Bitcoins, a form of digital currency that operates independently of a central bank, are gaining in popularity. Consumers can now use Bitcoins to buy a myriad of online items, including household goods, gift cards, and video games, as well as offline items such as travel and food. Many large companies are now accepting Bitcoins as a legitimate source of funds. From software giants Dell and Microsoft to travel sites like Expedia and Virgin Atlantic to retail sites like Overstock.com, more and more companies have incorporated Bitcoins into their business. Market analysts believe that it’s just a matter of time before Amazon and many other major retail players start accepting Bitcoins, or the other forms of digital currency currently on the market, like Litecoin, Dogecoin, and Nxt.
Currently, tax regulations related to Bitcoins differ for each country. As a general rule, the purchase of Bitcoins or any other crypto-currency is not in itself taxable. However, you are likely to be taxed when you sell or even spend those coins and make a profit. The exact tax levels much depend on the amount of gains, how long you owned the coins and whether your country taxes capital gains. You may also pay sales tax or VAT on the fees portion charged by the exchange for the service of selling you the coins.
For example, Bitcoins in the UK are treated as private money. That means the UK authorities classify Bitcoins as “taxable vouchers,” where VAT would be due on each sale. If you tried to exchange Bitcoins for Sterling, you would not be charged VAT on the value of the Bitcoin but would be charged VAT on the commission instead.
The Federal Council in Switzerland is working towards clarifying the legal qualification of virtual currencies. This is to be swiftly pursued and would impact exchange startups within the country as well as some other businesses that deal with digital currencies like the Swiss rail service SBB, which began selling Bitcoin through its ticket kiosks last fall.
The United States does not charge VAT on goods or services. Instead, sales tax is common in most US states, varying widely from state to state. Currently, no state has issued clear guidelines on taxation of Bitcoins. However, it is important to note that there is a Report of Foreign Bank and Financial Accounts (FBAR) filing requirement for financial accounts in a foreign country when the aggregate value of the accounts exceeds $10,000 at any time during the calendar year. It is likely that these requirements apply to Bitcoins or USD funds held in non-US Bitcoin exchanges or wallet services.
Other countries like China have offered no clear guidelines on how the tax issues associated with Bitcoins will be handled, including the ones regarding capital gains. Therefore, the Chinese Central Bank has banned banks and payment processors from being involved with Bitcoin-related transactions. Japan has also not established any specific tax regulations but their central bank is studying and watching the digital currency closely.
As Bitcoins grow in popularity, and governments are slow to respond with clear guidelines of tax implications, businesses need to tread carefully in an uncertain environment. If you are unsure of how your organization should proceed in handling Bitcoin transactions or are considering entering the Bitcoin market, VATBox can help provide clarity.
VATBox has successfully streamlined the global VAT recovery process, providing businesses with unrivaled visibility, compliance, and data integrity, and ultimately boosting its bottom line. To maximize eligible VAT refunds, many companies choose to implement VATBox, an automated, enterprise-wide, cloud-based VAT recovery solution, that streamlines the global VAT recovery process. Let us show you how your company can recover VAT on it Travel & Entertainment expenses. Request a free demo here