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Taxation of Cryptocurrency in Luxembourg in 2024
The topic of cryptocurrencies is increasingly on the rise and one of the points that arouses more interest, especially when prices go into rocket mode, is taxation. Through this guide we will then review what is the current state of taxation of cryptocurrencies in Luxembourg.
The taxation of cryptocurrencies in Europe varies greatly with rates ranging from zero to 52%, Luxembourg for its part is one of the most favorable countries in this regard, as if certain conditions are met taxation can be 0%.
General cryptocurrency laws in Luxembourg in 2024
We will start our review by examining the laws and entities involved in crypto tax in Luxembourg, however, before we get into the subject, we will briefly review what cryptocurrencies and NFTs are.
Cryptocurrencies are decentralized digital assets that use cryptography to ensure the security of transactions and control the creation of new units. One of the most important characteristics of cryptocurrencies is their decentralization. This refers to the fact that cryptocurrencies are not controlled or backed by an independent entity, they do not depend on a Central Bank or any government entity. Cryptocurrencies are characterized by their:
Security
cryptocurrencies use cryptography to protect transactions so it is very difficult to alter a transaction.
Decentralization
they work through a distributed network known as blockchain which eliminates the need for intermediaries such as banks and allows autonomous control of transactions.
Speed
They allow for fast and cheaper transfers globally.
Volatility
cryptocurrency prices are highly volatile.
In addition to cryptocurrencies, in the crypto world, there are also NFTs and as the acronym of their name indicates, these are non-fungible tokens, that is, unique digital assets. These digital assets usually represent ownership of a digital or physical object. Here are their main characteristics:
Unique and indivisible
each NFT has unique attributes that distinguish it from other tokens and cannot be divided into smaller units like cryptocurrencies.
Verifiable ownership
ownership of an NFT is recorded on the blockchain which provides proof of authenticity and facilitates the transfer of rights.
Interoperability
NFTs can be used in different applications and platforms and are accessible through marketplaces specialized in transactions of these assets.
Investment potential
they have gained popularity as investments due to the value that some of these assets have achieved in the market.
Tax authority and laws
The entity responsible for the taxation of cryptocurrencies in Luxembourg Inland Revenue. This entity is in charge of applying and managing the tax laws in the country, its main role is to supervise and ensure compliance with the tax obligations of individuals and companies, including those related to crypto assets.
And what about crypto tax laws? The Luxembourg tax regime for crypto assets is generally governed by the country's standard tax laws and principles, as there is no separate legislation for the taxation of crypto assets. This means that both individual investors and companies must manage the existing tax framework to understand their obligations with respect to crypto assets, including cryptocurrencies and non-fungible tokens (NFTs). However, some recent laws do mention crypto assets directly and circulars have emerged in order to clarify the application of current regulations with respect to cryptocurrencies.
Income Tax Law (LIR)
this law establishes the general framework for the taxation of income, including that derived from activities with cryptocurrencies. As cryptocurrencies are relatively recent, there was initially no clarity on how the income tax law should be applied in this area, however, the circular of July 26, 2018 solved this problem by providing interpretations and guidelines on how the current law should be applied to cryptocurrencies.
Law of April 5, 1993 on the Financial Sector
this legislation regulates financial activities in Luxembourg and is relevant for companies operating with cryptocurrencies, especially with regard to the prevention of money laundering and terrorist financing.
Markets in Crypto-Assets Regulation (MiCA)
although this is a European Union regulation MiCA has direct implications in Luxembourg. This regulation establishes a regulatory framework for crypto assets and their service providers.
The law of March 25, 2020
this law transposes the EU's Fifth Anti-Money Laundering Directive (5AMLD) into national law by extending measures to prevent money laundering and terrorist financing to activities related to crypto assets.
Among the laws and regulations that address in one way or another the issue of cryptocurrencies in Luxembourg we can find the following:
Tax treatment of cryptocurrencies in Luxembourg
Let's now examine the taxation of crypto assets in Luxembourg, to do so we will examine 3 key points: the taxation of capital gains from the disposal of cryptocurrencies, the taxation of gains from the disposal of NFTs and the considerations with respect to VAT.
Capital gains
Capital gains in the field of cryptocurrencies refer to gains obtained from the exchange of cryptocurrencies for another virtual currency, for euros, for another currency for which the ECB establishes and publishes an exchange rate of such currency against the euro, or from the exchange of cryptocurrencies for a good or service. The taxation of the profit made on such transactions depends on how this profit can be categorized according to two categories:
- Commercial profit
Income from the transfer of cryptocurrency coins will be considered commercial profit if the declarant exercises an “independent profit-making activity carried out on a permanent basis and constituting a participation in the general economic life, where such activity does not constitute an agricultural or forestry activity or the exercise of a liberal profession”.
These conditions are regularly met in the case of cryptocurrency mining, the operation of an exchange or a cryptocurrency vending machine. However, the delimitation between commercial activity and management of a private asset is appreciated in the light of all the circumstances of the case in question. On this basis, the following criteria, among others, may serve as indicators of the existence of a commercial activity:
- Premises or organization engaged in virtual currency transactions.
- Use of borrowed capital
- Frequent alternation of virtual currency inventory
- Trading on behalf of third parties.
If the profits were obtained by a person these are taxed according to the progressive scale, if on the contrary the profits were obtained through a company these will be added to all the other company's profits and will be taxed between 22% and 25%.
- Miscellaneous net income
Income from cryptocurrencies is considered miscellaneous net income when it is not a commercial profit and when it is also a speculative profit. For a profit to be considered as speculative the period between the purchase and sale of the cryptocurrencies must be less than 6 months.
If the profit can be considered as miscellaneous net income and the annual total is greater than 500 euros, it will be taxed according to the progressive scale, otherwise, it will be exempt from taxation.
Taxation of NFTs
Non-fungible tokens (NFTs) are in principle treated in the same way as crypto assets, although there are no specific guidelines and a case-by-case analysis is recommended.
TVA
The Luxembourg Inland Revenue has clarified that transactions exchanging cryptocurrencies for traditional currencies are exempt from VAT.
Reporting and compliance with cryptocurrency taxes
Income from crypto assets must be declared to the Luxembourg tax authorities in the annual tax return. Although it is not necessary to submit detailed transaction records with the tax return, it is important to have these records readily available so that they can be provided to the tax authorities if required. These documents will allow you to justify the income declared and the tax calculations made.
It is therefore recommended to keep a detailed record of transactions that includes the following elements:
Something's missing
Make sure you have all the documents
*The mandatory items are marked with red asterisks.
Dates of purchase and sale
Amounts invested and sale prices
Commissions associated with the transactions
Amounts invested and sale prices
Commissions associated with the transactions
Something's missing
Make sure you have all the documents
*The mandatory items are marked with red asterisks.
Penalties for non-compliance for cryptocurrency in Luxembourg
Individuals who fail to declare gains obtained from cryptocurrency transactions may face various tax penalties. These penalties are basically the same as those that a filer would face when omitting any other type of benefit.
- Late or incorrect filing penalties: if a taxpayer files their return late or with inaccurate information, the ACD may impose penalties that vary depending on the severity and duration of non-compliance.
- Late payment interest: the late payment interest rate is 0.6% per month on the outstanding tax amount, which accrues until full payment is made.
Frequently Asked Questions (FAQ)
Are there specific guidelines for taxing NFTs in Luxembourg?
Currently, Luxembourg does not have specific tax guidelines for Non-Fungible Tokens (NFTs). NFTs generally fall under the category of digital assets, similar to other types of cryptocurrencies, and their tax treatment typically aligns with broader principles for intangible assets. However, the taxation of NFTs may depend on their use, such as if they generate income or are sold at a profit.
Are cryptocurrency transactions subject to VAT in Luxembourg?
No, cryptocurrency transactions are generally exempt from VAT in Luxembourg. This exemption aligns with European Union Court of Justice (CJEU) rulings, which treat cryptocurrencies as means of payment rather than goods or services, excluding them from VAT.
Do I need to declare cryptocurrency holdings even if I haven't sold them?
No, in Luxembourg, there is currently no requirement to declare cryptocurrency holdings if they remain unsold. However, any income or capital gains realized through the sale or exchange of cryptocurrencies must be declared, as they are subject to taxation depending on individual or corporate tax obligations.
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Source: www.simmons-simmons.com, lateraltrust.com, paperjam.lu, taxx.lu, www.linkedin.com, www.jurisconsul.com, impotsdirects.public.lu, cms.law, guichet.public.lu
We took photos from these sources: Traxer, Unsplash
Authors: Luz
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