Italy is joining a growing list of European nations that have set their sights on the crypto industry as a new source of tax revenue. The country’s 2023 budget includes a proposal to tax digital trading by imposing a 26% tax on capital gains larger than €2,000 ($2,062). Until now, the Italian government has treated crypto as a foreign currency, but this new proposal aims to generate additional income from crypto investments. The move is part of a larger trend in Europe to capitalize on the opportunities presented by the crypto industry.
The bill of the Budget Law for 2023 in Italy contains a variety of provisions related to the taxation of crypto assets. These include tax treatment of income generated by private taxpayers, introduction of reporting obligations for crypto holders, a tax step-up regime for crypto assets held as of 1 January 2023, a voluntary disclosure program for crypto assets and related income not reported and/or not taxed in previous years, the introduction of a stamp duty on crypto assets, and tax treatment of accounting write-ups and write-downs of crypto assets by Italian companies. This budget law is geared towards providing clarity on the taxation of crypto assets and ensuring that those who have not reported or paid taxes on their crypto holdings in the past are given a chance to do so voluntarily.
The Italian government’s 2023 tax plan includes the taxation of crypto assets. Any income earned by private taxpayers on activities such as redemption, disposal, exchange, or holding of crypto assets that exceed a threshold of EUR 2,000 will be treated as capital gains and subject to a 26% flat rate tax. This is an important step toward the regulation of the cryptocurrency industry, which will help protect investors and provide more stability to the market.
Exchanging crypto assets that have the same characteristics and functions should not be considered a taxable event. It is not entirely clear how to identify the characteristics and functions of different crypto assets, however, it is believed that this safe harbor should apply to exchanging cryptocurrencies. On the other hand, any capital gains realized from exchanging cryptocurrencies with fiat currency, NFTs, or other tokens are subject to a 26% capital gain tax.
The Italian tax authority has clarified that reference to the “holding” of crypto assets should cover proceeds deriving from activities connected to the holding of crypto assets, such as airdrops and staking rewards. In addition, the tax authority has taken the position that staking rewards should qualify as interest income and not capital gains. This clarification provides greater clarity to crypto holders and users in Italy, who can now be sure that they are complying with the tax laws and regulations in the country.
Under the new Italian tax framework, private taxpayers who realize taxable capital gains must report their gains and losses in their yearly tax return and pay a 26% flat tax on the capital gains. Alternatively, taxpayers may elect to pay the 26% capital gain tax through an Italian financial intermediary, such as a bank or other qualified intermediary, or a crypto-assets service provider, including wallet providers. In such a case, the intermediary/service provider is responsible for accounting for the 26% capital gain tax and for paying the relevant amount to the Italian tax authorities on behalf of the taxpayer.
