Italy crypto tax: the new 2023 budget law

A few days ago, the Parliament in Italy approved the Budget Law 2023, in which among other things a new tax system for crypto has been introduced. 

The issue is very technical and, as is often the case with these things in Italy, also decidedly complicated for the uninitiated. 

After all, this new budget law focused mainly on tax measures, so it is not at all strange that they decided to clarify once and for all the specific tax regime that applies to cryptocurrencies, called “crypto-assets” in the text of the law. 

The situation prior to the approval of the 2023 budget law

In fact, until now in Italy there was no specific law regulating the tax regime to be applied to cryptocurrencies. The Italian Tax Authority (Agenzia delle Entrate) has independently decided to apply the same regime valid for foreign currencies, but according to many, cryptocurrencies should not be equated with foreign currencies. 

Actually, Bitcoin in two cases is considered foreign currency, since it is legal tender in El Salvador and Central African Republic, but this applies only to Bitcoin and not to any altcoin. 

In addition, stablecoins based on fiat currencies are assimilated to foreign currencies almost in their entirety, with those based on the euro that could also be assimilated to domestic currency.

However, the previous situation was confusing, and above all uncertain, whereas now there are precise, explicit and dedicated rules that remove almost all doubt. 

Indeed, they remain open to some interpretations concerning certain details, but overall they are clear. 

The taxation introduced with the new 2023 bill

As might be expected, the taxation introduced only concerns capital gains. 

That is, if any capital gains are obtained by selling cryptocurrencies, those gains from now on should be taxed at 26%. 

The rules that applied previously, that is, those regarding the taxation of capital gains from selling foreign currency, also had a 26% rate, but with a difference. 

Previously there was also a de facto exemption for all those who had never exceeded the holding threshold of €51,645.68 (equal to 100 million old lira) for more than seven consecutive working days during the calendar year. Above this threshold, the recognition of speculative activity was triggered, whose profits are taxed at 26%, while below that threshold no tax was charged. 

The new law practically eliminates this exemption, but introduces another one. 

In fact, the new substitute tax on crypto-assets at 26% is triggered only when capital gains above 2,000.00 euros are accrued. 

So you don’t pay tax if you don’t collect capital gains, and you also don’t pay tax if any capital gains you collect are less than €2,000. You pay 26% only with capital gains of higher amounts, and the €51,645.68 threshold to crypto-assets no longer applies. 

For past years’ income, however, the old rules remain in effect. 

The 14% tax rate

However, another rate is also introduced, 14% instead of 26%, for all those who struggle to calculate the exact amount of capital gains due to the difficulty in finding purchase prices. 

It is worth remembering that to calculate capital gains, one must subtract the purchase price from the sale price and then multiply the result by the number of tokens sold. 

In case you cannot, or do not want to, use the cost or purchase value, you can pay a flat substitute tax of 14% on the entire amount sold, i.e. without calculating the capital gain. 

The declaration of the holding of digital assets

The new rules also make explicit the rules regarding the declaration of holding crypto assets.

In fact, they make it compulsory to include the declaration of crypto-assets in the RW Form, but they exclude from this duty those who hold their crypto funds in custodial wallets of Italian companies registered in the appropriate Register of Virtual Currency Operators of the OAM. 

However, there are still some doubts about this exemption, because it has not been clarified beyond doubt whether actually those who leave tokens on Italian custodial wallets can be exempted from declaring them in the RW Form or not. 

In this regard there is an explicit previous pronouncement of the Internal Revenue Service that would confirm this. 

The amnesty

To this was added a kind of amnesty for all those who had not declared them in past years. 

In case they had not been declared in previous years, but had not even been sold collecting capital gains, 0.5% of their euro countervalue would have to be paid for each year of undeclared holding. 

In contrast, in the event that capital gains were collected, 3.5% on the value of the assets held would have to be paid for each year of holding, plus an additional 0.5% by way of penalties and interest.

The goal of the law was not only to give a clear tax framework for cryptocurrencies, but also to bring out the hidden, and in particular the past. 

How are NFTs treated in the new Budget Law 2023?

It is worth noting that so-called crypto assets are not just cryptocurrencies, which are called virtual currencies instead, as the name of the OAM registry reveals. 

This new definition also includes NFTs, meaning basically all assets, intangibles or application assets based on distributed ledger technologies. 

This means that any capital gains from the sale of NFTs will also be taxed at 26% if they exceed €2,000, and it appears that NFTs must also be declared in the RW Form. 

This complicates things greatly, because these new rules differ from those used for traditional works of art, for example. So an NFT of an artwork is treated differently than the artwork itself. 

In addition, it is extremely difficult to establish the market value of an NFT if you do not sell it, making the correct declaration of ownership on the RW Form uncertain. 

The stamp tax

The most contested measure, however, is the introduction of a stamp tax. 

In fact, the new regulations also introduce the application of a stamp tax on reports involving crypto-assets and involving possible reporting obligations of the managing entity. 

The rate was determined to be 2 per thousand per year of the value of the crypto-assets. 

This stamp tax can only be applied to those who hold cryptocurrencies on Italian custodial wallets, while those who hold them on non-Italian custodial wallets, or on non-custodial wallets, are simply charged an additional tax of 0.2% per year, which is up to the holder to declare. 

While this is a decidedly low rate, it is for all intents and purposes a possession tax that did not exist before, and is independent of whether cryptocurrencies are sold or not. 

That is, in order to pay this stamp tax in euros, Italian owners of cryptocurrencies may have to sell them. 

The challenges

It is worth mentioning that people did not like the new law very much. 

First, it eliminates the €51,645.68 threshold that guaranteed all small holders would not have to worry about having to pay taxes on any capital gains. 

Then it introduces a new, very low exemption threshold, since €2,000 in a year of capital gains in the crypto sector can be made by anyone. 

In addition, it also has to be applied to NFTs, and it is still not 100% certain that assets in the custody of Italian virtual currency traders also have to be declared in the RW Form. 

Finally, it introduces a new possession tax, however small, which makes no sense when referring to currencies. 

Hopefully, this can be improved in the future.