How long before you can pay taxes with cryptocurrencies in Europe?

advertisement

Adapt or perish is the common sentiment around the world regarding the adoption of digital assets, including cryptocurrencies, by traditional banks.

And now Europe is leading the global race, with Switzerland leading the way, with some residents now able to pay not only for their coffee but also their taxes in cryptocurrencies.

The European Union is also catching up, and when the Crypto Asset Market Regulation (MiCAR) comes into effect on January 1, 2025, crypto assets will be widely regulated.

“Europe has become one of the leaders here, especially when we talk about crypto asset regulatory frameworks,” said Ilya Volkov, director of the Crypto Valley Association, at the NGO Web3 Banking Symposium in Geneva last week. Ta.

The event brought together traditional and digital banks and blockchain service providers to discuss technology and cryptocurrency adoption.

So, could Bitcoin be deposited into my regular bank account? Volkov’s answer is “for sure.”

“Customers of traditional banks are already asking about access to cryptocurrencies,” Volkov said, explaining that the evolution of this technology is similar to the transition from credit card payments to Apple Pay and Google Pay.

Volkov said this technology will become not only expected but required by customers of traditional financial institutions.

He mentioned how the technology behind cryptocurrencies, called blockchain, is decentralized, saying, “This is very important because it’s more transparent and it’s more efficient in terms of cost. I think so.”

This means there is no need for intermediaries, reducing costs, while the encryption of blockchain (a network of computers used to store transaction records) is seen as a guarantee to protect customer assets. I am.

A quick crash course on cryptocurrencies

The market capitalization of cryptocurrencies has recently ballooned to more than $2.6 trillion (2.4 trillion euros) worldwide, equivalent to about half of Germany’s nominal GDP.

These operate outside the established financial system and are not tied to tangible assets such as gold or controlled by a central financial institution. However, as a result, they tend to be more volatile than traditional currencies.

Cryptocurrency is created through a computational process called mining. This is also how transactions are officially entered into the blockchain.

This decentralized nature of recording all transactions across the network ensures transparency.

Investors and analysts consider cryptocurrencies to be “digital gold” as they are considered safe due to the use of cryptographic technology that promises 100% security against identity breaches. I’m starting to think.

Popular examples of cryptocurrencies include Ethereum and Bitcoin, the latter of which has just reached an all-time high. However, critics of this concept argue that its fair value, or intrinsic value, is actually zero.

“Bitcoin has failed to deliver on its promise to become a global decentralized digital currency and remains largely unused for legitimate money transfers,” said two European Central Bank (ECB) officials, Ulrich Bindtheil and Jürgen. Scharf said in a recent blog post.

They said that transactions using Bitcoin remain inconvenient, time-consuming and costly, making Bitcoin unsuitable as a means of payment or investment.

advertisement

Pay for your morning coffee with stocks

Participants at the Web3 Banking Symposium also acknowledged that there is much work to be done to enable cryptocurrencies to reach their full potential, but there are many roles in which cryptocurrencies can succeed, such as payments and investments. I’m already imagining it.

Experts say the use of cryptocurrencies is already spreading to European businesses and customers.

“For retail customers, blockchain can increase transparency because when they pay, they can actually trace the transaction, where the money went, where it came from, and where it went. .This is a very good advantage,” says Volkov.

He believes that while cryptocurrencies will serve as an alternative means of payment in the future, traditional local currencies will remain strong for decades to come.

Once blockchain technology is widely adopted and combined with traditional financial technology, tokenization could become one of its most attractive benefits. This process converts various assets, including stocks and data, into digital tokens that can eventually be used to pay for things like your morning coffee.

advertisement

When it comes to investing, “we can expect more and more real-world assets to appear on the blockchain. Tomorrow we will see securities traded in the form of tokens on the blockchain,” Volkov said. Stated.

The Crypto Valley Association also believes that in the future, Bitcoin and similar cryptocurrencies could serve as the primary store of value, challenging the current system in which centralized financial institutions collect and oversee funds. I think there is.

“Currently, with the use of blockchain, financial institutions may at some point require some requirement from their customers to manage their assets in a decentralized manner where funds cannot be accessed directly without special permission or special requests from the customer. I think it will be possible,” he said. Volkov.

What will it take to make that a reality?

Cryptocurrencies gained popularity by operating beyond government control or regulatory oversight. However, in order to be widely used for payments and investments, they need to be integrated into traditional systems with adaptable regulations to ensure safety.

But the task is enormous.

advertisement

Not only are there over 13,000 cryptocurrencies, around 9,000 of which are active or valuable on the market, but there are around 420 million users, 31 million of whom are in Europe.

Approximately 18,000 companies around the world have started adopting them to gain a competitive advantage.

But while the crypto world still faces fragmented regulation, it promises the benefits of low-cost, fast, cross-continental payments.

“It’s about compliance requirements,” Volkov said. “When it comes to traditional financial institutions and banks, they follow complex regulatory requirements regarding anti-money laundering and ‘know your customer’ procedures. [client verification, ed.]”

“So this kind of thing is actually expensive when it comes to blockchain, because what we’re talking about is a lot of transactions from different blockchains, a lot of different coins, and traditional institutions Because we are talking about huge investments to properly set up systems within the country,” he added.

advertisement

Regulations need to be harmonized to create a safe and transparent system. The European Union is already moving forward with the introduction of MiCAR.

“Virtual currencies will be regulated.” [under MiCAR] In most ways, just like traditional finance. So, in fact, steps are now being taken to be able to integrate traditional banking with crypto finance and crypto assets,” said Cecilia Peregrina from PwC Switzerland.

Switzerland example: paying taxes with cryptocurrencies

Returning to Switzerland’s position at the top of Europe’s crypto payments and regulatory table, the so-called “European playground” has already established a Swiss crypto license.

This measure requires virtual currency businesses to obtain a license based on anti-money laundering regulations.

Switzerland’s canton of Zug is one of the most vibrant places for new crypto startups, allowing residents and businesses to pay their taxes in crypto.

advertisement

Martin Burri from PwC Switzerland told Euronews Business that income tax in Zug can be paid in Bitcoin or Ethereum up to 1.5 million Swiss francs (1.56 million euros).

“Nonetheless, the tax base will be determined in Swiss francs, which will then be converted into cryptocurrencies,” he said. “And I think these are [rules, ed.], will stay for a while. ”

Another example is the city of Lugano in canton Ticino, where the city hall recently expanded the list of taxes and municipal fees that can be paid in cryptocurrencies (accepting Bitcoin BTC and Tether USDT).

Specifically, the city of Lugano has adopted a system where residents scan a QR code on their bill and select the mobile wallet they wish to use for payment.

Such measures will be very beneficial for the residents of the city who are familiar with cryptocurrencies. Approximately 15% of residents use cryptocurrencies in their daily lives, as there are more than 300 stores and venues in the city that accept crypto payments, including restaurants.

advertisement

Switzerland’s civil code is another standard by which European regulations are measured, but experts say it is less regulated than in neighboring Switzerland.

According to Peregrina, Swiss law allows authorities to determine ownership and beneficiaries when bitcoins are transferred between individuals. Additionally, it also regulates how you can pass on Bitcoin to your children in the event of your death.

“And more importantly, what happens to your Bitcoin if the financial institution goes bankrupt?” she said. “Will Bitcoin go bankrupt and disappear?”

“Or can we actually take them back to the office and collect them?” Peregrina added. “And this is [European] Regulations are not being addressed. ”