As the May tax filing season draws to a close, discussions about whether cryptocurrency traders need to file tax returns have resurfaced. This article addresses common virtual currency tax questions for investors.
Tax Reporting Requirements for Cryptocurrency Withdrawals
Regulatory authorities like Taiwan's Central Bank and Financial Supervisory Commission classify cryptocurrencies as "virtual currencies"—highly speculative digital commodities. Profits from trading may be considered capital gains under Article 14, Paragraph 1, Item 7 of the Income Tax Act, taxable as the difference between sale price and cost basis.
Key Scenarios Requiring Tax Filing:
- Only when withdrawing to a Taiwanese bank account. On-chain or exchange transactions without fiat conversion are not taxable.
- Location of income source (domestic vs. foreign) determines tax treatment:
Domestic Income
- Criteria: Funds withdrawn via local exchanges or platforms.
- Calculation: (Withdrawn amount – Original cost) + Other income.
- Threshold: Transactions exceeding NT$500,000 trigger mandatory bank reporting under anti-money laundering laws.
Foreign Income
- Criteria: Income from overseas platforms or wire transfers.
Tax Thresholds (all must be met):
- Total foreign income ≥ NT$1 million.
- Basic income (net income + foreign income) > NT$6.7 million.
- Alternative minimum tax > regular income tax.
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Can Cryptocurrency Trading Losses Offset Taxes?
Domestic Income Losses
- Claimable as "property transaction losses" against capital gains.
- Requirements: Documentation proving losses (e.g., transaction records).
- Carryforward: Unused losses can offset gains for up to 3 years.
Foreign Income Losses
- Challenges: Difficult to verify without platform-provided cost data.
- Only applicable if foreign income exceeds NT$1 million and basic income > NT$6.7 million.
Expert Insights: Navigating Crypto Taxes
Attorney Tsai Kun-Chou (Shang Cheng Law Firm):
"While Taiwan lacks explicit crypto tax rules, investors with large withdrawals should proactively file returns. Tax treatment varies by profit source (local/overseas) and entity type (individual/corporate)."
Attorney Hsiung Chuan-Ti (Lee and Li):
"Proving cost basis is complex without clear transaction history. Tax authorities may estimate costs (e.g., 70% of sale price) if documentation is unavailable."
FAQ Section
1. Is crypto-to-crypto trading taxable?
No—only conversions to fiat (e.g., withdrawing to a bank account) trigger tax events.
2. What records should I keep for tax filing?
- Purchase/sale dates and amounts.
- Exchange records or blockchain transaction IDs.
3. How are NFTs taxed?
Treated similarly to cryptocurrencies as property; profits are capital gains.
4. Can I deduct mining expenses?
Yes, if mining constitutes a business activity. Personal mining may not qualify.
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Key Takeaways
- Domestic: Watch the NT$500,000 reporting threshold.
- Foreign: NT$1 million income + NT$6.7 million basic income triggers taxation.
- Losses: Document thoroughly to maximize deductions.
- Consult: Seek professional advice for complex cases.
Always verify current regulations with the National Tax Agency.