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After a week of turmoil, crypto traders finally get a (tax) break

Is the crypto bubble bursting? Or are we seeing a manageable correction that offers investors an opportunity to buy the dip? However you spin it, the last week has been tough on investors in cryptocurrencies like Bitcoin and Ethereum. 

In a few days, Bitcoin lost over 20% of its value. Ethereum’s decline was even steeper. The mechanics are not entirely clear. However, Elon Musk’s tweets indicating Tesla would no longer accept Bitcoin as payment certainly didn’t help. 

Musk had previously made crypto news (and driven crypto markets) when Tesla disclosed it has purchased $1.5 billion worth of bitcoin. 

The same capital, with more gains

There are plenty of lingering questions about crypto fundamentals and use cases (assuming you’re not committed to the ‘HODL for life’ philosophy). However, at least traders can enjoy a more affordable and stable cryptocurrency tax regime.  If they’re based in Hungary, at least.

Hungary is slashing capital gains tax on cryptocurrencies by half. In 2022, the Hungarian government will lower the tax on cryptocurrency earnings from 30.5% to 15%.

According to  Hungarian Finance Minister Mihaly Varga, the move aims to increase revenue collection. Given the current high rate, many investors do not declare their crypto-related revenue. 

Varga also hopes the move will help develop a sustainable cryptocurrency market. 

Cryptocurrency as a medium of exchange

In all the talk of crypto as an asset, it’s easy to forget that Bitcoin and other digital currencies are, nominally at least, means of exchange. 

What are the tax implications of using cryptocurrencies to buy things?

UK authorities recently confirmed that any transaction involving a cryptocurrency would be taxed as normal. Authorities will therefore calculate the value of supply according to its GBP amount. They then charge VAT normally. 

That said, HMRC stated that their crypto guidance is provisional. As global authorities refine their framework for digital currencies and VAT, the laws are likely to change.

Vatglobal continues to carefully monitor regulations as they develop. Get in touch with our expert VAT team for VAT advice and assistance, whatever currency you use. 

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