Crypto Tax Legislation & Law in Luxembourg

There is no specific Luxembourg legislation for the taxation of crypto-assets. Therefore the general tax rules and principles should apply. Accordingly, a specific circular dated 26 July 2018 was issued by the Luxembourg direct tax authorities (the “Circular”) aiming to clarify the qualification of virtual currencies (monnaie virtuelle) as well as its tax treatment. Based on our experience, this Circular is expected to apply also to other crypto-assets, although this should be confirmed on a case-by-case basis.

The exchange of a crypto-asset for FIAT should entail the realisation at fair market value of the assets being transferred followed by the acquisition of the asset received in exchange. The tax treatment applicable to this transaction will depend on whether the income derived from such transaction falls within the category of business profits (i.e., income derived from a commercial activity) or miscellaneous income (i.e. income derived from the management of the individual’s private wealth). Business profits should be taxed on a net basis and at progressive personal income tax rates in the hands of the individuals. Miscellaneous income-related gains realised within less than 6 months after the acquisition of the crypto-assets should be considered as speculative gains and taxed on a net basis at progressive personal income tax rates in the hands of the individuals. Speculative gains amounting to less than EUR 500 during a specific tax year are exempt for personal income tax purposes.

Yes, generally a similar treatment should apply.

Such transactions should, provided all the conditions are met, fall into the tax category of commercial activity. Therefore, income derived from such activity should be taxed as business profits. An activity is deemed to be a commercial if it is:

• independent
• permanent
• carried out with the intent to realise profits
• involving participation in the general economic life.

According to the Circular, the following criteria can be used to identify a professional activity related to virtual currencies:

• premises or organisation dedicated to the relevant transactions
• use of borrowed funds
• frequent movements in virtual currencies inventory
• trading on behalf of third parties.

Related income qualifies as business profits and should be taxed on a net basis and at progressive personal income tax rates in the hands of the individuals.

Losses can be offset against other categories of income during the taxable year; and if not possible, can be carried forward for 17 years (subject to conditions) to offset any net income of subsequent years. However, speculative losses may in principle only be offset on other speculative gains of the same year; or if not possible, with other miscellaneous income.

See answer to Q5 above.

In principle yes, although there is no specific guidance and a case-by-case analysis on the specific NFT features is recommended.

According to the Circular, mining activity should constitute a taxable event for income tax purposes.

Cryptocurrency mining activity should, provided that all the conditions are met, fall into the category of commercial activity, which is generally the case. Therefore, income derived from such activity should be taxed as business profits. Otherwise, income derived from cryptocurrency mining activity would be subject to income tax as miscellaneous income.

In principle, taxation is like that for mining.

Yes, these may constitute taxable events for income tax purposes.

For instance, airdrops and mining should in principle not constitute a taxable event for income tax purposes. On the other hand, hard forks should constitute a taxable event, being assimilated to an exchange.

Self-employment income and employment income in the form of crypto-assets should be subject to personal income tax at the standard applicable rate for such categories of income.

In any event, the guidelines provided by the tax authorities are limited and most events/models should be checked on a case-by-case basis depending on the particular circumstances and in which category of income these fall.

The EU DAC-8 directive and its implementation should be monitored. Nevertheless, gains/revenues or losses realised by a taxpayer should be declared in his/her annual tax returns. The taxpayer is required to have consistent and continuous documentation, including the date of acquisition or creation of the virtual currency, as well as the related costs, in order to justify the position taken in his/her tax returns.

Certain transactions involving crypto-assets and NFTs may be subject to reporting under the mandatory disclosure regime provided in DAC-6 (to be checked on a case-by-case basis).

Perhaps to develop corporate taxation (as we understand, this is expected in the second part of the guide).