Cryptocurrency taxation in Hungary and Dubai 2023
In this article, we present some information and solutions around the taxation of crypto income.
- The concept of cryptocurrency
- Concept of cryptocurrency income
- Types of crypto-income
- Cryptocurrency taxation in Hungary 2023
- Cryptocurrency taxation in Dubai 2023
- Avoiding cryptocurrency taxation
- Benefits and conditions of settling in Dubai
- Dubai Resettlement 2023
- Summary and solution
1. The concept of cryptocurrency
Before discussing the taxation of cryptocurrency, let's take a look at what cryptocurrency is. Some of the most well-known cryptocurrencies are bitcoin, litecoin, ethereum and ripple. You could also call them digital currencies. The law says:
- "A cryptographic device is a digital representation of value or rights that can be electronically transferred and stored using shared ledger technology or similar technology."
A cryptocurrency is a digital or virtual currency that works using encrypted codes and blockchain technology. Bitcoin was the first cryptocurrency, created in 2009, and since then many other cryptocurrencies have been created, including Ethereum, Ripple and Litecoin.
Cryptocurrencies are decentralised, i.e. they are not controlled by any central organisation, such as a bank or government. Instead, transactions take place through encrypted codes and the internet, and are verified and confirmed by other participants in the network.
Cryptocurrencies are usually available in limited numbers, which is why they may be attractive to many people, as they believe that this could increase their value in the future. However, the price of cryptocurrencies can be very volatile and the risks for investors are high, so it is important to research cryptocurrencies carefully before investing in any of them.
Cryptocurrency income is income derived from profits from mining, trading or other activities related to cryptocurrencies. For example, profits from mining or trading bitcoin.
The resulting income is taxable according to the tax system and regulations of each country they can be. The exact form of the tax liability may differ, so it is advisable to check the rules and regulations of the tax authorities in the country concerned. The place where the income is earned should always be taken into account. Cryptocurrency taxation (cryptocurrency taxation) is a relatively new area, so it is advisable to seek professional advice to help you develop an appropriate tax strategy.
3. From a transaction executed with a crypto-asset types of income from
Before examining the issue of cryptocurrency taxation, it is worth considering what exactly constitutes cryptocurrency income:
- Mining income: this is generated when someone "mines" cryptocurrency, i.e. uses a computer to validate a block in the blockchain and receives a reward.
- Trading income: income from buying and selling cryptocurrency
- Earned income: salary received in cryptocurrency as compensation for work
- Investment income: an investment in cryptocurrency in which the value of the cryptoasset you invest in increases over time
- Income for existing cryptocurrency holders: when someone contributes to the security and sustainability of their cryptocurrency network, for example by storing their money on the network and supporting transactions.
The above list is not exhaustive, and only a few of the many types of income from cryptoasset transactions are examples of the most common ones. The specific sources of income may vary depending on the different cryptocurrencies and cryptocurrency-related activities.
4. Cryptocurrency taxation in Hungary 2023
Crypto-taxation is an increasingly popular topic, with more and more places addressing this issue. In this article we will explain what you need to know about crypto income taxation.
Prior to 1 January 2022, transaction gains on cryptoassets were included in the other income category. This meant that a social contribution was payable in addition to the 15% VAT.
As of 1 January 2022, new rules will apply to the taxation of income from transactions in cryptoassets, making them separately taxable income. Importantly, individuals will only have to pay tax on cryptocurrencies if they are exchanged for real assets, such as legal tender, or used to purchase movable or immovable property. However, there is an exception:
- "The regulation applies to transactions where an individual transfers or assigns a cryptoasset - including the exercise of a right secured by the cryptoasset - in a transaction that is available to anyone, and therefore not in private, and thereby obtains proceeds in legal tender rather than in cryptoassets."
If this condition is not met, and the individual earns income from crypto asset transactions, it cannot be considered as separately taxable income, and thus the 15% personal income tax plus social contributions will be payable.
To determine your income for the current year, deduct from your total income from crypto asset transactions in that tax year all your verified expenses related to the acquisition of the crypto asset in the current year. Expenses may include costs that are not specifically related to a particular transaction but to the holding of cryptocurrency, such as fees and commissions. Beyond the examples, consider which specific expenses can be considered as justified expenditure for the acquisition of cryptocurrency:
- Certified expenditure for the year on the acquisition of crypto-assets.
- Verified expenses incurred in connection with cryptocurrency mining activities
- The verified expenses incurred in acquiring the asset, up to the agreed fair market value of the asset at the time of sale, if the cryptocurrency was acquired by the individual in exchange for a specific asset, such as movable or immovable property.
In calculating the net gain or net loss on a transaction in crypto-assets, the substantiated expenses incurred in acquiring the cryptocurrency in the current year should be taken into account, even if the individual did not exchange the cryptocurrency for a fair value asset in the current year.
If the sum of the receipts for the current year, calculated taking into account the above, exceeds the sum of the certified expenditure for the current year, a transaction profit is generated, and if the sum of the certified expenditure for the current year exceeds the total receipts for the current year, a transaction loss is generated.
In determining the transaction result, the normal market value of the cryptoasset at the time of the transfer of the cryptoasset shall be taken into account as the proceeds.
Personal income tax is 15%, which is not subject to any additional tax. It must be declared and paid by 20 May each year on the personal income tax return.
Capital gains and tax equalisation in the taxation of crypto income
The concepts of transaction gains and transaction losses have been clarified above. If you have incurred a loss on a transaction involving a cryptoasset in the two years preceding the tax year and have reported it on your personal income tax return for the year in which the loss occurred, you are entitled to a tax offset, which you can claim as tax already paid on your personal income tax return.
However, there are also tax benefits.
Under the current provisions, the tax payable is equal to 15% of the net profit on cryptocurrency transactions in the tax year. The provision also explicitly covers cases where no tax is payable if:
- the proceeds from a transaction with a cryptocurrency do not exceed 10 percent of the minimum wage, which in 2022 was equal to HUF 20,000 (about USD 64),
- the individual does not earn income from the same transaction on the day the income is earned,
- the amount of transaction gains does not exceed the minimum wage in a given tax year, which for the year 2022 was HUF 200 000 (about USD 640).
Individuals must declare their income from cryptocurrency transactions in their income tax return (21SZJA), which they can prepare themselves or supplement the tax return prepared by the tax authority (NAV). It is important to note that individuals are required to declare their certified income for the tax year 20 May 2023 based on the transaction gains or losses in the tax year 2022 and can claim a tax offset for losses from crypto transactions in the two previous years, provided that they have reported the amount of their losses from crypto transactions in the two years preceding the tax year in accordance with the current rules. (This must have been done by very few people, as it requires foresight to take into account the amount of income and tax due under non-existing rules in the income tax return.)
Tax amnesty until 20 May 2023
The income generated by BTC and other digital cryptoassets, in the absence of regulation, cryptocurrency investment transactions were subject to high taxation, so presumably many people preferred to hide it. we can declare transaction gains or losses recorded as profit or loss. At the same time, the tax authorities have offered a better hand to those who have had to conceal their income in the past. Until 20 May 2023, you can declare income from previous years without penalty or penalty and only for profits made in tax years 2017, 2018, 2019, 2020, 2021, under the current rules. So anyone who has not paid income tax taking into account the amount of income and expenses in the current year in which the income was earned can do so as transaction profit in 2022. This will also result in significant tax savings compared to those who paid the 15% VAT and social contributions in accordance with the rules at the appropriate time.
5. Krypto income taxation in Dubai 2023
In the United Arab Emirates, there is no general personal income tax and therefore no tax on cryptocurrency income. However, compliance with the rules relating to the prevention of money laundering and the financing of terrorism is also required here. As all income is tax exempt in Dubai, the first thing to consider is how to establish and benefit from the tax exemption. In the UAE, it can be basically stated that they love cryptocurrency, it is fully accepted that investments and real estate can be bought for cryptocurrency. In our experience, banks do not prevent people from converting their crypto investments into cash. However, it is important to note that the source of this type of wealth must be verifiable.
The authorities support blockchain technology and the emirates have cryptocurrency exchanges and a number of cryptocurrency and blockchain services that are fully compliant with the country's financial regulations.
6. Avoiding cryptocurrency taxation
In our experience, many individuals avoided paying tax before 1 January 2022 because they would have had to pay not only income tax but also Socho. This easily kicked over 30%, which is a lot. However, as of 1 January this obstacle has been removed and we can sleep well with only 15% of income tax, and in addition we can claim tax relief after a loss year.
It is also worth reflecting that this world has changed and is changing all the time. We are not living 10-20-30 years ago. Today we have a more and more advanced financial system, tax offices, banks and the world is started to close the door on untaxed black money. Cryptoassets are part of this. It's a technology that can be used to build wealth at a huge rate, but it also means paying tax every tax year. Soon to arrive are CBDCs, the Central Bank Digital Currencies, which are intended to replace the current physical money. These digital currencies, even if they are already programmed, will make it easy to distinguish between taxed and untaxed money. This will make it increasingly difficult to spend untaxed money.
7. Benefits and conditions of settling in Dubai:
As I mentioned above, it is worth looking into the possibility of resettlement.
The UAE offers many advantages for settling in the country, mainly economic benefits, a high standard of living and low taxes. The country is renowned for its dynamic business environment, which makes it attractive to business people. The country offers many opportunities for entrepreneurs, with excellent infrastructure and a strategic location that allows easy access to other important markets. In addition, the country is safe and stable, which makes it an ideal location for those looking for a new permanent home due to the instability and insecurity in their homes. The country has a huge cultural diversity and offers a dynamic, diverse life for those who love adventure and experiencing different cultures.
8. Settlement in Dubai 2023
- Work: One of the most common ways of staying in the UAE is to work, but work permits are only available to those who work in jobs for which there is no local labour available. In all cases, it is up to employers to arrange for permits to be obtained.
- In the United Arab Emirates, business owners and managers are also eligible for residency. After setting up a freehold or mainland (local) company, the company can apply to the Immigration Department for an Investor Visa for the owner
- Buying property, even with cryptocurrency. Depending on the value of the property, you can apply for a visa for two, five or ten years.
- may also apply for a residence permit as a family member, if a close relative has a residence permit.
- As a freelancer, you can apply for a Freelancer Visa, which also grants you a 2-year stay.
9. Summary and solution
Anyone is free to choose which country they want to live in, even if there are tax considerations behind this conditionality. There are relatively few countries in the world where you can do this easily and legally, but the UAE is one. In any case, the conditions under which one can obtain an ordinary residence permit in Dubai, established at the time of earning income, should be carefully circumspected. It is also necessary to explore whether the tax exemption on cryptocurrency income makes it economically worthwhile to settle in Dubai. With 16 years of experience, we are here to help if you have any questions.