trade on public markets in the United States.

Kenyan crypto tax bill makes it through parliamentary committee

The Capital Markets (Amendment) Bill will now be introduced to the lower chamber of the Kenyan parliament.

A bill defining crypto assets as securities and imposing capital gains tax on them has made it through a Kenyan parliamentary committee.

According to the Kenyan newspaper Business Daily on Dec.

“This is a very critical law that will guard our country against proceeds of crime and terrorism financing. We approve this Bill for publication.”

After the Committee’s approval, the bill will head to the reading stage in the National Assembly, the lower chamber of the Parliament of Kenya.

The Capital Markets (Amendment) Bill, 2023, amends the country’s tax code, imposing taxes on crypto assets stored on crypto exchanges and digital wallets.

Should the bill pass, citizens of Kenya would be obliged to declare all their crypto assets and their value in Kenyan shillings to the Kenya Revenue Authority.

“A person who possesses or deals in digital currency shall provide the Authority with the following information for tax purposes—the amount of proceeds from the transaction, any costs related to the transaction and the amount of any gain or loss on the transaction.”

While Kenya is only preparing to introduce its crypto taxes, the tax services in other countries have recently been quite vocal in their desire to chase all those who didn’t declare their crypto accurately.

IRS team reports rise in crypto tax investigations

According to the fiscal year 2023 report, the IRS unit investigated failures to disclose crypto holdings and report on capital gains for transactions.

The Criminal Investigation (CI) Unit of the United Internal Revenue Service (IRS) reported an increase in the number of investigations around digital asset reporting.

In its annual report released on Dec. 4, the IRS investigative arm said it had initiated more than 2,676 cases in which it had identified more than $37 billion related to tax and financial crimes in the 2023 fiscal year.

“These investigations consist of unreported income resulting from failure to report capital gains from the sale of cryptocurrency, income earned from mining cryptocurrency, or income received in the form of cryptocurrency, such as wages, rental income, and gambling winnings,” said the Criminal Investigation Unit.

Our FY23 Annual Report highlights more than 2,600 investigations, $37.1 billion identified from tax and financial crimes. #IRSC #ByTheNumbers #WhatWeDoCounts
https://t.co/B1hZw8ClXm pic.twitter.com/EZWQKNB2uu

— IRS Criminal Investigation (@IRS_CI) December 4, 2023

Starting in 2019, the IRS began requiring U.S. In the report, CI chief Jim Lee said that “most people using cryptocurrency do so for legitimate purposes,” but digital assets pose a risk for financing terrorism, ransomware attacks, and other illicit activities.

Since it began increasing efforts to investigate crimes involving cryptocurrency in 2015, the IRS has seized more than $10 billion in digital assets.

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Tax services are getting pushy to have crypto declared: Law Decoded, Nov. 27–Dec. 4

Spain and Brazil are chasing cryptocurrency stored abroad, while the U.K. wants taxes paid for crypto assets that weren’t previously declared.

Last week, His Majesty’s Revenue and Customs (HMRC) presented an unpleasant Christmas surprise to hodlers in the United Kingdom, demanding they declare any crypto holdings they failed to report in the last four, six or even 20 years. The disclosure must include “exchange tokens,” such as Bitcoin (BTC), as well as any nonfungible tokens (NFTs) and “utility tokens.”

Less harsh in its demands, the Spanish Tax Administration Agency has also reminded its citizens about their obligations to declare crypto, even if they store it abroad.

Brazil will also proceed to tax its citizens’ foreign crypto holdings via a bill already passed in the Chamber of Deputies and expected to be approved by President Luiz Inácio Lula da Silva. The change makes those funds taxable at the same rate as domestic funds.

The SEC is still digging into Binance.US

The United States Securities and Exchange Commission is still looking for evidence that Binance.US had a backdoor to potentially control customer assets similarly to FTX. Anti-Money Laundering laws as part of a $4.3 billion settlement with the U.S.

The future of crypto taxes: Understanding the ever-changing landscape

Crypto taxation remains to be a controversial space, though some transparency is expected.

A closer look at the current state of crypto taxation worldwide reveals a trend toward increased regulation and maturity, with many governments recognizing the potential benefits of blockchain technology in various sectors. As the blockchain and cryptocurrency industry continues to evolve and gain mainstream adoption, the regulatory landscape surrounding them is also evolving rapidly.

Cointelegraph Research has recently published its Crypto Taxation Database, which takes a closer look at approaches to crypto taxation on a country level and contains the following features:

A comprehensive overview of crypto taxation by country — i.e., tax rates, tax laws and tax policies.
A clear distinction between taxable and non-taxable events.
Helpful information for investors, businesses and policymakers interested in understanding taxation requirements in different jurisdictions.

For example, in Europe, there has been an active promotion of the use of blockchain technology in finance, logistics and healthcare. The European Securities and Markets Authority (ESMA) has issued guidance on regulating initial coin offerings. The European Parliament has called for a comprehensive approach to regulating cryptocurrencies.

Explore the Crypto Taxation Database by Cointelegraph Research

In Asia, South Korea has announced plans to tax cryptocurrency exchanges and implement a 20% crypto earnings tax that was delayed from January 2023 until 2025. However, questions on how to regulate and tax cryptocurrency transactions arise, highlighting the need for a comprehensive approach on a global scale.

Tax treatment depends on the classification

The classification of a cryptocurrency as an asset, currency or property in various jurisdictions is of utmost importance for individuals to comply with tax laws and regulations.

When a country classifies a cryptocurrency as an asset, it is treated similarly to other types of assets, such as stocks, bonds or commodities. This means that gains and losses from the sale or trading of cryptocurrency are subject to capital gains tax.

When a country classifies cryptocurrency as a property, it is treated similarly to a car or a piece of jewelry. The Internal Revenue Service (IRS), for example, classifies cryptocurrency as property in the United States, meaning taxpayers must report capital gains or losses on their tax returns.

The tax rate on cryptocurrency gains in the U.S. varies depending on whether the gains are short-term (one year or less) or long-term (more than one year). For example, in 2023, the standard income tax rates range from 10% to 37%, depending on the individual’s income level. The long-term capital gains tax rates for 2023 would range from 0% to 20%, depending on the individual’s income level.

If you want to learn more about taxation rates regarding various crypto activities worldwide, make sure to utilize the data collected in the Cointelegraph Research Crypto Taxation Database.

How to handle crypto gains and mining income

There are various tax reporting requirements for individuals and businesses. Some countries have established legislation or guidelines aimed at tackling these concerns.

In Germany, cryptocurrencies are classified as assets, and profits from the sale or exchange of cryptocurrencies are subject to capital gains tax. Additionally, Germany has an extensive guide on computing and managing taxes, covering topics ranging from decentralized finance (DeFi) to nonfungible tokens, and even tax-free earnings subject to certain exemptions.

For example, if your short-term investment profits total less than $600 annually, you are not required to pay taxes, or if you hold your cryptocurrency for a year before spending it, you are exempt from taxes. Though, most countries are still working to determine the best approach.

Income from mining or staking is also one of the key concerns regarding crypto taxation. Some countries treat income from mining or staking as ordinary income, while others classify it as a capital gain. This can affect how much tax is owed and how it should be reported. In the United States, income from mining or staking is taxed at an individual’s marginal tax rate of 10%–37%, as it is considered a business activity rather than a capital investment.

In Canada, income from mining or staking is also generally treated as ordinary income and is subject to income tax at the individual’s marginal tax rate ranging from 20.5% to 33% federally, with additional provincial taxes ranging from 0% to 21%. In contrast, some countries, such as Singapore, classify income from mining or staking as a capital gain, which is generally not taxed, although individuals who engage in mining or staking activities may still be subject to other taxes.

Keeping up with the changes

As the crypto industry continues to grow and develop, there is a growing trend toward adopting standardized approaches to taxation, which is likely to continue in the future, along with greater clarity and transparency for those involved in the space. For example, Switzerland offers tax exemptions for crypto-related activities, including holding cryptocurrencies and transferring them between wallets, generally providing a well-defined regulatory framework for businesses operating within the digital currency sector.

Individuals and businesses should keep themselves informed about the latest regulations and seek professional advice to comply with the law and reduce their tax burden. For instance, an announcement made by Chancellor of the Exchequer Jeremy Hunt on March 15, 2023, impacts United Kingdom taxpayers who must file their crypto profits separately starting from 2025.

The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.

As a crypto investor or trader, it is crucial to be aware of any changes in tax laws and reporting requirements in your country or region and ensure compliance with those regulations to avoid legal consequences. To stay up to date with all the taxation rules, rates in different jurisdictions and taxable events, you can use Cointelegraph Research Taxation database.

Spanish tax agency to send over 328K notices to crypto holders

According to the fiscal authority, the number of potential taxpayers who failed to declare their crypto assets rose by 40% in a year.

The Spanish Tax Administration Agency (AEAT) is increasing its efforts to charge the local holders of crypto assets. The AEAT intends to dispatch 328,000 warning notices to those who should pay their taxes on crypto for the 2022 fiscal year.

According to the local newspaper El Mundo, the number of notices increased by 40% in a year, with 150,000 warnings in 2022. However, the fiscal authorities appear to be taking the matter seriously only recently, with just 15,000 notifications in 2021.

However, such activity isn’t focused solely on crypto, with more than 660,000 notices to be sent this year to those who underreported their rental income and 807,000 for their income abroad.

The notices represent the voluntary invitation to pay the tax, which varies between 19% and 23% for gains obtained through selling digital assets. Those who won’t pay the taxes in time would be subject to an additional 26% fine, calculated from the number of unpaid funds.

According to the National Securities Market Commission’s August 2022 report, 6.8% of Spain’s population holds crypto assets. The majority of them are aged 35 to 44, have higher education and earn over 3,000 euros (around $3,300) monthly.

Spain holds the first spot in Europe by the number of crypto ATMs with 231 machines, roughly 15% of the total amount. Globally the country stands fourth after the United States, Canada and Australia.

Magazine: Best and worst countries for crypto taxes — plus crypto tax tips

Bitcoin mining firm Bitmain reportedly fined for tax violations in China

Bitmain has reportedly failed to pay personal income taxes in accordance with China’s laws on the administration of tax collection.

Beijing-based cryptocurrency mining firm Bitmain has reportedly violated tax regulations in China, with local authorities imposing major fines.

Bitmain Technologies has been slapped with a tax penalty from the Beijing Municipal Office of the State Administration of Taxation, the local news agency Sina Finance reported on April 11.

The authority fined Bitmain about 25 million Chinese yuan ($3.7 million), the report notes, citing details from China’s data registry of private and public companies, Qichacha.

According to the data, Bitmain was penalized on April 4, 2023, with the firm allegedly failing to pay personal income taxes in accordance with China’s laws on the administration of tax collection. The statement specifically referred to certain violations related to taxes on the income from Bitmain employees’ salaries, bonuses, labor dividends, allowances and more.

The tax authority also mentioned that tax inspectors delivered notice on certain tax violations to Bitmain in August 2022. So far, Bitmain’s Beijing unit has failed to pay personal income tax totaling 16.6 million yuan, or $2.4 million.

Founded in 2013, Bitmain is one of the world’s largest cryptocurrency mining companies, widely known for manufacturing crypto mining-specific hardware and solutions. The company was reportedly forced to stop its business in China in October 2021 in response to a blanket ban on crypto imposed by the Chinese government in September 2021.

It’s unclear how the firm has been running its operations since. Bitmain did not immediately respond to Cointelegraph’s request for comment.

Despite regulatory uncertainty and a major bear crypto market in 2022, Bitmain’s business has continued to see success. In December 2022, Bitmain’s latest Antminer device reportedly sold out in less than a minute despite tanking mining profitability.

In September 2022, Bitmain founder Jihan Wu set up a $250 million fund to support the mining industry affected by the prolonged cryptocurrency winter. After leaving Bitmain in 2021, Wu founded Bitdeer, a new crypto mining firm and a spin-off of Bitmain.

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New tax rules could mean a US exodus for crypto companies

A change to R&D tax rules means that a tech company could lose more than $1 million — but still be on the hook for hundreds of thousands in taxes.

All eyes are on the implosion of crypto banking and bank runs. Unfortunately, there is another poison that will destroy the tech industry — and it’s already eating at the core of newly successful startups. That poison is a change to research and development (R&D) credit rules under section 174. The change passed as part of the 2017 Tax Cuts and Jobs Act but was deferred until 2023 — triggering massive tax bills for already cashflow-strapped companies.

The new R&D law has overly broad language that states “any and all” software development must be amortized over five years if the development took place in the United States, or over 15 years if the work was done overseas. The change doesn’t sound so bad on its surface; some argue it might even create more tech jobs in the U.S.

But that isn’t how it will play out. Many countries have better R&D credits than the U.S. Much of U.S. software development will shift to countries such as the United Kingdom, where the rules are simpler and more lucrative. For tax-smart companies, U.S. entities will just be for marketing and sales.

Imagine a company that lost over a million dollars but owes over $300,000 in taxes! How is this possible? This hypothetical company has roughly $2.5 million in income and, in 2022, spent $1.5 million building its software and $1 million in other costs, meaning it had a negative cashflow totaling $1 million dollars. However, because the $1.5 million of development was done by a team in India, it will only see $50,000 from the software development side, leaving a $1,050,000 deduction to offset the $2.5 million of income this year — meaning it owes tax on $1,450,000 in net income, or a bankrupting $304,500 in tax!

*Cryptocurrency tax rates in select countries as of 2023*

Proponents of this tax say companies will still receive all the benefits of the deduction — just over many years. Put one of these proponents in front of a company that lost a million on operations but owes $300,000 in taxes and see if they say the same thing. Cashflow is king for finding startup success, and these types of R&D costs have been deducted nearly as long as the United States has had an income tax because of how vitally important innovation is to fueling national growth. With the current climate of high-interest rates and increased regulation, this law change will kill the most creative development in the U.S. on future-thinking technologies, such as AI and blockchain.

Some of the Big Tech layoffs taking place may be a result of this rule change. No surprise: It makes more sense to restructure so that subsidiaries outside the U.S. do R&D. For blockchain, crypto, and nonfungible token (NFT) companies that already have to deal with all the Securities and Exchange Commission scrutiny, it just seems a no-brainer to distance from the U.S. now.

There are so many complications and unanswered questions of how to apply this law that it’s head-spinning. For example, if you use a computer, server, miner, etc., for your R&D that you are depreciating, that portion of depreciation you would be able to take in 2022 must be added to the capitalization bucket to amortize out. This means if you were using this utility in the U.S. and expected to have $50,000 in depreciation come through from that equipment to deduct this year, you would only see $5,000 of that actually affect the bottom line. This really negates the purpose of special depreciation rules that encourage companies to spend on equipment, but then doesn’t actually let them see the deduction.

Another big risk with this law is if you raise money and develop with a big loss and no current income. Initially, this wouldn’t hurt you — but if your company fails, you are in for a world of pain, because the cancellation of debt income from a SAFE note that was not repaid can trigger taxes if there are no net operating loss carryovers to fully offset. And there is no way, currently, to accelerate the R&D amortization; even if a project is abandoned or a company shuts down, the expenditure cannot be taken immediately. That means equity investors may not get back funds they should receive. Instead, the money in the treasury will go to paying taxes for a failed company while founders who received salaries may even be on the hook for the tax liability or repaying investors.

Everyone in government and the tax industry knew these laws were a mess, and they were set to be repealed by a bipartisan supported bill in Congress on Jan. 3. But the effort failed because Democrats wanted to increase the Child Tax Credit — at the last minute — after everything had been agreed, and Republicans wouldn’t go along with it.

Now, it seems we are stuck with this crazy innovation-killing tax law. A repeal proposal has been reintroduced but hasn’t gained much traction. Especially in light of the current fundraising challenges for blockchain companies caused by increased interest rates, the crypto winter, and the Silicon Valley Bank failure, we may see a massive and unnecessary die-off of tech companies, unless some major action is taken by Congress quickly.

Crystal Stranger is a federally-licensed tax EA and the chief operating officer at GBS Tax. She worked previously as a software developer in San Francisco.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Ethereum projects unite to protect users from MEV-induced high prices

In total, 27 Ethereum projects joined the initiative as launch partners, including Balancer, Gnosis DAO, Shapeshift and StakeDAO, to name a few.

Over 27 prominent Ethereum projects joined hands to launch MEV Blocker, a solution that aims to tackle and minimize the amount of value extracted from their users — aka maximally extractable value (MEV), Ethereum’s invisible tax.

MEV is a tax imposed on decentralized finance (DeFi) users on transactions. MEV bots can hijack transactions midway, such as Ether (ETH) trades, nonfungible token (NFT) purchases and Ethereum Name Service registrations, and inflate prices for the users. MEV Blocker was jointly developed by CoW Swap, Agnostic Relay and Beaver Build as a free and censorship-resistant tool to counter this “$1.3 billion dollar problem” persistent across the Ethereum ecosystem.

In total, 27 Ethereum projects joined the initiative as launch partners, including Balancer, Gnosis DAO, Shapeshift, and StakeDAO, to name a few. Explaining the intention behind launching MEV Blocker, Martin Köppelmann, CEO of Gnosis, stated:

“With the launch of MEV Blocker, users can profit from the backrunning opportunities they create. Today all of that money is taken by the searcher, but why shouldn’t it be split with the people who create the value?”

MEV Blocker can be added as a custom remote procedure call endpoint to a crypto wallet, which, in turn, can protect users from frontrunning and sandwiching when using any Ethereum decentralized application. According to the official announcement, MEV Blocker sends at least 90% of the profits from winning bids back to users and 10% to validators as a reward — thus giving “power back to Ethereum users.”

While entrepreneurs attempt to reduce the taxation on users, the excitement around the upcoming Shanghai and Capella upgrades resulted in a bull sprint for ETH.

Alright, let’s talk about the Ethereum Shanghai Upgrade! It’s a hard fork scheduled to occur in March 2023. Stakers and validators will be able to withdraw staked ETH from the Beacon Chain. Approximately 16 million staked ETH will be available for withdrawal.

— Branimir Stojanović (@branelost) April 4, 2023

On April 5, Ether breached $1,900 for the first time in over seven months. However, it is important to note that the price of ETH dropped sharply following the execution of the Merge on Sept. 15, 2022.

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