The pioneering Austrian legislator is breaking new ground in the area of crypto taxation. Income from cryptocurrencies will no longer be taxed progressively, at up to 55% for individuals, but at a flat rate of 27.5% withholding tax. With these rules, the Austrian legislator has brought clarity to the taxation of crypto assets for the first time and has responded to the increased practical relevance of cryptocurrencies and the need to tax them in line with securities. The previous taxation of crypto assets was mainly based on non-binding information from the homepage of the Austrian Ministry of Finance.
How Crypto Assets Used to Be Taxed
Income from the sale of cryptocurrencies acquired prior to March 1, 2021, is subject to a one-year speculation period. It is therefore tax-exempt if the cryptocurrencies are sold after the expiry of this period. If, on the other hand, the cryptocurrencies are sold prior to the expiry of the speculation period, the income thus generated is subject to a progressive income tax of up to 55% for individuals or 25% for corporations.
Transitional Rules on Crypto Asset Taxation
Cryptocurrencies acquired after February 28, 2021, but sold by February 28, 2022 (inclusive), are still subject to the above-mentioned provisions. Crypto gains deriving from transactions before December 31, 2022, have to be declared in an income tax statement, while from January 1, 2023, crypto gains will be taxed via a withholding tax – if the crypto trading provider has an adequate Austrian nexus (e.g., through a registered office).
The New Way Crypto Assets Are Taxed
Income from cryptocurrencies can be either (1) ongoing income or (2) income from realized appreciation (e.g., sale).
As of March 1, 2022, gains from the sale of cryptocurrencies are subject to the special income tax rate of 27.5% for individuals or 25% for corporations. The prerequisite for this flat tax rate is the existence of a public offering of these cryptocurrencies – as swaps between cryptocurrencies do not constitute a taxable event. In such cases, the acquisition costs are continued by the swap, and the taxation of the hidden reserves is delayed until actual disposal takes place.
If the cryptocurrency services only consist of the use of existing cryptocurrencies (staking), or cryptocurrencies are transferred without consideration (airdrops), or for only insignificant other services (bounties), the acquired cryptocurrencies do not constitute ongoing income. The profits thus generated are not taxed until they are finally realized.
Furthermore, as of March 1, 2022, it is also possible to offset losses with other income from capital assets that are subject to the special tax rate of 27.5%. These are, for example, gains or losses from the sale of securities or bonds, interest from bonds, dividends, etc. The loss compensation is to be exercised within the annual tax return.
The classification of cryptocurrencies as income from capital assets also means that the provisions on exit taxation will apply. If Austria’s right to tax these cryptocurrencies is restricted during a departure, the hidden reserves accrued until the departure must be taxed in Austria. In the case of a physical departure of individuals to EU/EEA states, taxation may be deferred (but not entirely avoided) upon application.
It is essential to document crypto holdings in the tax treatment of cryptocurrencies, especially as there are economic consequences for failing to do so. The person required to deduct must assume that the acquisition costs amount to half the fair market value – if the acquisition date is not known or documented. The special tax rate of 27.5% is applied to these fictitious acquisition costs, which corresponds to an effective taxation of 13.75%.
The new rules on crypto taxation at least guarantee legal security in connection with the taxation of cryptocurrencies in Austria. In any case, Austria is a trailblazer internationally in this regard since, to be able to assess taxable income, Austrian crypto platforms will be required to withhold and pay withholding tax for the respective taxpayers. This exchange of data with the Austrian tax authorities may also lead to a new wave of voluntary self-disclosures in Austria.
By Roman Perner, Partner, and Marco Thorbauer, Counsel, Schoenherr
This article was written before the advent of the war in Ukraine and was originally published in Issue 9.2 of the CEE Legal Matters Magazine on March 1, 2022. More current articles on developments in Ukraine can be found in our #StandWithUkraine section. If you would like to receive a hard copy of the magazine, you can subscribe here.