ÖkoStRefG 2022 Part I: New taxation regime for cryptocurrencies

Overview

The Eco-Social Tax Reform Act 2022 Part I (ÖkoStRefG 2022 Teil I) was published on 14 February 2022. Thus, explicit regulations on the taxation of cryptocurrencies find their way into the Austrian legal system for the first time. At the same time, a tax withholding regime was created as of 2024.

Income from cryptocurrencies

Due to the increased relevance and the lack of explicit regulations, the legislator felt compelled to expand sec 27 ITA (income from capital assets) to include income from cryptocurrencies. For this purpose, a separate regulation was created in a new sec 27b ITA, which comprises two taxable events: Current income and income from realized gains from cryptocurrencies. In addition, the new provision contains a legal definition of the term "cryptocurrency", which also comprises "stablecoins". NFTs (non-fungible tokens) and asset tokens shall not be considered a cryptocurrency.

Current income includes rewards for the provision of cryptocurrencies (therefore, a change of allocation is required, eg "lending") and the receipt of cryptocurrencies through a technical process in which transaction processing services are provided ("mining"). However, not every receipt of cryptocurrencies shall constitute current income. It is explicitly stipulated that there is no current income if the transaction processing service consists primarily of using existing cryptocurrencies ("staking"), the cryptocurrencies are transferred free of charge ("airdrops") or for only insignificant other services ("bounties"), or the taxpayer receives cryptocurrencies as part of a fork from the original blockchain ("hard fork"). The acquisition costs of the cryptocurrencies acquired this way are deemed to be zero. Taxation only occurs at the point of realization.

Income from disposing or exchanging cryptocurrencies for other assets and services (payment with cryptocurrencies) as well as legal tender (Euros or foreign currencies) constitutes income from realized gains. The exchange between cryptocurrencies is not considered a realization act due to explicit exclusion (in contrast to the previous legal situation). The provisions on migration from Austria (restriction Austria's right to tax) must be applied. Income from realized gains from cryptocurrencies is calculated as the difference between the proceeds from the sale and the acquisition costs. The recognition of additional acquisition costs (eg fees) is permitted. Losses may be offset against other income from capital assets in accordance with the provisions of Sec 27 para 8 ITA.

Tax rate and tax deduction

Following the classification of income from cryptocurrencies as income from capital assets, the provisions for capital assets must be applied with few exceptions. Both, current income and realized gains from cryptocurrencies are subject to the special tax rate of 27.5 % in contrast to the previously applicable progressive rate of up to 55 %. Income-related expenses may not be deducted, if the special tax rate is applied. In the case of opting for the progressive tax rate which includes all income from capital assets, therefore ordinary income from capital assets, income from realized gains from capital assets and income from derivatives as well, a deduction of income-related expenses is permitted for income from cryptocurrencies (in contrast to other income from capital assets).

The special tax rate does not apply if income is generated from the private provision of cryptocurrencies (comparable to the taxation of interest from private loans) or if the generation of such income is the main business activity.

For income accruing after 31 December 2023, a tax withholding obligation has been implemented for certain domestic service providers. The new regulations regarding the tax withholding can be applied voluntarily in 2022 and 2023. If income from cryptocurrencies is subject to tax withholding, the tax deduction is generally associated with a final tax settlement effect. In this context, cooperation obligations of the taxpayer as well as doubt regulations are provided for, as in many cases not all necessary information for the correct determination of the income will be available to the agent who is liable to withhold tax (especially regarding acquisition costs). If there is no obligation to withhold tax or if the requirements for final tax settlement are not met, income from cryptocurrencies must be included in the income tax return.

Effective date and transitional provisions

The new provisions will enter into force as of 1 March 2022 and are applicable to cryptocurrencies acquired after 28 February 2021. The retroactivity, which was much discussed in advance, has been fixed by the legislator now. Regarding the taxation of current income, the new provisions must be applied to "old assets" (“Altvermögen”, acquired before 1 March 2021) as well. Realized gains from old assets will remain tax-free. However, as the new provisions do not apply, an exchange between cryptocurrencies which is tax-free as it is settled outside the speculation period constitutes a loss of the legacy asset status. The transitional provisions also include an option for taxpayers to apply the new provisions retroactively as of 1 January 2022. The advantageousness of this option will have to be assessed on a case-by-case basis and offers some leeway until the provisions come into force.

The provisions regarding the new tax withholding obligation will only become mandatory for withholding agents in 2024.