At the beginning of November 2021, the Austrian Ministry of Finance published a draft bill on the eco-social tax reform 2022 which includes new rules for the taxation of income from crypto currencies. In the following, please find an overview of the most important changes.
The new rules are set to come into force on 1 March 2022 and will integrate “income from crypto currencies” into the existing regime for the taxation of income from capital investment. Income from crypto currencies will include “income from investment in crypto currencies” (i.e. fruits like interest income from crypto currencies, airdrops, bounties, staking) and “income from capital gains from crypto currencies” (e.g. sale, exchange for services / goods including fiat money).
Taxation of crypto currencies acquired before 1 March 2021
Crypto currencies acquired before 1 March 2021 will be treated as “old stock” and will continue to be subject to the currently existing rules, where capital gains from crypto currencies are taxed at the progressive tax rate (max. 55%) as “other income” if - upon realization of the gain - the related assets have been held for less than a year. As any old stock will be held for one year or longer as soon as the new regime enters into force, capital gains realized after 1 March 2021 will be tax exempt.
Income from crypto currencies (new stock)
Crypto currencies acquired after 28 February 2021 will be treated as “new stock” and will be subject to the new rules. As of 1 March 2022, income from new stock of crypto currencies shall be subject to the special income tax rate of 27.5% provided that the underlying contract is based on a public offering in legal and factual terms. Pursuant to the new rules, swaps between crypto currencies will be tax-exempt, however the original acquisition costs must be carried forward. The new regulation will further introduce the possibility to offset losses from the sale of crypto currencies with other income from capital assets, which are also subject to the special tax rate (e.g. dividend income, capital gains from stocks, investment funds and derivatives, however not interest related to a savings account) within the same tax year. Losses must not be forwarded to other periods.
According to the draft bill, income from crypto lending and the contribution of crypto currencies to staking pools will constitute interest income from crypto currencies and the progressive tax rate of up to 55% will apply. Airdrops, bounties and staking will not constitute interest income from crypto currencies. These rewards will only be taxed upon a realization of a gain (e.g. sale).
Withholding tax obligation
The new rules will introduce a withholding tax obligation for domestic debtors and service providers (e.g. crypto exchanges) as of 31 December 2022. The tax must be withheld when income from crypto currencies is paid out or credited, provided that the underlying contractual relationship is based on a public offering in legal and factual terms.
As of 1 March 2022, crypto currencies that fall under the new rules (new stock) will be subject to the rules on exit taxation. In the case of a limitation of Austria’s taxing right (e.g. in the case of a relocation of the taxpayer abroad), the accumulated hidden reserves will be subject to tax in Austria. In case of a relocation within the EU / EEA, a postponement of the tax payment is possible. For taxpayers who have accumulated high gains with new stock (acquired after 28 Feburary 2021), the new rules will inevitably lead to a tax liability. This could be avoided by relocating from Austria before 1 March 2022, as until then no exit tax regime applies to cryptocurrencies classified as other income.
Exchange of information on crypto currencies
In connection with the new rules regarding income from cryptocurrencies, it is important to keep in mind the development of the automatic exchange of information at EU level. The European Commission is currently working on a directive for the automatic exchange of information on crypto currencies and e-money. With the 7th revision of the Directive on Administrative Cooperation (DAC8), the exchange of information is currently planned to become mandatory as of 2022 / 23. In practice, this will mean that crypto brokers and exchanges will have to provide tax authorities with data on their customer’s transactions.
The new classification of crypto currencies under income from capital investments should be welcomed for reasons of legal certainty and represents an about-face regarding the existing rules. However, some points remain unclear. For example, both the draft bill and the accompanying explanations lack clarity on the treatment of non-fungible tokens (“NFT”) and do not provide a definite categorization of the popular investment forms of “Liquidity Mining” and “Yield Farming”.
If you wish to discuss this topic, please contact:
Matthias Mitterlehner, Partner, Head of International Tax
ICON Wirtschaftstreuhand GmbH, Linz