Switzerland is the latest European country to rule that bitcoin is exempt from value-added taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. (VAT), following recent rulings by Spain, Finland, Belgium and other European nations. The Swiss Federal Tax Administration (FTA) has never taxed bitcoin, but it stated its official position after clarification was requested from a pro-bitcoin group last year. Legal currencies are exempt from the Swiss VAT, and financial advisory firms are taking the FTA’s ruling to signify that Switzerland recognizes bitcoin as both explicitly legal and a legitimate currency.
The Swiss business community has largely embraced bitcoin’s rise. Many leading digital currency sector businesses have chosen the nation as their headquarters, and the Swiss canton of Zug is now known colloquially as “Crypto Valley.” But there is still uncertainty regarding bitcoin’s future, stemming both from bitcoin’s extreme price volatility and its undefined status as either currency or commodity. As it is not backed by either a physical commodity, such as gold, or by national fiat, bitcoin’s potential status as currency is tenuous, with some economists advocating its treatment as a commodity.
The status of bitcoin in the EU, of which Switzerland is not a member, is uncertain. A case before the European Court of Justice has the potential to decide if bitcoin transactions are subject to the EU VAT. If the ECJ declares bitcoin a commodity, transactions between currencies and bitcoin could be subject to VAT regulations. The Spanish, Finnish, and Belgian rulings recognized bitcoin’s legality and exemption from taxation, but stopped short of declaring it a legitimate currency.
Regardless of its asset class, multiple EU nations see preferential tax treatment of bitcoin as a way to attract investors. Denmark charges no tax on bitcoin trading. The Netherlands have not yet made a formal decision regarding bitcoin’s tax treatment though it leads Europe in the number of businesses that accept the cryptocurrency as a form of payment. And the Isle of Man, a British crown dependency, has fully embraced bitcoin, regulating it under their Financial Services Commission along with other investment activities.
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