Italy’s 26% Crypto Tax Signals Dwindling Band of Global Havens

Italy’s 26% crypto tax shines a light on different global approaches to crypto taxation.

When crypto assets first exploded onto the world stage, governments scrambled to tax the fast-moving and often highly profitable sector. But given its novelty, it wasn’t immediately apparent how best to approach it, and different tax regimes have ended up taking different shapes.

As is often the case when it comes to regulating crypto, the challenge is whether tokens are treated as securities or currencies.

In the case of the latter, profits made from trading virtual assets are only subject to income tax for individuals or corporation tax for companies. For the former, however, traders and investors are also liable to pay capital gains tax — a levy on the profit they make when they sell an asset for more than they paid for it.

Against this backdrop, several countries, including the U.S. and the U.K., have opted to treat crypto assets as securities, and therefore subject to capital gains tax. In effect then, Italy’s move to tax crypto profits brings the country in line with other mainstream economies and spells an end to its time as a crypto tax haven.

And with crypto investing far more mainstream than it was in the early years, not to mention investors’ heightened outrage amid the ongoing fallout of the FTX scandal, crypto tax havens are increasingly under the spotlight and makes this decision a timely one.

The Appearance and Disappearance of Crypto Tax Havens

While several EU member states still have far more favorable policies that allow crypto profits to go untaxed, Italy’s new crypto tax follows a similar move made by Portugal last year to crack down on tax avoidance and close tax loopholes.

Moreover, the EU’s various initiatives to regulate crypto exchanges and clamp down on exchanges operating without a license aim to give tax authorities greater scope to identify the owners of crypto assets. And an upcoming anti-money laundering directive that is set to curtail the use of privacy coins is also expected to effectively limit their use as a means of hiding taxable income.

In the end, Italy’s 26% tax on crypto profits is far from the most onerous imposed around the world. For example, compared to Iceland’s 46% rate on gains over the value of $7,000, Italian crypto traders are still getting quite a good deal.

And with major economies increasingly taxing crypto assets in the same way they tax other non-currency assets, traditional tax havens like Bermuda, Liechtenstein and the Bahamas, perhaps unsurprisingly, have so far chosen to pursue a low- or no-tax approach to crypto.

For example, the now-defunct crypto exchange FTX ran its global operations out of the Bahamas, begging the question of whether regulators there could have prevented its mismanagement.

The problem is not isolated to a single jurisdiction, however. Rather, it appears to stem from the fact that the legal and technological frameworks for effective cross-border oversight of the crypto industry, including its taxation, are still not up to the standards of traditional financial assets.

But as the crypto economy matures, the international regulatory architecture needed to sustain, support and effectively tax is expected to grow, closing loopholes, clarifying rules and setting the accounting standards for businesses and individuals that own and transact with digital assets.

Italy’s move to bring crypto under the umbrella of capital gains tax is just the latest development in that journey.

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