Cryptocurrency is a quite innovative project, therefore it still requires clarifications and guidelines especially with regards to taxation. This question becomes even more relevant in a view of ongoing tax season around the globe. The beginning of tax season is pushing cryptocurrency holders to figure out how to declare their coins.

In Singapore, for example, cryptocurrencies are determined as goods that are subject to the seven percent Goods and Services Tax. At the same time, in Hong Kong, cryptocurrencies are defined as virtual commodities that are not taxed as goods, but any profit made in trading shall be treated as income.

According to the basic principle of decentralization, cryptocurrencies stand out for national legal frameworks. You can buy it whenever you want, they are listed on international exchange platforms across multiple jurisdictions. That is why it can be challenging to decide where tax is liable to be paid and in what amount.

As long as the outcomes of cryptocurrency tax evasion are yet unknown, numerous government authorities have rushed to highlight that this digital asset is one they are focusing on closely.

Most jurisdictions have different regulations in a view of a place where cryptocurrency taxes are liable to be paid. As a rule, cryptocurrency is handled as an asset acquired for capital gains, this means that you have to pay capital gains tax – and hence, as it stated above, any profit shell be taxed as income.

The results of not reporting cryptocurrency tax gains and losses remain a question – but governments worldwide have made it known that virtual currency tax compliance is in its sights.

While governments are trying to intimidate individuals with the consequences of tax evasion, very little of that is transferred into actionable guidelines. This is confusing for individuals, who know they are liable to pay something but considering the amount and where to lodge it creates a question.

With the question amongst property and security, or personal gain or business income, remaining undefined, individuals are exposed: liable without being fully aware of the repercussions of their digital assets.

SOLUTION TO THE PROBLEM

Even though the uncertainty, individuals can store cryptocurrency obediently by entrusting their digital assets to a licensed custodian or trust. Storing their holdings with a licensed trustee in Hong Kong, as an instance, frees the person from obligations to pay Hong Kong Profits Tax, as trustees are exempt.

Since taxes apply to the owner of the digital asset on the assumption their ownership is legit, but not before. Simply put, the tax liability is deferred until vesting.

This doesn’t actually eliminate taxation; as for an example, the USA has specific tax prescriptions that might cover an overseas trust or custodianship.

The mechanism allowing placing your assets with licensed trusts or custody solutions puts you in a better place to comply with legislation designed for institutions.

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