Tax treatment of cryptocurrencies
 

Taxes on income

As part of the Environmentally Responsible Tax Reform (Ökosoziale Steuerreform) specific regulations on the taxation of cryptocurrencies will come into force on 1 March 2022. Under the new system, cryptocurrency holdings will be counted as income from capital assets, and will be taxed at the special rate of 27.5%.

Which cryptocurrencies are covered?

Pursuant to Section 27b, para. 4 of the Austrian Income Tax Act (Einkommensteuergesetz - EStG) a cryptocurrency is defined as "a digital representation of a value that has not been determined or guaranteed by a central bank or other state body, is not necessarily tied to a statutory currency, and that does not hold the legal status of a currency or of money, but that is accepted by natural persons or legal entities as a means of exchange and can be transferred, stored or traded by electronic means."

This definition encompasses publicly offered cryptocurrencies that are accepted as a means of exchange. It also applies to "stablecoins" - cryptocurrencies whose value is supposed to be tied to that of an underlying legally recognised currency or of other assets using a set mechanism.

The definition does not cover "non-fungible tokens" (NFT) and "asset tokens" underpinned by real assets, such as securities or property. These products are taxed according to general tax regulations, depending on nature of the tokens concerned.

Income affected and calculation methods

The definition of income from cryptocurrency holdings includes current income from cryptocurrency holdings ("fruits") and income as a result of realised increases in the value of cryptocurrency holdings ("realised gains"), irrespective of whether any minimum holding period has been observed.

Pursuant to Section 27b para. 2 EStG, the definition of current income from cryptocurrency holdings includes remuneration paid for transferring cryptocurrencies (see sub-para. 1). Such remuneration is deemed to have been paid whenever cryptocurrencies are transferred to other market participants in return for a fee. The definition of these fees for tax purposes specifically includes interest earned on loans of cryptocurrency (i.e., "Lending") and taxable considerations in return for the provision of cryptocurrencies for liquidity and/or credit pools as part of a "Decentralised Finance process" (or DeFi) (also referred to as "liquidity mining").

Cryptocurrency holdings acquired by means of a technical process in which transaction processing services are provided (sub-paragraph 2) also fall under the definition of current income. This provision is designed, in particular, to cover the acquisition of cryptocurrency holdings in the course of "mining" activities, regardless of whether the process results in the creation of new cryptocurrency or whether the income is provided by other members of a network in the form of a transaction fee. Operating a master node can also generate current income for tax purposes.

All current income is subject to taxation at the point of inflow. Such income is assessed for tax purposes at the time of the inflow on the basis of the value of the acquired cryptocurrency holdings and/or any other remuneration received at that time. This value will also be used in the future to represent the cost of the acquired cryptocurrency holdings for tax purposes.

By contrast, current income is not deemed to have been generated if:

• the service associated with processing the transaction consists primarily of investing (staking) existing cryptocurrency;
• cryptocurrency is transferred free of charge ("airdrop") or solely for other, insignificant benefits ("bounties");
• cryptocurrencies are accrued as a result of an alteration from the original blockchain ("hardfork").

In these cases, income from cryptocurrency holdings is not taxed at the time of inflow. However, the cryptocurrency holdings concerned are deemed to have been acquired at zero cost. This means that if they are disposed of at a later date, the full value of the cryptocurrency holdings will be taxed.

The definition of "income from realised increases in the value of cryptocurrency holdings" pursuant to Section 27b para. 3 EStG specifically includes:

• Income resulting from the conversion of cryptocurrency holdings into euros
• Income from converting cryptocurrency holdings into legally recognised foreign currency (for example, the US dollar)
• Income from trading cryptocurrency holdings against other economic goods and services (for example, buying an economic good and paying for it in cryptocurrency).

Trading one cryptocurrency for another cryptocurrency does not constitute a disposal, and such trades are not taxed. In addition, any expenses associated with such trades (such as transaction costs) are not deemed significant for tax purposes, and are therefore not taxed at the time of the trade. In this situation, the acquisition costs of the transferred cryptocurrencies are carried over to the cryptocurrency acquired in the trade.

Any behaviour that leads to the loss of the Austrian government's right to tax any profits resulting from disposal is also treated as a disposal (for more details, see here - in German only).

Profit from a disposal is calculated by subtracting the acquisition costs from the revenue generated as a result of the disposal concerned. Such profit is taxable. For trades, the disposal price for the relevant cryptocurrency holdings is assumed to be the fair market value of the cryptocurrency holdings concerned at the time of the trade (Section 6 para. 14 EStG). Note that any ancillary costs associated with the acquisition of the cryptocurrency holdings (for example, advice or transaction fees) can be offset against tax, reducing the profit for tax purposes. However, expenses associated with financial assets (such as electricity costs or the cost of acquiring hardware) are not tax-deductible unless the taxpayer chooses to make use of the standard taxation option (Regelbesteuerungsoption). For further details, see here - in German only.

Tax rate

Pursuant to Section 27a para. 1 EStG, income from cryptocurrency holdings (including both current income and profit from disposals) is subject to a special tax rate of 27.5%, and does not count towards the progressive thresholds for the taxation of other income. This provision applies irrespective of whether the amount of tax due is withheld at source (i.e., as capital gains tax), or determined on the basis of the tax return and/or assessment procedure.

However, an exemption does apply to income from private loans made in cryptocurrency, provided that the transfer contracts underpinning the loan are available to the general public. Income from such private loans is counted towards the progressive income tax thresholds.

Compensation of losses

According to Austria's general tax regulations, profits and losses associated with income from cryptocurrencies can be calculated for tax purposes together with the profits and losses associated with other capital income, such as dividends or proceeds from disposing of shares. For further details, see here - in German only.

Commercial income

In principle, the special tax rate for cryptocurrencies applies to commercial assets as well as to traditional capital assets. However, the special rate does not apply if generating income from cryptocurrencies is part of the core activity of the business concerned. In particular, this means it does not apply to businesses trading commercially in cryptocurrencies, or to businesses mining currency on a commercial basis. Revenues from such activities are taxed according to the progressive income tax thresholds.

Loss overhangs arising from cryptocurrency holdings that constitute part of a business's assets are treated in the same way as loss overhangs arising from commercially held capital assets.

Capital gains tax

Domestic (Austrian) debtors and service providers will be required to deduct Austrian capital gains tax (KESt) from capital yields accrued after 31 December 2023. This deduction can be made voluntarily from yields accrued before this date, in which case the capital gains tax is withheld and transferred directly to the tax office. Investors do not need to declare capital yields on which tax has been voluntarily deducted as part of their tax returns, because the applicable income tax is deemed to have been collected when the capital gains tax is withheld (this principal is referred to as "final taxation").

Entry into force

The requirement to pay tax on income from cryptocurrency holdings enters into force on 1 March 2022, and will apply to cryptocurrency holdings acquired after 28 February 2021 (termed "new assets").

As a rule, cryptocurrency holdings acquired before this date will be treated as pre-existing holdings, and therefore will not be covered by the new tax arrangements. They will continued to be treated as economic goods and taxed as they were prior to the Environmentally Responsible Tax Reform.

However, where cryptocurrency holdings acquired prior to 1 March 2021 ("old assets") are used with a view to obtaining current income from cryptocurrency holdings pursuant to Section 27b, para. 2 EStG, or to acquire cryptocurrency as part of staking, airdrop, bounty or hardfork arrangements (Section 27, para. 2 (2) EStG), the new tax regulations will apply in respect of such acquisitions. Any cryptocurrency acquired in the course of such activity will be deemed to be a new asset.

Where cryptocurrency holdings are liquidated such that they are subject to tax after 31 December 2021 but prior to 1 March 2022 (and in particular as a result of disposal or trade), the positive or negative income from such liquidation can be taxed voluntarily in accordance with the new system. In this situation, the special tax rate for cryptocurrencies will be applied and the income can be combined with other income generated from capital assets in 2022 for the purposes of compensation of losses.

Value Added Tax (VAT)

Based on the case law of the Court of Justice of the European Union (CJEU)  on bitcoin crypto assets, the following value added tax treatment applies to bitcoins: 

Exchange from legal tender to bitcoins and vice versa

The exchange of legal tender (e.g. Euros) for bitcoins or vice versa, is exempted from VAT according to the case law of the CJEU  (see CJEU  22/10/2015, Case C-264/14, Hedqvist; UStR 2000 m.no.  759). 

Consideration in bitcoins

Supplies or services for which consideration is made in bitcoins shall be treated in the same way as other supplies or supplies or services for which the consideration consists of legal tender (e.g. Euros). The tax base for such supplies or services shall be determined by the value of the bitcoin. 

Mining

Bitcoin mining is not subject to VAT due to the lack of an identifiable service recipient and in light of CJEU case law (see CJEU22/10/2015, Case C-264/14, Hedqvist).