Virtual Assets: Understanding the tax implications of cryptocurrency investment


The increasing popularity of blockchain and its adoption by mainstream industry has focused international attention on the tax treatment of  cryptocurrencies, app tokens, initial coin offerings (‘ICOs’) and crypto investment funds.

The Netherlands is one of Europe’s most progressive nations with regard to the blockchain and  has already developed extensive tax legislation to cope with these new concepts. The  Dutch tax treatment of cryptocurrency for Dutch personal income tax (PIT) is complex and this  article also considers the implications for corporate income tax (CIT) and value added tax  (VAT).

Cryptocurrency is generally divided into categories, with a dis- tinction made on the  characteristics of the cryptocurrency and its representation. It can take the form of an asset  token such as a debt or equity claim, a utility token providing access to a digital or other  service, or a payment token (such as bitcoin or ether), which can be used as a virtual currency.Dutch taxation of a cryptocurrency can differ dependent on these characteristics, but the monies  owed can only be paid in fiat money (Euro) and not in any cryptocurrency.

Personal Income Tax (PIT)

Dutch tax residents are taxed in one of three ways:

• Income from employment or a business;

• Income from (substantial) shareholdings of 5 per cent or more;

• Income from passive investments and savings.

When a Dutch resident holds cryptocurrency, this will gener- ally constitute income from passive  investments. The deemed income ranges from 2.87 per cent to 5.39 per cent of the value of those  passive assets and will be taxed at a rate of 30 per cent. However, under certain conditions,  the cryptocurrency can be treated as income from employment or business, in which case the income  and gains from the cryptocurrency will be taxed at progressive rates, with a maximum of 52 per  cent.

This distinction between sorts of income depends on the source of income. To qualify as  income from business, eco- nomic benefits need to be demonstrated. For example, if the holder of  the cryptocurrencies performs activities that have a direct influence on the value of the  cryptocurrency.

An example might apply to a utility token, if the holder of the cryptocurrency token also developed  the user app, then the asset may be seen as income from employment.

Corporate Income Tax (CIT)

Dutch limited liability companies are subject to Dutch CIT at the rate of 20 to 25 per cent of  worldwide income, whereas Dutch foundations (Stichtingen) which do not carry out business  are, generally, not subject to Dutch CIT. A common initial coin offering (ICO) structure used in  The Netherlands, employs a foundation to act as the ICO company and finance the funding needs of  the operating entity, which would be a Dutch limited liability company (OpCo).

The financial relationship between the ICO company and the OpCo will mainly be for the prepayment  of services or debt funding, as opposed to an equity participation in the operat- ing company.  The funding received from the ICO company should therefore not generate a direct Dutch CIT  liability. The same would apply to the issuance of payment tokens.

The issuance of assets tokens may be seen as a sale of the underlying asset, which could result in  corporate income tax for the ‘deemed’ seller of the asset that has been tokenised. Any other income  generated by the OpCo, such as from the provision of services to other parties other than token  holders, or profits from tokens held in deposit, is subject to Dutch CIT.


The VAT treatment of cryptocurrencies is more difficult to clarify and will depend on the  characteristics of the cryptocur- rency. In relation to the crypto currency itself, and the mining  thereof, it is still not clear whether these should be considered as economic activities for  VAT purposes, falling within the scope of VAT legislation.

When analysing the letter of the law of art. 135 paragraph 1 under d, e and f of  the VAT Directive, we can state that the current framework does not yet offer enough support  to include certain activities regarding cryptocurrencies within the scope of VAT exemptions.

The current opinion of the Court of Justice of the European Union is that no VAT is payable on the  sale of bitcoins (pay- ment tokens). The bitcoin is not seen as money, but has the same function  (i.e. means of payment), and therefore any revenue arising from their issuance falls  without the scope of the VAT.

Regarding utility tokens and asset tokens, no practical guide- lines have been rendered.  Hypothetically, utility tokens could qualify as compensation or the advance payment of a service  which would result in being subject to VAT. Asset tokens could be exempt from tax if the  underlying asset is exempt from VAT, but if that asset is subject to VAT so should the asset token be.

 This article is taken from the recent IR Digital doucment: IR GLOBAL – MEET THE MEMBERS: The Netherlands