Wondering How to Navigate Crypto Taxes in South Africa? Read our detailed guide on South African Crypto Taxes!
Wondering How to Navigate Crypto Taxes in South Africa? Read our detailed guide on South African Crypto Taxes!
Curious about the future of crypto taxation in Malaysia? Explore our 2023 Crypto Tax Guide for expert insights on crypto taxation in the region!
Curious about crypto rules in South Korea? Explore current and future guidelines around crypto regulation and taxation in South Korea!
Luxembourg is one of few European countries that strives to cultivate a crypto-friendly ecosystem and has put forth guidelines and regulatory frameworks to ensure investment in Blockchain as a new and revolutionary technology. As a result, multiple crypto exchanges have set up headquarters in Luxembourg and enjoy a plush regulatory environment with aids and supportive regulations.
However, despite the pro-crypto stance regarding the innovation and adoption of blockchain technology. The tax landscape in Luxembourg is a bit sharper than its European neighbours like Germany and Belgium. The taxes lie higher, and the regulations are more complicated than you would expect. That’s why we have created this detailed crypto tax guide that addresses everything you need to navigate the tax landscape and understand how different crypto transactions are taxed in Luxembourg.
Note that this tax guide is quite extensive and will be updated to accommodate any new guidelines or rules regarding crypto taxation. We suggest revisiting this guide regularly to avoid missing out on crucial details.
Cryptocurrency in Luxembourg is subject to income tax. As an investor, profits from selling crypto assets are taxable if they are considered speculative gains, involving a sale within 6 months of acquisition with a total profit exceeding €500. In such cases, standard individual income tax rates apply, up to a maximum of 42%.
If the gain doesn't meet the above mentioned criteria, it's not taxable. Traders, however, are treated differently; their gains are liable to standard individual income tax rates, up to the same maximum rate of 42%.
Specific taxable events, such as trading crypto for fiat currency or purchasing goods with cryptocurrency, have their tax treatment determined by the nature of the transaction and the taxpayer's tax status. Luxembourg tax rules are applied, with an emphasis on the economic reality of the transaction. Virtual currencies are not considered legal tender by the central bank in Luembourg, so they are reported in Euros or another currency for tax purposes.
Yes, tax authorities in Luxembourg can track crypto transactions. To safeguard investors in the crypto space, Luxembourg aligns with EU Anti-Money Laundering (AML) directives. These regulations extend to various financial institutions, including banks, insurance companies, investment firms, and payment institutions, which are obligated to conduct customer due diligence (CDD) and ongoing monitoring. They must also report suspicious transactions to the Financial Intelligence Unit (FIU) and maintain meticulous records.
In 2018, the Commission de Surveillance du Secteur Financier (CSSF) provided guidance specifically addressing virtual asset service providers (VASPs) offering cryptocurrency-related services. VASPs in Luxembourg must register with the CSSF and establish robust AML procedures, including CDD, transaction monitoring, and the reporting of suspicious activities.
Moreover, Luxembourg has adopted the EU's Fifth AML Directive, reinforcing its AML framework and introducing novel requirements. These include the creation of centralised registers containing beneficial ownership information. These initiatives collectively bolster transparency and enhance investor protection within the crypto space. Therefore, we suggest reporting crypto transactions on your tax return and paying crypto taxes judiciously.
There is no dedicated capital gains tax in Luxembourg. Gains from the disposal of crypto assets are taxed under the existing income tax laws. However, the nature of the taxation depends on how such gains are categorised. If you’re a professional trader, gains from the sale of cryptocurrencies acquired within 6 months of disposal that are not more than €500 are taxed under the income tax laws depending on the total value of the gains.
If you’re trading cryptocurrencies occasionally, all your gains are added to your income and taxed under the existing income tax laws depending on the tax bracket you fall into.
As previously mentioned, capital gains are taxed under the existing income tax laws. Capital gains attract an income tax of up to 42% in Luxembourg.
Calculating your capital gains is simpler than you might think. You can simply use this formula to calculate your capital gains and losses.
For those of you who aren’t familiar with the term “Cost Basis”, it’s simply the price you pay to acquire an asset inclusive of any additional fees like transaction fees or gas fees.
Here’s an example:
19/01/23 - Leo bought 1 BTC for €16,000
23/03/23 - Leo sold 1 BTC for €21,000
Let’s assume that Leo paid €75 in transaction fees to the exchange for both transactions.
Cost basis = Acquisition Price + Additional Charges = €16,000 + €150 = €16,150
Disposal Amount = €21,000
Capital Gain = €21,000 - €16,150 = €,4,850
In Luxembourg, crypto losses resulting from activities like selling cryptocurrency for less than its purchase price or exchanging one cryptocurrency for another at a loss are recognized and can be used to offset gains. However, to use these losses you must first report them on your tax return.
When reported correctly, these losses can be deducted from your taxable income, potentially reducing your overall tax bill. Note that these losses can only be used to offset capital gains and not any other kind of income.
Unfortunately, there are no guidelines that dictate how lost or stolen crypto is treated from a tax perspective. Such instances are likely evaluated on a case-by-case basis by the tax authorities before offering any reliefs or exemptions. We suggest contacting the authorities directly if you’ve experienced such a loss.
Although you cannot avoid paying crypto taxes entirely, tax authorities in Luxembourg do offer tax exemptions and credits that you can use to significantly lower your tax bill. Listed below are some of these exemptions and credits offered to individuals:
1. Tax Loss Harvesting: Individuals can offset their gains using the losses incurred from selling, trading, or exchanging crypto. Note that you can only use reported losses to offset your gains in Luxembourg.
2. Employment Tax Credit: Working individuals in Luxembourg can avail of an employment tax credit between €0 and €696 depending on their income.
3. Personal Tax Credit: Residents of Luxembourg can avail of a personal tax credit that varies between €0 to €696 depending on their income.
4. Single Parent Tax Credit: Single parents can avail of tax credits varying between €750 to €2,505 depending on their level of income.
The examples we have used so far are quite simple and do not reflect the complexity of real-world transactions. Investors/traders are involved in multiple transactions throughout the tax year where they purchase the same asset multiple times at different prices. Which makes cost-basis calculations fairly complicated for such transactions.
That’s why investors/traders rely on specialised accounting methods for cost-basis calculations. Now there are multiple accounting methods and most tax jurisdictions specify which one to use for cost-basis calculations in the region. However, tax authorities in Luxembourg have yet to specify which accounting method one should rely on for cost-basis calculations in the region.
Most European tax jurisdictions rely on popular accounting methods like LIFO, FIFO, HIFO, and ACB and using these accounting methods for cost-basis calculations will likely be acceptable. We do suggest seeking help from an experienced tax consultant to have more clarity on the subject.
We will look at these accounting methods one at a time and look at an example to better understand how these accounting methods actually work.
LIFO or the Last-In-First-Out accounting method states that the acquisition price of the most recent asset you buy is to be used as the cost basis for capital gains calculations upon disposal.
FIFO or the First-In-First-Out accounting method states that the acquisition price of the earliest asset you buy is to be used as the cost basis for capital gains calculations upon disposal.
HIFO or the Highest-In-First-Out accounting method simply states that the highest acquisition price for an asset across all acquisition instances is to be used as the cost basis for capital gains calculations upon disposal.
The average cost basis method simply states that the cost basis for an asset is simply equal to the average acquisition price of all tokens that you currently have in your portfolio.
Consider the following example:
21/02/23- Luca bought 1 ETH for €1,600
29/03/23- Luca bought 1 ETH for €1,700
17/05/23- Luca bought 1 ETH for €1,500
22/09/23- Luca sold 1 ETH for €2,400
Now we will be using each one of these accounting methods for calculating the cost basis for this disposal.
According to FIFO the acquisition price of the first asset you buy is the cost basis.
Cost basis = €1,600
Disposal Amount = €2,400
Capital Gains = Disposal Amount - Cost Basis = €2,400 - €1,600 = €800
2. Using LIFO
According to LIFO the acquisition price of the last asset you buy is the cost basis.
Cost basis = €1,500
Disposal Amount = €2,400
Capital Gains = Disposal Amount - Cost Basis = €2,400 - €1,500 = €900
3. Using HIFO
HIFO simply states that the highest acquisition price is the cost basis.
Cost basis = €1,700
Disposal Amount = €2,400
Capital Gains = €2,400 - €1,700 = €700
4. Using ACB
The ACB method assumes the average acquisition price to be the cost basis.
Cost Basis = (€1,600 + €1,700 + €1,500)/3 = €1,600
Disposal Amount = €2,400
Cost Basis = €800
Notice how the capital gain changes when you use different accounting methods.
Cryptocurrency income in Luxembourg is subject to different tax treatments based on whether an individual is categorised as an investor or a trader.
For investors, gains from cryptocurrencies are typically subject to taxation if they are considered speculative gains. Speculative gains arise when an individual sells cryptocurrency within six months of acquiring it, and the total profit amounts to at least €500. In such cases, the gain is subject to Luxembourg's standard rates of individual income tax, with a maximum rate of 42 per cent. However, if the gain doesn't meet these criteria, it is generally not taxable for investors.
When it comes to receiving cryptocurrencies for free, such as gifts or without direct compensation, it typically does not trigger immediate income taxation at the individual level. However, it's essential to note that registration duties may apply in these cases. If an individual subsequently disposes of the received cryptocurrencies, any gains resulting from the disposal would be subject to the tax treatment mentioned above.
Luxembourg employs a progressive income tax system that factors in an individual's personal circumstances, including marital status. There are three primary tax classes in Luxembourg:
Tax Class 1 for single individuals
Tax Class 2 for married couples and civil partners meeting specific criteria
Tax Class 1a for single persons with children or those aged 65 and older
The income tax rates are progressive, with lower rates applied to lower income levels and higher rates to higher incomes.
For the 2021 tax year, Luxembourg's income tax rates ranged from 0% on the first €11,265 of income to 42% on income exceeding EUR 25,913. Joint taxation is an option for couples in Tax Class 2, allowing their combined income to be considered for tax purposes.
Non-resident taxpayers can also opt for joint taxation if certain conditions are met, such as a significant portion of their worldwide income being taxable in Luxembourg. Double tax treaties (DTTs) exist with many countries to prevent double taxation for residents with income sources abroad, specifying which country holds the primary right to tax specific income.
Listed below are the income tax brackets in Luxembourg:
Listed below are some tax-free crypto transactions in Luxembourg:
Listed below are some taxed crypto transactions in Luxembourg:
In Luxembourg, the tax treatment of cryptocurrency mining depends on whether you are an individual or a corporate entity. For individuals, mining activities that fall within the scope of managing private assets are generally not subject to income tax upon receipt. These tokens are taxed as and when individuals decide to dispose of these assets.
If mining evolves into a commercial operation, it becomes taxable, and individuals must declare and pay taxes on the income generated from mining. Criteria for determining commercial activity include using debt capital for financing, trading on behalf of third parties, or frequent turnover of cryptocurrency holdings.
For corporations involved in crypto mining, any cryptocurrencies obtained through mining activities are typically subject to corporate tax. The taxable amount is determined based on the market value of the cryptocurrencies at the time of receipt. This means that mining profits contribute to the corporation's overall taxable income.
There are no specific guidelines that dictate how staking rewards are viewed from a tax perspective. However, these transactions will likely be taxed based on the nature of the transactions. If the tax authorities view the mining rewards as interest for staked tokens, then the tokens attract income tax upon disposal. If the same tokens are viewed as a reward for provisioning tokens for liquidity, no taxes shall be levied as there is no gift tax in Luxembourg.
In Luxembourg, receiving cryptocurrencies for free, such as through airdrops, usually doesn't lead to income taxation for individuals. Any gains from selling these cryptocurrencies are subject to capital gains tax rules.
For corporations, cryptocurrencies acquired through airdrops are generally considered taxable, with their taxable value determined based on the market value at receipt. This implies that corporations must include the airdropped cryptocurrency's value in their taxable income.
New tokens received through hard forks usually follow a similar route when it comes to taxation. These tokens aren’t taxable upon receipt but rather attract income tax when they’re disposed of or converted into another crypto asset.
Soft forks are non-taxable events in Luxembourg, just like in most other tax jurisdictions because no new tokens are created during soft forks.
Although there is no specific guidance on crypto gifts and donation taxation in Luxembourg, we can predict that crypto gifts and donations are tax-free, if we consider crypto gifts and donations to be the same as regular ones.
However, stamp duty and registration charges apply to such transactions. The amount you pay depends on your relationship with the donor.
Listed below are the rates applicable to such transactions:
We need to redesign this table
Gains derived from margin and leverage trades or crypto derivatives are taxed similarly to those derived from regular trades. However, since these are advanced trades, individuals engaging in such trades will likely be categorised as professional traders.
This means that any gains derived from such trades that exceed €500 will attract income tax, with tax rates ranging from 0 to 42% depending on which tax bracket one falls into.
The tax authorities are yet to release guidelines on ICO taxation for individual investors. ICOs are special events that allow investors to own native tokens from unreleased projects in exchange for mainstream tokens like Bitcoin and Ethereum. They are similar to IPOs in the regular securities market.
Since ICOs represent crypto-to-crypto trades on a fundamental level, such transactions will likely be taxed under the capital gains tax rules.
Although there is no specific guidance on the taxation of NFTs, we can deduce their taxation by interpreting existing guidelines in the context of such transactions. Creators of NFTs could be seen as self-employed artists and might have to pay taxes accordingly.
For regular investors, NFT taxation would depend on the nature of these transactions. If you're buying and selling NFTs as a business, you'll likely be taxed like any other business. But if you just get NFTs as rewards from, say, a game, you won't be taxed right away because they're considered to have no initial value for tax purposes. However, if you sell them later and make a profit, you might have to pay capital gains tax.
We do suggest seeking the help of an experienced tax professional for better clarity on the subject.
DAOs are member-owned communities with a shared vision. All the decisions in a DAO are made by the members in the absence of central leadership. They are new-age institutions that aim to democratise decision-making and allow people to have a say in decisions that directly affect them. DAOs are often called the soul of Web3 and allow members to earn rewards in multiple ways. DAO contributors are rewarded for their contributions to the organization, similar to how centralized organizations pay salaries to their employees. They also pay out bounties for one-time projects and redistribute any profits generated through operations.
The tax authorities are yet to release specific guidelines on whether or not income from DAOs will be taxed. Any income received in crypto for contributing to a DAO will likely be taxed under the regular income tax slabs. However, we suggest seeking help from an experienced tax consultant to gain more clarity on the subject.
Staking on DeFi protocols attracts a similar tax liability to that of staking on a Proof-of-Stake network. If the tokens received are viewed as interest income, they will likely attract income tax. However, if they’re viewed as rewards for provisioning a service to the network, they will attract zero taxes as there is no gift tax in Luxembourg.
Lending on DeFi protocols is different and although there is no guidance on how this income will be taxed, the interest income could be treated as capital income and taxed accordingly. We do suggest seeking guidance from an experienced tax consultant to understand the taxation of specific DeFi transactions.
The tax year in Luxembourg is the same as the calendar year and runs from January 1st to December 31st and the tax deadline is December 31 of the subsequent year.
So for example, let’s say to receive crypto income between January 1 and December 31 in 2022, you will have to report it on your tax return by December 31 2023.
Residents of Luxembourg can file their tax reports by filling out the Form 100.
You can file the tax return online using the MyGuichet.lu portal.
Eligible taxpayers, including those with income from liberal professions, salaried jobs, pensions, annuities, or rental income, can conveniently file online via the MyGuichet.lu platform. Taxpayers without access to this online tool can submit their returns electronically via PDF or by traditional mail if they don't meet the electronic filing criteria.
In order to obtain the reimbursement of any excess tax withheld at source, employees or pensioners can - upon request - regularise their tax situation according to their personal situation either through taxation by assessment or by way of an annual adjustment (Form 163 R).
Now that you’re aware of how your crypto transactions are taxed and what forms you need to fill out to complete your tax report, here’s a step-wise breakdown of how Kryptos can make this task easier for you:
Visit Kryptoskatt.com and sign up using your email or Google/Apple Account
Choose your country, currency, time zone, and accounting method
Import all your transactions from wallets and crypto exchanges
Choose your preferred report click on the generate report option on the left side of your screen and let Kryptos do all the accounting.
Once your Tax report is ready, you can download it in PDF format.
If you still need clarification regarding the integrations or generating your tax reports, you refer to our video guide here.
There is no official list of documents for crypto record-keeping in Luxembourg. However, you can maintain the following documents to avoid complications when filing your crypto tax return:
There is no legal way to avoid paying crypto taxes in Luxembourg and not paying your taxes on time could get you in trouble. However, the authorities offer several exemptions and tax credits that one can use to lower their tax bill. For instance, investors can offset their gains using losses made from trades, this is called tax loss harvesting and is one of the most popular ways of saving taxes in the crypto space.
We have discussed all exemptions and tax credits offered by authorities in Luxembourg in the above section titled “Crypto Tax Breaks Luxembourg.”
The question would be better framed as “Is investing in Crypto legal in Luxembourg?” and the answer would be yes. Luxembourg has a well-regulated financial sector and is generally supportive of financial innovation, including cryptocurrencies. However, investors need to comply with relevant tax regulations and ensure they are using reputable platforms and services for their cryptocurrency investments. Moreover, the legal and regulatory landscape for cryptocurrencies can change, so it's advisable to stay informed about any updates or changes in cryptocurrency regulations in Luxembourg.
There is no dedicated capital gains tax structure in Luxembourg. However, capital gains are taxed under the existing income tax rules based on the nature of transactions. Capital gains in Luxembourg are generally taxed at the standard individual income tax rates, which can go up to a maximum of 42% for individuals. However, the tax treatment can vary depending on the nature of the asset and the duration of ownership. For cryptocurrencies, gains may be subject to taxation if they are considered speculative and meet certain criteria, including a sale within six months of acquisition and a profit of at least €500. Other types of capital gains, such as those from traditional investments, are also taxed according to individual income tax rates.
In Luxembourg, the taxation of cryptocurrencies primarily depends on whether you're considered an investor or a trader. As an investor, gains from selling cryptocurrencies are generally taxable only if they are speculative (i.e., sold within six months of acquisition and with a profit of at least €500). These gains are subject to standard individual income tax rates, up to a maximum of 42%.
For traders who engage in frequent and substantial cryptocurrency trading, their gains and losses are treated as business income, subject to standard individual income tax rates.
Receiving cryptocurrencies for free is not taxed at the individual level, but registration duties may apply. However, any gains from subsequently selling these cryptocurrencies would be subject to the tax rules mentioned above. For corporate entities, cryptocurrencies received through activities like mining or airdrops are subject to corporate tax based on their market value upon receipt.
We’ve already discussed how to file your crypto taxes in the above sections of the guide offering a stepwise breakdown of the entire process. However, we agree that it is unreasonably complicated even for someone with a fair amount of prior knowledge. However, there’s an easy way to file your crypto taxes using a crypto tax software called Kryptos.
All you need to do is log in on the platform, add all your trading accounts, wallets, and Defi accounts and sip coffee while Kryptoskatt does all the heavy lifting for you. The platform auto-fetches all your transactions from the tax year and generates a legally compliant tax report within a matter of minutes while also suggesting ways to lower your tax bill. It works like magic, all you need to do is try it once.