Cryptocurrency Regulation in Italy: Key Features
Italian authorities have made multiple efforts to streamline their cryptocurrency policies and issued several bills. However, the effectiveness of these measures remains limited due to frequent contradictions.
Cryptocurrency Laws and Regulation in Italy
Official statistics from the Revenue Agency confirm that in 2022, 14 million Italians engaged with cryptocurrency, either for investment or for transactions related to goods and services.This significant participation prompted government officials to pursue regulatory measures for the market.Notably, the '2023 Budget Law,' enacted at the end of the previous year, introduced additional provisions addressing virtual assets.
These amendments classify cryptocurrencies as digital representations of value created through electronic processes and decentralized ledger technology. In more straightforward terms, local regulators view cryptocurrencies as financial instruments capable of generating income. Moreover, commencing in 2023, digital transactions involving cryptocurrencies will be treated akin to financial exchanges.
Cryptocurrency Taxes in Italy
Italian tax officials define income not by possession but through transactions of financial significance.
Such transactions include:
- the sale or conversion of cryptocurrencies into fiat currency;
- the acquisition of goods or services using cryptocurrencies;
- the purchase of NFTs with cryptocurrency.
The tax rate on digital currencies stands at 26% of the capital gains if the income does not result from formal employment, professional activities, art, or hobbies.
Italian crypto investors were initially set to file their taxes by June 2023. However, due to legislative disarray and the lack of a consistent classification for virtual assets, this deadline was first postponed to September and then extended to November 15, 2023. Furthermore, it has been specified that for those individuals who possessed cryptocurrency on January 1, 2023, the capital gains tax rate will be 14%. This rate is part of a “substitute tax” aimed at redefining the acquisition value of the assets.
As per the Italian Revenue Agency's rule of "no income, no taxes," cryptocurrency holders can rest easy. Holding digital assets in wallets with private keys doesn't constitute a taxable financial activity, irrespective of any value increase during the tax year.
The same goes for mining or staking; these activities do not generate a tax event unless the digital assets are converted to fiat currency.
Additionally, if the income from digital financial transactions does not exceed €2,000—the minimum threshold—it's exempt from taxation.
A distinctive feature of Italian tax law is the timing of the taxable event. For individuals, the taxable event occurs administratively at the moment the income is received. In contrast, for corporations, it's declarative, with taxes calculated and paid before filing capital gains declarations. For regular citizens, taxes should be withheld at the time of income receipt.
For instance, if you convert 100 virtual tokens into $200 fiat through an exchange, having bought each at $1 in the current year, the exchange must withhold a 26% tax, leaving you with $174. But if you purchased those tokens in 2022, you would receive a greater amount—$186—reflecting a different tax rate for assets held longer than a year.
Reducing your tax liability is contingent upon substantiating the original price and exact date of your tokens' acquisition. This is because the Budget Law mandates using the LIFO method—Last In, First Out—for determining capital gains, meaning assets acquired most recently are deemed sold first.
