The 2023 Budget Law introduced new provisions regarding the tax treatment of Crypto-Assets.
The draft Circular published by the Revenue Agency clarifies the above provisions.
The changes to the taxation of Crypto-Assets aim to bring the tax legislation into line with the development of the various types of Crypto-Assets in the system.
Certainly, the rapid “proliferation” of these assets and their diversity do not allow this phenomenon to be placed in a single category.
Until 31 December 2022, there was no specific regulation applicable to the system. Therefore, the approach was based on the guidance provided by the Italian Revenue Agency following a case-by-case analysis.
In the draft Circular, the Italian Revenue Agency intends to draw up an organic excursus tailored to the taxation of these transactions and the related income, describing in detail the main categories.
The Italian Legislator has created a new category of income (i.e. miscellaneous income or other income - Art. 67 of the Italian Income Tax Consolidation Act, hereinafter also referred to as “IITCA”) within which Crypto-Assets are defined as “a digital representation of value or rights that can be transferred and stored electronically, using distributed ledger technology or similar technology”. Specifically, the Revenue Agency notes that income and capital gains from the following Crypto-Asset transactions fall within this income category:
- sale, repayment or exchange of Crypto-Assets with different characteristics and functions
- transfer of utility tokens for consideration (the purchase of goods or services at a discounted price due to the exercise of a right does not constitute income)
- staking activities
- “term sale” of cryptocurrencies (and Crypto-Assets in general) that aren’t digital financial instruments
- the sale of NFTs already issued The scope of the regulation includes all income-related phenomena related to the 'holding', 'repayment' and 'transfer' of 'values' and 'rights' using Distributed Ledger Technologies (DLT).
According to the Italian tax authorities, income from investment tokens corresponding to a financial instrument under MIFID doesn’t fall within the scope of the regulation. The capital gains and other income received as a result of transactions involving these Crypto-Assets are generally taxable for:
- non-commercial entities
- partnership and similar entities
- non-resident entities without a Permanent Establishment in Italy if the income is deemed to be generated in the same territory pursuant to Article 23 of the TUIR.
Such income is subject to taxation as miscellaneous income (art. 67 of the IITCA) under Italian tax law at a rate of 26 per cent based on the substitute tax on financial assets provided for by domestic law.
The rule also states that:
- such income will not be taxed if it is less than 2,000 Euros in total for the tax year
- losses resulting from operations involving Crypto-Assets transactions realized by 1 January 2023 may be deducted from capital gains
- positive and negative components resulting from the valuation of Crypto-Assets will not qualify for IRES and IRAP purposes
- the exchange of Crypto-Assets with the same characteristics and functions is not a taxable event
- the sale of the NFTs by the author does not generate other income. If it is not business income, it is considered self-employment income if the activity is carried out on a regular basis
It’s also worth noting that, for territorial purposes, income derived from Crypto-Assets located in Italy is considered to be generated on the territory of the State.
The identification of the “connection criteria” with the territory of the State is essential to determine when income from Crypto-Assets should be taxed in Italy, e.g. by non-residents or 'neo-residents' benefiting from favorable regimes such as, for instance, the “flat tax regime” provided for HNWIs under art. 24-bis of the IITCA. Finally, individuals who held Crypto-Assets before 1 January 2023 will be allowed to re-determine the cost or acquisition value.
This value will be subject to a substitute tax at a rate of 14 per cent and the full amount or the first instalment must be paid by 30 September 2023.
2. RW Form – Tax
Monitoring Obligations According to the Italian Revenue Agency, all Crypto-Assets held through 'wallets', 'digital accounts' or other foreign storage or archiving systems must be subject to tax monitoring.
The Tax monitoring obligation does not apply to financial and asset activities entrusted to resident intermediaries for management or administration, and to contracts otherwise concluded through their involvement, provided that the financial flows and income from such assets and contracts have been subject to withholding or substitute tax by the intermediaries themselves.
Finally, although it was not yet due, the legislator provides that IVAFE will apply to crypto assets from 1 January 2023.
3. RW "Disclosure"
The 2023 Budget Law allows taxpayers who have breached their tax monitoring obligations (by not declaring the ownership of Crypto-Assets in the RW form of their Italian annual tax return and/or by not declaring the income from them), to regularize their position:
- by submitting a request for regularization
- paying a penalty for non-declaration at a rate of 0.5 per cent for each year based on the value of the undeclared assets
- paying a substitute tax of 3.5 per cent on the value of the Crypto-Assets held at the end of each year or on realization if the Crypto-Assets have generated income
4. Stamp duty and tax on the value of Crypto-Assets
The Italian legislator has introduced specific provisions for stamp duty on transactions involving Crypto-Assets, set at an annual tax rate of 2 per thousand per annum of the value thereof, as well as a tax on the value of Crypto-Assets, set at the same rate, on the value of Crypto-Assets held by all individuals resident in Italy.
Edited by Giulia Sorci