Bitcoin itself does not really require any introduction. It is a peer-to-peer payment system and digital currency. Often referred to as a ‘cryptocurrency’, because it uses cryptography to control the creation and transfer of money. The lack of regulation is one of the biggest issues that cryptocurrencies currently deal with. Many governments have suggested they could introduce a legal framework, but it is still not very clear what this would look like.
With profits, comes tax; but how exactly does the Belgian taxman qualify profits from virtual money ?
The Belgian legislator or the tax authorities have so far not kept pace with bitcoin fever. The only guidance available on the matter is a recent EU court decision (on VAT), an income tax ruling at national level and the reaction to this in our local legal doctrine. The huge popularity of digital money will hopefully lead to more equality and uniformity in the general tax status of bitcoin.
Here is a brief outline of the Belgian tax authorities’ current position on the tax treatment of bitcoin, and cryptocurrencies in general.
- Income taxation
For businesses and shops that accept payment for goods or services in bitcoin, there is no difference to when revenue is recognized or how taxable profits are calculated, compared to standard ways of payment.
Any Belgian company or foreign entity active in Belgium that generates an income (or a loss) from trading bitcoin and/or exchanging (virtual) currencies, will be chargeable under the standard corporate income tax rules. Corporate tax will also be due on gains from transactions relating to bitcoins.
For individuals the matter is more complicated. The relevant question to ask is whether your bitcoin activity should be considered a hobby or a trading. The way you invest in bitcoin will largely affect its qualification for income tax purposes.
Miners, traders, exchangers, payment processors and other service providers that are not working through a company, could potentially be liable to the Belgian personal income tax. If it is your profession to trade the virtual currency, your bitcoin profit will be seen as professional income and taxed as such. The standard progressive tax rates between 25% and 50% (+ communal tax) would apply. Furthermore, you might also become liable for social security contributions on these earnings.
However, if you invest in bitcoin and do not make your living out of this, the situation is different.
If your transactions can be considered a normal management of private assets, any gain resulting from it will be exempt from income tax. If your investments do not fall within the scope of the Prudent Man-principle and you are taking high risks, you are carrying out transactions with a speculative character in the eyes if the Belgian taxman. In that case the capital gain will be taxable as miscellaneous income to which a flat tax rate of 33% (+ communal tax) will apply.
The Belgian Ruling Commission recently came to this conclusion in the situation where an IT-student generated a profit through an online bitcoin trading platform that he had developed (Ruling nr. 2017.852, 5 December 2017).
We need to emphasize that the evaluation whether or not a profit or gain is taxable (or loss allowable), will always depend on the facts and circumstances. Potential investors should seek guidance on whether their trading activities can be considered a professional trade or speculative activity.
The legal qualification of virtual currencies, and especially bitcoin, is a complex matter. Cryptocurrencies have a unique identity and cannot be directly compared to any other form of investment activity or payment mechanism.
In a recent EU case (ECJ 22 October 2015, C-264/14, David Hedqvist) the Court looked into the issue whether the exchange of traditional currencies for bitcoins and vice versa, whereby a sum is paid equal to the difference between the price paid by the operator to purchase the currency and the price at which he sells that currency to his clients, is a transaction exempt from VAT or not.
The Court concludes that trading in non-traditional currency, such as bitcoin, indeed qualifies as a financial transaction. It has no other purpose than to be a means of payment and it is accepted for that purpose by certain operators. This implies that paying with bitcoins constitutes a mere payment and is therefore exempt from VAT.
Since VAT is a tax that is exercised all over the EU, any dealing with VAT for cryptocurrencies in other EU countries is normally to be treated similar. The decision to exempt bitcoin from VAT comes as a welcome news for many businesses and entrepreneurs.