09 May Cryptocurrencies in the Netherlands
Cryptocurrency is a form of digital currency and has become very popular in the recent years. It is designed with the intention of being anonymous and secure. By using decentralized technology, cryptocurrencies make it possible for users to carry out secure payments and store money without going through a bank or using their names. Cryptocurrencies run on a blockchain, which is a distributed public ledger recording all transactions. When a transaction is validated, it will be added to a blockchain and can’t be altered anymore. Cryptocurrencies such as Bitcoin is relatively new and many people may ask: how are the taxes of cryptocurrencies charged in the Netherlands?
Cryptocurrencies are not classified as digital currency under Dutch law since they are not issued by a central body. Instead, they are decentralized. Although cryptocurrencies can be sold as goods, it is not required to levy VAT on cryptocurrencies. According to the European Court of Justice, Bitcoins and other cryptocurrencies are only functioning as payment agents (no other purpose than fulfilling of payments). This allows that selling and purchasing of cryptocurrencies are exempted from VAT within the EU. Every transaction regarding purchasing or selling the cryptocurrencies are without VAT. Moreover, cryptocurrencies users do not have administrative obligations of VAT. This means that they do not have to keep records of the administration and issue invoices of the bought or sold cryptocurrencies.
Personal income tax
Bitcoin and other cryptocurrencies are considered as goods according to the law, and they are considered as a person’s asset. Just like savings, shares and gold, cryptocurrencies owners are obligated to indicate the value of their cryptocurrencies in their personal income tax. According to the Tax Authorities it should be in Box 3 of the personal income tax. To determine what the value is of your cryptocurrencies for your personal income tax is very simple. The Tax Authorities want to know what the value was on the 1st of January of the year that the personal income tax is compiled. This means that when you are compiling the personal income tax of 2018 and you acquired cryptocurrencies on the 1st of February in 2018, this does not need to be included in you personal income tax of 2018. This also applies to savings and shares, thus also to cryptocurrency owners.
Due to the recent popularity around cryptocurrencies, many entrepreneurs have started a startup company revolving around cryptocurrencies. For example, by providing advice, cryptocurrencies exchanges or hardware wallets. However, these entrepreneurs will encounter problems when opening a business bank account in the Netherlands. Banks refuse these cryptocurrency startups due to the excessive compliance risk. The banks associate cryptocurrencies with high integrity risk. The cryptocurrencies are so anonymous that the transaction cannot be traced back to a person. Due to this risk, many large banks such as: Rabobank, ABN Amro, Volksbank and ING do not accept cryptocurrency businesses. Thus when starting a business involving cryptocurrencies, it is very important to be aware of this obstacle.
Although cryptocurrencies have been very popular since 2013, there are still a lot of questions regarding cryptocurrencies. However, it is clear that it is required to include cryptocurrencies in the personal income tax. Entrepreneurs who want to start a start-up company involving cryptocurrencies should also be aware of the possible obstacles they might encounter. Please feel free to contact our office if you have any further questions regarding the cryptocurrencies and its tax related matters.