Cryptocurrency is a hot topic right now and is becoming a popular method of payment for goods and services. As more people buy crypto, a number of important questions arise that could affect even the casual crypto enthusiast. How is cryptocurrency taxed? Do you have to pay taxes at all when purchasing cryptocurrency anonymously? Fortunately, the folks at Tax is Exciting have the answers to all of your crypto questions.
Taxation of global wealth
A Dutch tax resident is liable to tax on his or her worldwide income and assets. A Dutch tax resident is a person whose main place of residence is in the Netherlands; Almost all people who live and work in the Netherlands are resident taxpayers.
The Dutch resident taxpayer declares his worldwide income and assets on his income tax return. To simplify the system, the Dutch government has created three boxes: box one, box two and box three. In the first field you state your world income and there are some minimal tax deduction options. Box two is intended for taxpayers who own at least 5% of the shares in a company. Your global wealth is recorded in the third field.
All assets valued on January 1st of the tax year are shown in the third box. Assets are global bank accounts, so your US bank account, for example, is also part of your Dutch income tax return. Worldwide real estate is also part of your assets, but a tax credit is granted for foreign real estate. Your assets will be reduced along with any debts.
The property that is your home is not part of box three global wealth taxation. This home is box one and could actually result in a tax credit due to the mortgage costs that you may offset. Therefore, the mortgage on the house in box one is also reported in box one. These debts do not reduce your base in box three.
Where does cryptocurrency fit in?
A good question. On the other hand, we think every question about tax is an exciting one. The cryptocurrency is recorded in field 3 and, like your foreign currency bank account, the cryptocurrency is reported according to its value on January 1st.
However, any profit you have made while trading cryptocurrencies can be taxed in box one. It is noted in either box 1 or box 3, you cannot be taxed for the same thing in both boxes during a tax year.
When are you taxable in box one? The moment you try to make a profit with cryptocurrency can be considered work. If you’ve been trading crypto all day every day and made a profit, then the actual profit will be taxed in box one and the value of the currency will no longer be taxed in box three.
There is no line to cross to go from square three to square one. It is a gray area like the joint portfolio owner who trades and makes a profit. Very factual.
Who Knows I Have Cryptocurrency?
We are often asked: “Who knows that I hold cryptocurrency?” And: “Why report something that nobody knows about?” The cryptocurrency is an international coin. In international situations, the Dutch tax office has the right to turn back the time by 12 years. The question is, are you going to redeem your currencies in the next 12 years? In this case, the Dutch tax office can go back and charge you.
In other words, what’s the point of holding cryptocurrencies if you can never use them? If you want to buy a fancy car or house with an unquantifiable amount, you will quickly have tax problems. The answer to the above question is that over time, governments will know that you own cryptocurrencies.
What is the penalty if you fail to report your (all) assets?
The tax office lets you file your income tax return for the current year. You can even update your income tax return for the previous year. However, if you have not reported your assets for more than two years and the tax office comes to this conclusion, the penalty is 300 percent of the wealth tax due on these assets. The tax office can be notified by any of the 150 countries with which the Dutch tax office has agreements to actively exchange information about their tax residents.
Do you have any tax questions? The folks at Tax is Exciting think taxes are as exciting as watching your cryptocurrencies soar. So if you have any questions or need help with taxes, don’t hesitate to contact us.