Crypto Taxation in Luxembourg
Written October 9th, 2019
Although Luxembourg recognizes the value of crypto assets, they have yet to regulate it. In 2018 they were negotiating between classifying crypto either as a 'means of payment' or a 'means of exchange'. In 2014 the Commision de Surveillance du Secteur Financier (CSSF) published Bitcoin Communique 2014, which defined virtual currency as ‘scriptural money’, suggesting its stance of crypto being a ‘means of payment’. However, CSSF contradictorily referred to crypto as a ‘means of exchange’ in their published VC Warning 2018 statement (link in French). The Bitcoin Communique 2014 was reportedly taken offline one month before the VC Warning 2018 was issued, which indicates that the ‘means of exchange’ may be the favored treatment of virtual currencies in Luxembourg. In fact, they did release guidance in July 2018 (Circular linked in para. 4) which stated that virtual currencies are not viewed as currency.
Despite the lack of regulation in Luxembourg, the aforementioned guidance released July 2018 on how to report cryptocurrencies defined virtual currencies as “intangible assets which have to be reported at their counter value in an actual currency”, with the exchange rate taking a historical cost when converting. Although the circular posted in July 2018 is in French, Lexology (linked above) provides a clear summary of its contents. Regarding corporate taxpayers, the circular explains that any virtual currency income derived is considered business income, which has a headline tax rate of 26.01% in Luxembourg City. Additionally, virtual currency in a corporation is “a taxable asset for net wealth tax purposes” in Luxembourg.
Updates as to any developments since 2018 has been practically non-existent as the news has gone quiet. However, in recent news, PwC Luxembourg announced last month that they have begun accepting Bitcoin payments from its clients starting October 1st, 2019. In their announcement, they explained that to minimize any challenges faced from this new implementation, they have collaborated with a “local regulated exchange” and carefully reviewed the “standards required by the crypto industry” to ensure the best procedures for the company and its clients. It is not public knowledge as to which locally regulated exchange they are collaborating with. PwC Luxembourg also published in 2018 a useful article on the tax treatments of cryptocurrencies in Luxembourg. The following information concerns the tax treatments discussed in the published Circular, in which more details can be found in the article linked above.
Commercial income: Article 14 of the Law of 4 December 1967 on income tax states that “any independent activity, with a profit-making intention, exercised on a permanent basis, which participates in the general economy, when said activity is neither a forestry activity nor an independent professional activity” is considered “commercial profit”. What may be considered commercial activity varies and is described further in the published Circular of 26 July 2018 (No. 14/5 – 99/3 – 99bis/3). EY also provided a summary of the Circular, stating that commercial activity according to the published guidance includes: “place or organization assigned to operations on virtual currencies, use of borrowed capital, frequent changes in the inventory of virtual currencies, and trading on behalf of third parties”.
Other income: If commercial profit doesn’t apply to the activity involved, then the income will be considered “other income”, including capital gains. An example provided is the “exchange of virtual currency against another currency or against…fiat currency as well as the payment of goods and services in the form of virtual currency”. The summary linked above further describes the tax treatment of such an exchange that “if the exchange or the purchase of goods or services takes place within six months after the purchase of the virtual currency, this leads to ‘speculation profits’ or ‘speculation losses’ under article 99bis LIR. Such speculation profits are not taxable if they are below 500 EUR in a taxable year”.
VAT: Although this point wasn’t a part of the above-mentioned Circular, another Circular (No. 787) was published in June 2018 stating that the VAT exemption of article 44 – c – 7 of the Luxembourg VAT law applies to virtual currencies (Deloitte, p.8).
