DeutschAttention: This article refers to taxation in Austria. Depending on your place of residence, the tax treatments differ: Read more details about Austria’s neighbors Switzerland and Germany here.
Compared to several other European countries, Austria is considered to be very progressive. With the company Bitpanda, the country has been home to a large and multi-award-winning crypto service provider since 2014, which also enjoys a good reputation outside of Austria. The demand for digital currencies in the country is steadily increasing. The legislature is increasingly reacting to the interest and is dealing with the legal, especially the tax treatment of crypto assets. Investors in spe should devote the necessary attention to the tax issue in the run-up to the first crypto transactions. Due to the volatility (range of fluctuation) of the crypto sector, investors should also know how losses from activities in the field of digital currencies can affect the tax return.
Cryptocurrencies are not Financial Instruments in Austria
The most important information about trading cryptocurrencies: Digital currencies such as Bitcoin or Ripple are classified as part of private assets in Austria and are not classified by the tax office as financial instruments in the classic sense, but as “other intangible” economic goods. The reference to private investments is important because crypto assets are treated differently as part of business assets in Austria. However, this is about the private sector. The legal situation has so far stipulated that profits realized from trading coins and tokens are taxed on the basis of personal tax liability. The aspect of holding periods (also speculation period), which is important in most countries, also played a central role for investors in the Alpine Republic. The period between purchase and sale was decisive for the question of tax relevance.
New Legal Situation for Profits from Cryptocurrencies since March 2022
If a 12-month holding period was observed, crypto profits in Austria were tax-free. Only if investors parted with their holdings earlier were income taxable. Already at the end of 2021, a change in the previous legal situation was announced by a new draft law. Initial reports only a change of course of the Austrian tax authorities already indicated the departure from the holding period as an essential basis for the taxation of crypto profits. After the introduction of the new regulations, one point in particular comes into play, which, in addition to the general tax liability regardless of the elimination of the holding periods, is quite popular. The legislature now provides for taxation on the basis of the capital gains tax (KESt), regardless of the time of sale. The flat tax rate is 27.5 percent. This change will benefit in particular very active traders whose individual income tax rate is up to 55 percent.
Disadvantages for Long-Term Crypto Investors
A comparatively hard blow, however, is the correction for investors (for example, so-called “hodlers”) who hold crypto assets in their portfolio for longer and have so far been able to exclude taxation in this way. In the future, they will also generally pay taxes. In general, the new tax situation is received quite positively. After all, the new provisions ensure clear conditions. The new “Eco-Social Tax Reform Act 2022 Part I “(ÖkoStRefG 2022 Part I) came into force punctually on March 1, 2022.
Important – Distinction between “Old” and “New” Crypto Assets
It had already become known from the environment of the federal government some time ago that a special regulation should apply to owners of “older” assets. And indeed: The old legal situation including the requirements for holding periods now continues to apply – for all altcoins that were demonstrably acquired before 01.03.2021. Here, the one-year lock-up period in conjunction with the progressive tax rate for the taxation of profits from sales continues to apply. The Eco-Social Tax Reform Act aims not least to make tax evasion massively more difficult. This was not a real problem, investors could simply conceal profits when preparing the tax return.
Updated tax liability refers to “new” coins
As I said, the updated rules apply to crypto acquisitions after the cut-off date of 28.02.2021 and thus to new assets. As expected, the reactions from the crypto community are not entirely delighted.
Positive and Negative Effects of Crypto Taxation
For many crypto fans, the changed legal situation is therefore a double-edged sword. As pleasing as the uniform taxation is, it is also annoying to abolish the tax exemption for sales after more than a year. Due to the flat tax liability of crypto investments, not only profits now affect the tax burden. Since this year, investors can also offset their losses from crypto speculation against income from other asset classes such as stocks, bonds, interest or dividends. In other words: If you make profits with cryptocurrencies, you benefit, for example, from the consideration of losses on securities. Financial experts also see the now applicable tax neutrality when exchanging digital currencies on crypto exchanges and trading platforms as an advantage of the new legal situation. An early exchange was often taxable with regard to the previously applicable deadlines, as this was also basically considered a sale.
How Will the Taxation of Crypto Income Take Place in the Future?
The tax authorities want to avoid tax fraud by concealing profits through a reporting obligation. According to the new law, crypto exchanges from Austria are responsible for the tax payment to the responsible tax office. The good news for investors and platform operators: There is a transitional period. The automatic payment of the tax applies to all crypto income after 31.12.2023. So enough time to get used to the changed legal situation. The state relies on a certain degree of voluntariness on the part of the stock exchanges. For the two years 2022 and 2023, providers can already withhold the capital gains tax earlier. In view of the expected lead time in the integration of the billing system, however, experts do not assume that too many providers will make use of this option. On the other hand, a faster implementation of the legal requirements for service providers during the transition phase could become a certain competitive advantage.
The new rules could also lead to a decline in domestic customer numbers. By switching to foreign exchanges, taxpayers could circumvent the law – of course, with all the legal consequences that may arise later if income is not properly reported in the future. The legislator could prevent this if Austria later extends the provision of customer information to foreign providers. There are now plans in this direction for the European Union.
Alternative: Personal Tax Rate Instead of Flat-Rate Deduction and Individual Case Rules
Although crypto income will generally be taxable even after the 28th of February purchased coins and tokens. However, if you hold older assets, you can apply for taxation at the progressive tax rate after a precise calculation of the charges. Here it is worth taking a close look at which approach is the “more favorable”. The tax rate of 27.5 percent is otherwise also applied to profits from crypto mining – the progressive rate applies if activities in the field of mining “go beyond mere asset management in terms of type and scope”. This refers to income from commercial activities. Here, taxes can be up to 55 percent, thanks to the progressive tax rate.
Staking, Crypto Inheritances and Derivative Income
Cryptocurrencies received through staking – the same applies to airdrops and other “reward models” – are not considered income in the actual sense by the new law and do not assume acquisition costs. If such coins are sold later, the capital gains tax applies. Donations or inheritances in cryptocurrencies are in turn subject to capital gains tax. Unless, according to experts, holdings change hands as a private loan. Then, according to experts, the progressive tax rate applies. Anyone who relies on financial derivatives such as CFDs or binary options and “bets” on the price developments of digital currencies is also bound by the progressive tax rate. An exception: If Austrian stock exchanges voluntarily retain income pro rata now, investors will enjoy the often lower tax rate of 27.5 percent.
Understandable and Complete Evidence Avoids Problems with Taxation
Regardless of when investors enter the market and at what point in time purchases and sales are made, they should always know and take into account the most important advice from tax experts:
| The first elementary one from tax experts is:
→ Anyone who invests in cryptocurrencies should make sure from the beginning to document all transactions as well as possible and without gaps! |
This guiding principle is now even more relevant due to new taxation in Austria for crypto income.
The fact that authorities are increasingly moving to waive the submission of extensive documents for all documents does not mean that the tax authorities do not take a close look at the slightest suspicion of incorrect information. Tax advisors now urge all the more urgently to keep all available evidence such as documents on crypto-related accounts and deposits. In case of doubt, the responsible authority can subsequently demand the submission of documents. Taxpayers should be optimally prepared for this. How investors perceive the new legal situation is ultimately a question of the individual tax situation.
Finally, the indispensable note: This overview does not constitute binding legal advice. Crypto investors should always seek contact with tax advisors and other experts for security reasons in order to avoid legal problems.
Other countries, other taxation:
Taxation of cryptocurrencies and profits in Switzerland
Taxation of cryptocurrencies and profits in Germany
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Finally, the explicit note again: The preceding explanations do not constitute binding legal advice. Anyone who already trades with digital currencies and generates income from sales transactions or plans to enter the market should definitely rely on the assistance of a tax expert. Ideally, these already have extensive experience in connection with cryptocurrencies. It is by no means the case that every tax advisor is now familiar with the topic of taxes on cryptocurrencies in Austria. The specialists also provide detailed information about special features and deadlines for the sale as well as special conditions with regard to the individual taxation of profits and losses.
