Paying tax on cryptocurrencies

Sole proprietorships and cryptos

I invest as a zzp’er

With a sole proprietorship, you can invest in cryptocurrencies in addition to your regular activities. For your income as a zzp’er, there is no difference between private money and business money. This means that investing in cryptos is taxed in box 3 of income tax. Unless you actively trade cryptos. That is taxed in box 1.

I actively trade cryptos

You can also actively trade cryptos as a sole trader. That means that your company wants to make a profit by buying and selling cryptos. The Belastingdienst (Netherlands Tax Administration) will then look at whether you are engaging in 'more than normal wealth management' (in Dutch). Or whether your activities belong to 'normal wealth management'. These are two different things.

Normal wealth management is taxed in box 3. This box charges tax on income from savings and investments. For more than normal asset management, the profit is taxed in box 1. Box 1 charges tax on income from work and home.

There is no hard line between 'normal' and 'more than normal' wealth management. The transition depends on:

• your knowledge and experience
• how much time you put into crypto trading
• how many tools you buy

Any combination of these 3 factors could, in theory, shift your assets from box 3 to box 1, where the tax rate is much higher. In box 1, actual capital gains are taxed at a rate of up to 49.5%

Income tax return box 3

As discussed above, an investment in cryptos by a sole trader usually falls into box 3 of income tax.

The tax in this box is calculated on the value of your cryptos on the reference date. The reference date is 1 January. There are no rules (yet) on which cryptocurrency you apply from which trading platform.

In practice, you take the price of the trading platform where the cryptos are, or came from. Price fluctuations in the rest of the year no longer matter for crypto tax. Not even if the price is already skyrocketing or falling on 2 January.

From box 3 to box 1

In the following cases, your assets can shift from box 3 to box 1:

• Do you have special (prior) knowledge when buying and selling crypto? Do you know more about this than other people? This could be a sign that your profits will be taxed in box 1. This also applies in reverse. Do you have no special knowledge and know only the same as everyone else? Then this could be a sign that your profits fall into box 3.
• You spend all day buying and selling cryptos. You also spend a lot of time picking the right moment to trade. If so, you will almost certainly pay tax on your profits in box 1.

Do you invest or trade in cryptos through your own bv? Then you have to pay corporate tax on the profits. Later dividend payments are subject to substantial interest tax (box 2).

Does one of the above cases apply to you? Then your profit shifts from box 3 to box 1. But this is not always the case. If there is speculation, the profit stays in box 3. Speculation means that you think it is a good time to trade cryptos, but you don't know for sure. This is a feature of investing and therefore the profit falls in box 3.

Bv’s and cryptos

My bv trades in crypto's

You can also trade cryptos as a besloten vennootschap (bv, a private limited company). Then you buy cryptos and resell them to make a profit. You can also invest in cryptos as a bv. You do this also for profit. The difference between the two is the aim.

Is crypto trading what your company does every day? And is its focus on making money? If this is also how the company presents itself to the world, then trading cryptos is the main purpose of your business.

You buy the cryptos with money from the company. So, this appears as current assets on the balance sheet. The value on the balance sheet is then the value for which you bought the cryptos or the lower company value. Do you sell cryptos and make a profit? Then you pay corporate tax on this profit.

I invest through a bv

You can also invest in cryptos through a limited company. In that case, the main purpose of the bv is not to actively trade cryptos. The company does something else, such as baking bread or repairing cars.

Besides its main activity, the bv uses available funds to invest in cryptos. Therefore, this appears as an investment on the balance sheet for the value for which you bought the cryptos. Do you sell the cryptos for more money? Then the difference between the amount you bought the cryptos for and the amount you sold them for is profit. This profit is subject to corporate tax.

Note: always consult or check this with your accountant, bookkeeper, or tax advisor.

Is your company paid in cryptos?

Do your clients want to be able to pay you in crypto? Then read what you need to consider when accepting crypto payments. In any case, the turnover must be converted into euros. This turnover is included in your bookkeeping, and you pay taxes on it in the normal way.

Transactions must be transparent

Do not forget to declare cryptos in your income tax or corporate tax return. The Tax Administration can go back through your records for the past 5 years to see when and how many cryptos you bought and sold. The Tax Administration can then contact you and collect any tax owed. You will also be fined if you file an incorrect tax return. The fine can be up to 300% of the tax payable per year.

New legislation

Legislation on cryptos will continue to evolve in the coming years. It is likely that the DAC8 directive will come into force in 2026. This directive will ensure that the Tax Administration can carry out more checks. Crypto services will then be required to share payments made by entrepreneurs and private individuals with the Tax Administration.

The more general MiCA regulations will come into effect in 3 stages from 30 June 2024. MiCA includes rules for better consumer protection and countering market abuse. For instance, crypto service providers must better protect customers' digital wallets. And they may be liable in case of loss of customers' money.

New legislation makes crypto services subject to roughly the same requirements as traditional finance.