Do you need to report profits on your cryptocurrencies?

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Bitcoin was born in 2009. It makes it possible to execute transactions in a safe, fast and cheap way. The volatility and rising price of this new currency has turned it into an investment product par excellence. In addition to bitcoin, there are a number of other virtual currencies, such as tether, ethereum and litecoin.

Cryptocurrencies are found in a large network of computers that constantly perform (cryptographic) calculations. This ensures that all digital currencies are stored immutably and securely in the network. Each coin has a password that only the owner of the cryptocurrency knows. With this password he can use the cryptocurrency for paythat to transfer or thecash in. The big difference between cryptocurrencies and the classic monetary system is that cryptocurrencies are decentralized : there is no central point of contact or decision-making power as a government or a bank.

What about the taxation of cryptocurrencies?

Although billions of euros are circulating in the form of virtual currencies, the legislation in this area is quite limited. Within personal income tax, there is an initial reference in 2017, after a computer science student had approached the Government Service to find out whether trading in bitcoins was taxed as business income, miscellaneous income or not at all.

The proclamation of the order estimated that it was not business income since those trading activities had no connection with a commercial activity carried out by the applicant. The student had developed an application that automates the buying and selling of bitcoins. As it was mainly a knowledge test – to which the funds used were rather artisanal and limited – the ruling committee concluded that the student had developed this application as a “hobby and of interest to his field of study. The realized course gains were therefore not taxed as business income, but as “miscellaneous income”, that is, at the (fixed) rate of 33%.

The ruling committee did not justify this decision and referred only to the speculative nature of this virtual currency. Other rulings confirmed this view and concluded that “investments in cryptocurrencies were generally speculative and income from such investments should therefore be treated as miscellaneous income.”

The tax authorities do not currently have accurate data on the amount of bitcoins held by Belgian taxpayers. Bitcoin exchanges are not regulated and often take place via foreign platforms over which the tax authorities have no control. That is why it is up to the investors themselves to disclose their capital gains.

The use of the adverb “in general” leads to the conclusion that according to the tax authorities i.a. these investments can also be considered non-speculative. This is also the case if the realized capital gain is part of the normal management – as a good father – of private assets.

What do the rulings say?

Those who want to be sure of the tax liability of profits from cryptocurrencies may ask an advance decision to the Advance Decisions Service (SDA).

In January 2018, SDA confirmed it Profits from cryptocurrencies were generally considered speculative. He has compiled a list of 17 questions that should contribute to more coherent assessments. This questionnaire shows the criteria used, which relate to:

  • the size of the investment and its size in relation to the rest of the estate;
  • the frequency of transactions;
  • the duration of the investment;
  • the investment strategy (buy-and-hold, trending, trading, etc.).
  • is mining carried out (creation of bitcoins)?
  • what is the investor’s professional activity or background?
  • How active is he on cryptocurrency forums and blogs?
  • Have investments been made on behalf of others?
  • What is the source of funds: borrowed or equity?

With few exceptions, the SDA has previously held the view that as soon as sales or conversions of cryptocurrencies have already taken place in a previous (final) taxable period, no further decision could be made. The condition of the “prior” nature of the request was not met in order for it to be admissible.

In early 2022, the SDA changed its position. Past sales or conversions of cryptocurrencies do not necessarily make the request for a preliminary ruling unacceptable. The service will always examine on a case-by-case basis whether a decision can ultimately be made. This would be the case if the capital gain was realized under conditions other than the previous ones.

It is also possible to choose a prior request before submitting a request for a formal decision. The taxpayer can then discuss a file with SDA informally to obtain an indication without any party being bound by the preliminary opinion.

Should you mention capital gains on cryptocurrencies?

The tax authorities do not currently have precise data on the amount of bitcoins held by Belgian taxpayers. Bitcoin exchanges are not regulated and often take place via foreign platforms over which the tax authorities have no control. That is why it is up to the investors themselves to disclose their capital gains.

that the tax rate is different depending on whether it is an investment within the framework of the “normal” management of private assetsof one speculative investments or a professional income.

The boundary between the “normal” management of private assets and a “speculative” investment is a matter of fact. In case law, it is generally examined whether the investor applies professional expertise, the number of transactions and their frequency. It is up to the tax authorities to prove that this is a speculative investment.

A good family man

If your investment is part of the “normal management of your assets”, and if you manage it “like a good father”, profits will be tax free and shall not be declared. A “good father” invests his money to make it grow, but favors security and invests in the long run.

Speculators take more risks and bet on price fluctuations. They want to make as big and quick profits as possible by buying when prices are low and selling when they rise. These operations are performed repeatedly, making it possible to increase the value of the portfolio (at least in the case of profit).

In this case, the capital gain on the cryptocurrencies will be taxed as miscellaneous income, with the (fixed) rate of 33% (excluding municipal taxes). They will also more easily be considered miscellaneous income if you are active in the virtual currency community.

Professional dealer or “bitcoin miner”

Are you a professional trader? Or a “bitcoin miner”, ie. do you electronically approve and process transactions in exchange for bitcoins? If it can be proven that your activities are organized and frequent and that you use professional means, the benefits of these investments will be considered as earned income and taxed at the usual progressive rates. These vary between 25 and 50% (excluding municipal taxes).

If you are considered a professional trader or “bitcoin miner”, it is also important that you meet obligations of the self-employed. You must sign up for a social insurance fund and pay social security contributions.

The good codes

those who invest “like a good father” must not report capital gains on virtual currencies; that speculators shall state them in the second part of the declaration, in box XV “Miscellaneous income” under the heading “B. Other miscellaneous income”, under code 1440/2440. The costs incurred can be declared according to code 1441/2441.

That professional traders or “bitcoin miners” shall indicate their profits in box XVII, under code 1600/2600. Here, too, business expenses can be stated, but under code 1606/2606. Please note: If you claim a deduction for your business expenses, you will lose the right to a deduction for fixed expenses.

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