Cryptocurrency companies and exchanges are facing unprecedented pressure from financial regulators around the world, and many digital asset companies are starting to consider relocating to friendlier locations. This article is part of a series discussing the key points of moving and comparing the attractiveness of various alternative locations. See the series
The Italian regulatory body has been involved in the cryptocurrency phenomenon since its early days. The first laws addressed this issue from a regulatory point of view, specifically related to cryptocurrency exchanges, including the EU Anti-Money Laundering (AML) Directive.
In fact, Legislative Decree No. 231/07 expanded the scope of AML obligations by requiring virtual service providers to implement KYC controls, to maintain up-to-date KYC information regarding their customers and to report this information to the relevant authorities, including cryptocurrencies in some cases. In addition, virtual service providers are now required to register in a special register ( Registro Operatingi Valori Virtuali ).
Following the emergence of a thriving speculative market for cryptocurrencies, the EU Regulation 2023/1114 – Regulation of the Market in Crypto Assets (MiCAR), the first pan-European law regulating the provision and supply of digital regulating asset services in Europe, discussed. Union. The regulation aims to provide transparency rules and guarantees to investors, which will create a safer and more transparent market environment.
The resolution defines three categories of cryptoassets: "asset-linked tokens", "electronic money tokens" and "consumption tokens". It is important to note that digital assets that previously qualified as financial instruments under the MIFID II Directive do not fall within the scope of the regulation, and interestingly, NFTs are also excluded because they are not volatile or tradable like others crypto-assets do not.
Issuers and cryptocurrency service providers wishing to operate in Europe must meet certain capital, behavioral and other requirements under these new regulations (not yet implemented). They must also prepare and publish a "cryptoassets white paper" containing information about the issuer and the tokens. Specific and stricter responsibilities and obligations are imposed on issuers of e-money tokens and referenced assets. In addition, the Member State must designate authorities responsible for the implementation of the relevant control measures.
Italian tax system
Regarding the tax issues related to this event, the Italian tax authorities worked at the beginning of the crypto-rush to determine the tax on specific crypto-assets such as utility tokens and ICOs. In the absence of specific guidance, instruments such as utility bills are considered "evidence" when tax authorities compare cryptocurrencies with foreign currencies for income tax and value added tax purposes.
The income tax treatment of cryptocurrencies has finally been clarified by the Italian government in Law No 197/2022 (Budget Law 2023). 67 c) Twer is sexy .
First, the new law introduces the definition of cryptoassets for tax purposes. Specifically, cryptocurrencies are now defined as " a digital representation of value or rights that can be electronically transferred and stored using a distributed ledger or similar technology. " This definition is similar to the definition in the MiCAR proposal and create a model for consistent rulemaking. This provision does not apply to crypto-assets that qualify as financial instruments, thus excluding those that are traded and assets such as securities.
Regarding the tax treatment of crypto-assets, the aforementioned letter c) Six capital gains from the redemption, sale, exchange or holding of crypto-assets are only taxed if their total value exceeds 2,000 euros per financial. year, the possibility of offsetting such income with losses (except for simple ownership income, such as betting prizes).
This provision specifically exempts tax transactions between crypto-assets that "have similar characteristics and functions". Use fiat currencies or various crypto-assets.
Capital gains on crypto-assets are subject to an optional tax of 26%, which can be applied by financial intermediaries (such as banks or cryptocurrency exchanges) where the assets are held.
In other words, if a cryptocurrency qualifies as a financial instrument, the relevant income is considered investment income or "other income" by definition.
When cryptocurrencies are traded as part of an ongoing business, they are considered business income, subject to other special rules.
The amendment created the first legal framework for the decriminalization of income from cryptocurrencies received outside of commercial activities. Along this path, the tax authorities have recently issued a draft circular addressing key tax issues related to cryptocurrencies, which has been accepted by tax experts and market participants and is currently undergoing final scrutiny.
Draft Circular on Crypto Assets
The draft circular contains important clarifications on key tax aspects related to cryptoassets, such as: (i) state laws, (ii) reporting obligations and (iii) VAT treatment of certain cryptoassets such as NFTs. .
Regional Regulations
Regarding the jurisdiction of cryptocurrencies, natural and legal persons with tax residence in Italy are taxed worldwide (except for the application of DT agreements) and non-residents are taxed only on the deemed income. Receive. According to the relevant regulations of the Italian Income Tax Code. In this regard, the tax authorities have stated that if the income from cryptocurrency transactions is taxable in Italy:
- This activity is carried out by crypto service providers or wallet providers located in Italy, or;
- The crypto-assets are physically located in Italy (eg stored on a USB stick located in Italy).
In addition, the project is protected by the income of 100,000 cryptocurrencies received from digital wallets, digital accounts or other sources for individuals living in the non-resident regime in Italy. Kus digital data storage system. This explanation is definitely useful to attract young cryptocurrency entrepreneurs from abroad.
Reporting obligations (Form RW)
Regarding the obligation to declare foreign financial assets in the hands of taxpayers residing in Italy, the 2023 budget law extends these obligations to include owners of cryptocurrencies residing in Italy in general (since they was initially limited to cryptocurrency owners). According to the clarifications issued by the tax authorities, cryptocurrency owners living in Italy must fill out the Italian tax return Sc "RW" form to declare the value of their digital investments. In particular, with regard to crypto-assets, according to the draft circular, these obligations will apply regardless of how and where they are stored, which means that even a taxpayer residing in Italy, his crypto-assets on a USB -stick can store. Stored in a vault in Italy, he still has to declare the value of his crypto assets on his tax return.
VAT matters
The project circular also tries to shed light on indirect taxes. The VAT system on cryptocurrencies has caused a lot of controversy in recent years. In fact, the different types and characteristics of cryptoassets, as well as the many ways in which they can be exploited for business, it is not always possible to give a specific description of this phenomenon, so it is not appropriate to describe each of them not considered. Cryptocurrency is the same from a VAT point of view. In its draft circular, the revenue agency took these considerations into account and made it clear that a "holistic" approach is needed to qualify each case based on its definition of how different cryptocurrencies are exchanged or used. Results. In other words, content should take precedence over form: for example, NFTs are typically sold as collector's items, but can sometimes be used as a means of payment or for investment purposes.
Overall, the European Court of Justice Although still widely regarded as based on its groundbreaking 2014 statement, the circular states that cryptocurrencies intended solely for payment purposes should be treated as foreign currencies. Therefore, according to the current VAT law, transactions with cryptocurrencies (as well as other crypto-assets used as means of payment) are not subject to VAT. Therefore, the tax authorities are exempt from VAT.
NFC and VAT
Virtual tokens or NFTs have generated much controversy due to their advanced functionality and usage as well as their commercial success. Tax experts are divided on how to properly classify this phenomenon: is it a work of art? Are they compliments? Based on the "bird's eye view" approach mentioned above, according to the Finance Department, the VAT treatment should differ depending on the asset on the NFT:
- If the primary business is an "online" business, it should be treated as an electronic service;
- If the underlying good is non-net, the VAT treatment depends on the goods' specifications, so for example a portable good must be treated as such. If an NFT involves the granting of licenses or other rights, it is considered a supply of services.
Estate planning options for high net worth individuals moving to Italy
With the recent clarifications provided by the tax authorities in the draft circular, as well as the tax rulings adopted by Withers, there are exciting estate planning opportunities for high net worth individuals moving to Italy under the Italian RND regime.
In fact, under this system, an applicant holding cryptocurrency must:
- will be exempt from the above communication obligations;
- An annual flat tax of EUR 100,000 is levied on all income from foreign sources, including income from crypto-assets that meet the above regional criteria.
For more information please contact:
Richard Stebbing, Withers Worldwide
Richard.steBBing@withersworldwide.com