Investing in crypto can potentially result into an unpredictable Belgian tax treatment of your crypto proceeds, but also brings certain compliance requirements. As authorities worldwide want to better monitor transactions involving crypto assets and implement anti-money laundering (AML) regulation, the EU will soon introduce DAC8 to increase transparency and combat potential tax fraud. Crypto investors should expect more complex cross-border compliance demands in the nearby future.
Cryptocurrency markets are particularly vulnerable to a range of financial and other crimes. In their fight against money laundering, terrorist financing and tax evasion, banks are reluctant to accept proceeds that derive from cryptocurrency transactions if they cannot validate the origin of the funds. It is a fact that if you transfer fiat currency to a Virtual Currency Exchange (VCE) to buy digital currency, you take your funds out of the traditional banking system. Banks and other financial institutions obviously do not like this. You may experience difficulties when transferring your crypto profits back to your personal bank account afterwards.
If you do not invest in crypto as a business, but as a private investor, your crypto proceeds will often remain tax-free in Belgium. Gains realized by a private individual are not taxable in Belgium if this takes place within the scope of a ‘normal’ management of your privately held assets. Even if you can demonstrate that you meet all the conditions for a tax exemption, banks will not be eager to accept your money. As crypto investing often includes multiple transactions, it will not be easy to document the money’s entire trajectory afterwards. Furthermore, the transfer will be done from a foreign account, that is often unknown to your Belgian bank.
Crypto investors are also required to report their foreign account to the Belgian authorities. There is a one-time report you need to submit to the Central Point of Contact (CPC) of the National Bank of Belgium (NBB), as well as include this every year in your resident income tax filing. Your wallet itself is not an account, but a software application for holding, storing and transferring virtual currency. Wallet storage may be ‘cold’, meaning held offline (such as on a USB drive) and plugged in only when needed, or ‘hot’, meaning held online (for example in one of many crypto wallet applications). It can be custodial when virtual currency is held by a third party, whereas a non-custodial wallet is one in which the currency owner keeps his own private keys.
Only wallets held on a foreign server owned by a third party (e.g. Coinbase, Kraken, etc.) need to be declared to the CPC. With regard to decentralized exchanges without a trusted intermediary (DEX), there are practical difficulties that currently prevent you from reporting your wallet. In any case, only the ‘public key’ will be the subject of a reporting and never the ‘private key’. Wallets that are held directly by investors are not subject to a reporting requirement either.
TAXPATRIA® can assist you with your foreign crypto account reporting and any mandatory compliance with the Belgian tax authorities.