Cryptocurrency and taxes – update on Austria’s ecosocial tax reform act
Cryptocurrencies have significantly increased in importance as an investment option in recent years. The ‘ecosocial’ tax reform in Austria thus includes changes to the tax system to take account of crypto assets.
Employees working internationally, who hold crypto assets as part of their private assets, and whose tax residency changes due to an employment contract or international assignment/posting contract, may frequently experience a significant tax impact due to the taxation of cryptocurrencies and noticeably more paperwork when preparing their tax returns. This may also apply to natural persons who work in Austria on a long-term basis or who give up their Austrian tax residency and thus become subject to tax with crypto assets.
Current taxation of cryptocurrencies
How cryptocurrencies are taxed currently depends on the type of investment.
- If a cryptocurrency investment bears interest, the provisions for capital assets apply and, in the event of a sale, the realised value increase is subject to a tax rate of 27.5%. It should also be taken into account that if a natural person leaves Austria (and their tax residency moves to a foreign jurisdiction), exit taxes will apply. Value increases of interest-bearing cryptocurrency assets (irrespective of any actual sale) will be subject to taxation at 27.5% at the time of exit.
- By contrast, the sale of a non-interest-bearing cryptocurrency asset will be taxed as a speculative transaction. The progressive tax rate for the respective natural person (up to 55%) applies if the cryptocurrency is sold or exchanged within the period of one year. Exit taxes do not apply in this case.
In both cases, tax assessment is mandatory, and the taxable amount must be declared to the tax authority by the natural person or their tax representative in the income tax return. It should also be considered that individuals who are tax resident in Austria need to include both the value increases realised in Austria as well as those realised abroad in their Austrian tax return.
Austrian Ecosocial Tax Reform Act (draft legislation)
It is planned that from 1 March 2022 all cryptocurrencies, irrespective of any interest-bearing investment, should be treated as capital assets and be subject to a special tax rate of 27.5%. The only exemption would be for income from cryptocurrencies that are not publicly available, which should be taxed using the progressive tax rate.
- In addition, Austrian service providers will be required to automatically withhold tax on income from capital at a rate of 27.5%. This replaces the requirement for natural persons to declare cryptocurrency income received within Austrian to the tax authority in the income tax return (either themselves or via a tax representative). It is also planned that the tax treatment of exit taxation will be carried out by domestic service providers. Accordingly, the tax liability will be settled by withholding the tax on income from capital.
- By contrast, value increases which are obtained via a foreign service provider still need to be declared in the income tax return.
Old stock and new stock
The new rules are planned to enter into force from 1 March 2022. A distinction between old stock and new stock is envisaged.
- In principle, any cryptocurrencies acquired before 1 March 2021 will count as old stock. The value increases of old stock will thus be tax-free if the cryptocurrency investment is not interest-bearing. An exemption applies to the sale or exchange of a non-interest-bearing cryptocurrency investment, which will still count as taxable speculative transaction for a period of one year.
- Cryptocurrencies which were acquired after 28 February 2021 thus count as new stock and, if a value increase is realised, will be subject to a special tax rate of 27.5%. A change of tax residency due to a departure from Austria will mean that any value increase of cryptocurrencies will be subject to tax.
In summary, the key point is that the planned legislation could lead to an increase in the mandatory income tax return. If you hold crypto assets, we recommend taking the new rules into account and to plan thoroughly. We would be happy to advise you on the proper approach towards crypto assets, to ensure that you have taken all tax aspects into account and to provide support when preparing the income tax return. You are welcome to get in touch with us!
Further details and information can be found in previous blog entries.