Hungary is reportedly working on a regulatory framework for cryptocurrencies but doesn’t consider them a legal tender yet. The country’s current legislation imposes steep taxes, making it a fairly unwelcoming territory for cryptocurrency investors.
NOT LEGAL TENDER
Citing a written statement of the country’s Finance Ministry, local Hungarian media Portfolio reports that Bitcoin and other cryptocurrencies do not qualify as legal tender.
However, the country is purportedly working actively on a regulatory framework to address all aspects of cryptocurrencies. The statement reads:
Hungary is currently looking into regulating crypto instruments, and the central bank, the tax authority, the finance ministry and other authorities have set up a joint workgroup to evaluate legal, economic, law enforcement, money laundering and other aspects of cryptocurrencies with an eye to introducing more detailed regulation.
Hungary’s taxation is infamously hostile towards the retail cryptocurrency investor. According to local tax experts, the country’s Personal Income Tax law considers proceedings from Bitcoin and other cryptocurrencies to be “other income.” As such, it is subjected to 15 percent Personal Income Tax as well as with 22 percent Health Contribution.
However, if the activity is carried out by a business and not by a private individual, the tax burden would be essentially smaller – 9 percent corporate income tax as well as another 2 percent local business tax which is not always applicable.
A recent report by Deloitte Private outlines that the heavy tax burden is forcing people into investment schemes which entail even more risks:
Many people try to escape the infamous Hungarian taxes and additional administrative obligations (i.e. tax advance assessment, or preparation of tax returns and continuous keeping of tax records) through the increasing number of investment schemes. However, the level of reliability and sophistication of these is quite low in most cases, which often entails further taxation and legal risks.
What is more, as it currently stands, the legislation of Hungary considers selling or exchanging cryptocurrency to be a taxable event.
However, one potential loophole for holders of cryptocurrency may be to use it as collateral for a loan. Doing so is not considered a taxable event in Hungary, therefore it could be a better option compared to simply selling and paying the given tax.
“According to current law in Hungary, as a consequence of selling or exchanging cryptocurrencies is considered a taxable event,” Csaba Csabai, CEO of INLOCK explained. “However using these digital assets as collateral for a loan to finance a temporary liquidity problem is not. The platform we are building is working towards this concept enabling cryptocurrency holders to access the purchasing power of their holdings without being punished by the extremely high tax rates.”