General:

Crypto assets (such as bitcoins, other coins or tokens such as NFTs) that you own, are generally subject to so-called box 3 tax. In some occasions the results are subject to box 1 tax if purchased by a self employed business.

Income from crypto assets do not generate an income themselves (like shares or savings), but you can make a capital gain, either due to an increase in value over the tax year or if you have sold them.

Crypto assets in box 3:

In most cases, crypto assets will generally need to be reported in box 3 (tax on savings and investments). The current tax rule for this box is that the tax charge is based on a fictitious income. The real income is irrelevant and so are losses.

At the same time, the Supreme Court ruled that this rule (tax on fictitious income) is illegal. On that basis, it is also possible to claim to be tax on the “real income”. The definition or “real income” is still not clear for all assets, but for crypto assets it is generally the change in value of the crypto assets between the beginning and the end of the year, or if sold during the tax year, the real capital gain or loss.

Crypto assets in box 1 (income relating to work)

General

Crypto assets may under circumstances be subject to box 1 tax. Box 1 tax taxes the real income against different tax brackets: the higher the income, the higher the tax charge.

Four possible grounds for box 1 tax:

There are roughly four possible reasons as to why crypto assets would be subject to box 1 tax:

• The crypto assets were with funds from a self-employed business. If so, the profits are taxed and losses are generally tax deductible. Nevertheless, in case of big losses it happens that the tax authorities take the position that the purchase was not a business minded decision, but a personal. On that basis, the deduction of the loss may be refused. Contact us if you have any questions about this.
• The crypto assets will also be subject to box 1 tax if the trading of crypto assets in itself form a business. The definition of a business is important here. Also here, especially if there are losses, the tax authorities will not always accept the claim that the trading activities formed a business.
• Salary income or remuneration for work done: we have not seen it yet, but we can imagine that employers or clients may at some remunerate the employee by payment of crypto assets.
• Alimony income: this is also something we have not seen yet, but hey, why not!

Unreported Crypto assets and voluntary disclosure:

It is important to note that crypto assets should always have been reported! Due to new EU regulations, it is obligatory for crypto platforms to exchange data with the Dutch tax authorities which makes it easier for them to trace unreported crypto wallets. Also banks have reporting requirements: if you convert crypto assets into cash and this cash is transported to an EU bank, the bank will likely report this to the tax authorities if the funds are coming from an unknown source or a source that was not linked to you earlier.

Also, if the tax authorities do not know you own crypto assets now, it is likely they will in the near future due to the quick AI developments.

A voluntary disclosure may sometimes be recommendable and may avoid tax penalties of up to 300%, large sums of interests and high advisory expenses and even prosecution.

Feel free to give us a call to discuss.