Taxation of cryptocurrency in Italy: decrease of its attractiveness

published on 14 November 2024 | reading time approx. 3 minutes

According to media reports in recent days, Italy will soon introduce significant changes to the taxation of cryptocurrencies. Starting from 2025, with the budget law, taxation on capital gains from cryptocurrencies could increase from 26 per cent to 42 per cent.

The increase in taxation on cryptocurrencies expected to be introduced by the budget law for 2025 raises important questions about the competitiveness of the Italian market.

It should be pointed out that significant changes in terms of taxation had already been introduced with the 2023 budget law. In the previous manoeuvre, in effect, the capital gain from the sale of cryptocurrencies was tax-free up to EUR 2,000. The 26 per cent taxation, as for most other financial instruments, was only triggered above this threshold.

As anticipated by Minister Leo during the presentation of the manoeuvre, with the new Budget Law 2025, starting on 01.01.2025, taxation will most likely increase from 26 per cent to 42 per cent.

As inferred by the Blockchain and Web 3 Observatory of the School of Management of the Politecnico di Milano, this will affect over 3.6 million Italians who hold cryptocurrencies.

Such an increase in the tax burden is likely to discourage further investment in this sector, the income of which will be penalised by a higher taxation compared to other financial investments, thus thwarting the efforts made so far by the OAM (Organismo Agenti e Mediatori – Organism of Agents and Mediators) and the Bank of Italy.

The OAM, working with the Bank of Italy, has set up a register for virtual currency operators, obliging cryptocurrency service providers to register and comply with specific regulatory requirements. This register helps monitor and regulate cryptocurrency-related activities, providing greater transparency and security for investors. In recent years, Italian authorities have therefore been working to develop a more favourable normative environment that, while guaranteeing the security and transparency of the sector, would not undermine its innovation and attractiveness.

The tax change, with such a significant increase in taxation on capital gains, would not only jeopardise the growth, attractiveness and consequently the competitiveness of the cryptocurrency market in Italy, but also the potential long-term tax revenue it could generate.

Furthermore, these changes could also impact the competitiveness of Italian market in light of the entry into force of the new European MiCAR (Market in crypto assets Regulation). The aforementioned Regulation aims to harmonise the regulation of crypto services at European level by requiring market operators to obtain authorisation in one of the EU Member States in order to be able to consequently operate across Europe.

The divergence between Italian tax rules and other Member States’ rules is noticeable.

Note for instance that in:

Germany capital gains from cryptocurrencies are exempt from taxation if the assets are held for more than one year or if annual earnings are less than Euro 600;
Portugal, although for cryptocurrencies, until 2023, the state could be considered a tax haven, now a tax rate of 28 per cent applies;
Malta, Cyprus, Slovenia, Estonia, capital gains from cryptocurrencies are not taxed. These states are therefore very attractive to investors;
Denmark one of the highest tax rates applies, with taxation of up to 52.06 per cent.
Spain a progressive rate ranging from 19 per cent to 28 per cent is applied, based on the amount of the capital gains.

Conclusions

Italy, with the possible increase in taxation to 42 per cent, would rank among the countries with the highest taxation on cryptocurrencies in Europe. This reform has therefore raised concerns among industry experts about the competitiveness of the Italian cryptocurrency market, as it could inevitably lead investors to consider other European countries with more favourable tax regimes.

The confirmation of this rate tax increase will therefore depend on the approval of the budget law. Thereafter, in the event that the reform is implemented, it will be a matter of examining specifically all the possible consequences that could result for the Italian cryptocurrency market.