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Tax on cryptocurrencies to be halved in Hungary

Hungary announced to cut the tax on cryptocurrency earnings by 50% to encourage investors to declare income from trading digital tokens such as Bitcoin. The Hungarian Parliament accepted the tax package for 2022 on 9 June 2021. The package contains inter alia significant simplification and tax reduction with regards cryptocurrencies.

Cryptocurrencies have been around for more than a decade now and in the last 5 years 1 Bitcoin went from 750$ to 35.000$. More than HUF 300 billion of household investment is kept in crypto assets in Hungary, even by conservative estimation. The significant earnings on crypto transactions, however, remained mostly under the radar for tax purposes.

In Hungary, crypto assets have not been even defined for tax purposes and earnings on such transactions were considered as ‘other income’ by default. As a consequence tax implications of crypto assets were disadvantageous (compared to other capital gains) with 15% of income tax and 15.5% of social contribution tax (non-capped) applicable.

The new legislation gives a fairly broad definition: crypto asset is a digital display of value or rights that can be electronically transferred and stored using distributed ledger or similar technology. The new rules should apply to crypto trade and mining, accordingly. Taxation is based on the ‘black box’ concept: tax point is only triggered when the crypto assets are ‘withdrawn’; i.e. as long as the crypto assets are stored or exchanged in the crypto world, it remains tax free. Income should be determined after the transaction profit achieved in the tax year, and previous crypto losses (including past two years) can be offset against the crypto income.

The applicable tax rate is also decreased significantly: crypto income will not be subject to social contribution tax, thus, the decrease in half of effective tax rate and income under 10% of the minimum wage (i.e. current threshold would be HUF 16,740) is not taxable (under further criteria). Crypto earnings should be declared voluntarily and the above rules can be opted for the current tax year of 2021 and previous non-reported earnings can be also considered (whitened) retroactively in the income tax return for 2022.

With the above rules the Hungarian Government now aims to increase the visibility of the country’s cryptocurrency market and minimize tax evasion, and the lower tax rate with transparent rules are expected to generate several billion forints in additional budget income as well.