The Italian Parliament has approved a 26% capital gains tax on cryptocurrency profits as part of its 2023 budget law, which was passed on December 29th. The budget also includes incentives for taxpayers to declare their cryptocurrency holdings, proposing a 3.5% aliquot for undeclared cryptocurrencies held before December 31st, 2021, and a 0.5% fine for each additional year.
Italy’s new law on cryptocurrency taxation has received mixed reactions, with some praising the country for taking steps towards regulating the largely unregulated industry and others concerned about the potential impact on the country’s reputation as a haven for cryptocurrency companies and holders.
Incentives for Taxpayers to Declare Cryptocurrency Holdings
The budget law includes a number of incentives for taxpayers to declare their cryptocurrency holdings, including an amnesty on gains achieved by paying a “substitute tax” of 3.5%, as well as a 0.5% fine for each additional year. This is seen as an attempt by the Italian government to encourage transparency and compliance in the cryptocurrency industry.
Additionally, the budget law allows taxpayers to cancel their capital gains tax at a rate of 14% of the price of cryptocurrency held on January 1st, 2023. This would be significantly lower than the price paid when the cryptocurrency was originally purchased, providing an incentive for taxpayers to declare their holdings.
Cryptocurrency Losses Can Be Carried Forward to Future Tax Periods
In a move that will likely be welcomed by cryptocurrency investors, the budget law also allows losses of over 2,000 euros in a tax period to be carried forward as tax deductions to future periods. This will provide some relief to those who have experienced losses in the volatile cryptocurrency market.
Law Leaves Room for Interpretation
While the budget law is clear on many aspects of cryptocurrency taxation, it does leave some room for interpretation. The law states that “the exchange between crypto assets having the same characteristics and functions does not constitute a taxable event.” However, it does not define what is meant by “assets having the same characteristics and functions,” which could lead to confusion for taxpayers trying to comply with the new regulations.
Italy Follows in the Footsteps of Portugal
Italy is not the only country to introduce a capital gains tax on cryptocurrency. Portugal included a similar tax at a rate of 28% in its budget law for 2023, which was announced in October. Like Italy, Portugal’s tax law also includes provisions for taxing free transfers of cryptocurrency and commissions charged by exchanges and other crypto operations for facilitating cryptocurrency transactions.
Italy’s new budget law, which includes a 26% capital gains tax on cryptocurrency profits, is seen by some as a positive step towards regulating the largely unregulated cryptocurrency industry. However, it has also raised concerns about the potential impact on the country’s reputation as a haven for cryptocurrency companies and holders. The law’s lack of clear definitions on certain issues may also cause confusion for taxpayers trying to comply with the new regulations.
