Private crypto gains are taxed very differently
Significant differences already emerge when it comes to the classic purchase and sale of Bitcoin, Ether and other crypto assets. In Switzerland, capital gains realised by private investors can generally remain tax-free. However, if the scale and organisation of the trading activity are classified as a professional activity, the gains may become taxable. In addition, crypto assets are in principle subject to Swiss wealth tax.
In Liechtenstein, too, private capital gains are generally tax-free. Different rules apply to companies: gains from the disposal of crypto assets may there be subject to income tax at a rate of 12.5%. Often relevant in practice: foundations can also hold crypto assets, but must observe different tax requirements depending on their individual structure.
Under its new regime, Austria taxes crypto assets at a rate of 27.5% as a general rule. One peculiarity concerns legacy holdings acquired before 1 March 2021: provided the conditions of the previous system are met, these can still be disposed of tax-free.
Sweden taxes private crypto gains at 30% irrespective of the holding period. Losses are generally deductible only up to 70%. In the United Kingdom, private gains are in principle subject to capital gains tax at a top rate of 24%. Where the activity amounts to trading on a commercial basis, higher income tax rates may apply.
The USA, by contrast, distinguishes – in line with the system that also applies to other assets – between short-term and long-term held crypto assets. Lower tax rates apply to long-term capital gains, whereas short-term gains can be taxed at the regular income tax rate.
Crypto-to-crypto swaps can trigger taxes
The various states also pursue different approaches with regard to the exchange of crypto assets. In the USA, as in Germany for example, swapping Bitcoin for Ether or a stablecoin is in principle a tax-relevant disposal. Paying for goods or services in crypto can likewise trigger a taxable gain.
Under its new tax system, Austria, on the other hand, treats crypto-to-crypto swap transactions as tax-neutral in principle. The existing acquisition costs are carried over to the crypto assets received. Taxation is only triggered once the assets are exchanged for a traditional (fiat) currency or, for example, used to pay for goods.
For internationally mobile investors, one and the same transaction can therefore have fundamentally different tax consequences. As a general rule, what is decisive is not where the wallet or the trading platform is maintained, but where the investor is tax resident and how the respective legal system classifies the transaction.
Staking, lending and DeFi add to the complexity
National approaches also diverge when it comes to staking, lending and decentralized finance (DeFi). In Austria, certain staking rewards are not taxed immediately upon receipt. They are assigned acquisition costs of zero, so that taxation only takes place upon a subsequent disposal. Lending income, by contrast, may already be taxable upon receipt; it is then, however, also assigned corresponding acquisition costs, resulting in lower capital gains upon disposal.
In Switzerland, staking rewards as well as income from lending and DeFi can constitute taxable income. In the case of liquid staking, wrapped tokens or liquidity pools, the specific structure of the arrangement is decisive.
In the USA, too, mining, staking, airdrops and income from lending and DeFi are already tax-relevant upon receipt. Modern crypto strategies should therefore not be reviewed for tax purposes for the first time at the point of sale.
When changing residence, timing is everything
For internationally mobile investors, a planned move to or from another jurisdiction is particularly relevant. Anyone moving to Austria with more recently acquired crypto assets can in principle obtain a step-up to the market value at the time of immigration. On emigration, by contrast, tax may be levied on gains that have not yet been realised.
For crypto assets held privately, Switzerland does in principle not provide for any comparable exit taxation. Different rules apply to professional traders and companies.
The UK offers newly arriving individuals, subject to certain conditions, tax relief on foreign income and gains for the first four years. However, there is a peculiarity with regard to personally held crypto assets: for their tax situs, the UK tax authorities in principle look to the owner’s residence. The structure of a crypto portfolio should therefore be reviewed before the move takes place.
International tax transparency is on the rise
However different the national tax rules may be, in terms of transparency the development is moving in one common direction. The Crypto-Asset Reporting Framework (CARF) and the EU Directive known as DAC8 are leading to a much broader international exchange of information on crypto transactions.
The USA is also expanding its reporting obligations. For investors, complete documentation of acquisition costs, wallet movements, swap transactions and crypto income is therefore becoming increasingly important. In the USA, the tax basis must in principle be traced on a per-wallet or per-account basis. In Sweden, too, the clear separation of private and business wallets plays an important role in practice.
Conclusion
Crypto is international – taxation remains local. Whether disposals, crypto-to-crypto swaps, staking or lending trigger taxes depends decisively on the respective jurisdiction. Family offices and internationally mobile investors should therefore consider tax residence, investment strategy, wallet structure and any potential move in or out of a jurisdiction as a whole. And with the increase in international information exchange, a seamless transaction history is becoming ever more important.
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This article is based on Module 5 of the “Crypto Allocation Briefings – Practical Knowledge for Investors and Family Offices”. The webinar series provides a compact overview of the key issues surrounding crypto assets in professional asset management. It features discussions with experts on market trends, taxation in other jurisdictions, insurance solutions as well as online and offline security. The series is aimed at investors and decision-makers who want to understand and contextualise crypto and integrate it into their existing wealth and investment structures in a legally secure manner. Find out more here.