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Still, wondering how much taxes you will pay this year? The Agenzia Entrate has issued new guidelines around crypto taxation to accommodate the new crypto tax bill passed by the parliament in December 2022. So taxes this year will be different from what you’re used to. And since we don’t want you to get confused between the old and the new tax rules, we curated a fresh crypto tax guide, to garner all relevant nuances of the new tax system in one place.

This guide is structured in a way that makes it skimmable and easy to understand. Note that this guide is dynamic and will be updated regularly to accommodate any new rules or notifications issued by the authorities. So we suggest that you keep revisiting the guide to stay updated on the new taxation trends.

So now that we’ve got that out of the way, let’s hop straight into the guide.

Crypto Gains Tax

Before December 2022, Agenzia Entrate didn’t have a thought-out taxation model and crypto taxation was governed by a small set of regulations issued by the authority, that didn’t consider crypto to be a speculative asset and ruled crypto gains to be tax-free. However, if the total value of your portfolio exceeded €51,645 for seven consecutive days in a tax year, all your gains would be taxable at a flat rate of 26%.

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But this changed after the Italian Senate formulated new tax rules for crypto taxation and passed them as part of the new budget legislation in December 2022. According to the new tax rules, any gains amounting to €2,000 or more will be taxed at a flat rate of 26%.

More importantly, the “Substitute Value Tax” concept was put into place to encourage Italian residents to report all their crypto holding in their tax returns. According to this rule, if you declare the total value of your assets as of January 1st of every year, your gains will be taxed at a discounted tax rate of 14% instead of 26%.

The Agenzia Entrate is still not too clear on what constitutes a gain in the context of crypto transactions because they are yet to disclose the transactions that are counted as disposal. However, from the number of insights we have access to we can extrapolate that the following transactions are generally considered as disposal in Italy:

• Selling crypto for fiat
• Swapping one crypto asset for another
• Buying goods or services with crypto assets

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Capital Gains Tax Rate Italy

All your capital gains will be taxed at a flat rate of 26% regardless of your income level.

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Crypto Losses

The latest crypto tax rules in Italy have a specific provision that allows for the deduction of losses greater than €2,000 from crypto investments. These losses can now be offset against profits and carried forward for up to five years, which presents an excellent opportunity for taxpayers to potentially minimize their tax obligations over an extended period. By employing a crypto loss harvesting strategy, investors can take advantage of this new provision to optimize their tax planning.

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Lost or Stolen Crypto

The Agenzia Entrate has not provided any guidance on whether lost crypto due to scams, hacks, or misplaced private keys qualifies as a capital loss for the deduction. If you have experienced such losses, it is recommended to consult with a crypto accountant for advice on whether you are eligible to claim them as a capital loss. This will provide clarity on your tax obligations and enable you to potentially lower your tax liability through proper planning.

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How to Calculate Crypto Gains and Losses

So now that you have an idea about how your gains will be taxed. It’s time to calculate the number of gains you’ve made so that you can reasonably predict the amount of taxes you owe to the tax authorities. Lucky for you, calculating capital gains or losses is a fairly simple process and all you need to do is use the formulae given below:

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Capital Gain/Loss = (Disposal Amount or Selling Price) - (Cost Basis)

Now this is a fairly simple equation and all you need to do is insert values and you will have your gains or losses. The only apparent complication here is the cost basis. Your cost basis is simply the amount you pay to acquire an asset including any additional fees like gas fees or transaction fees paid in the process. Once you have your cost base, simply subtract it from the amount you receive on disposal. If the resulting amount is positive it’s a gain, otherwise, it’s a loss.

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Crypto Tax Breaks Italy

The only tax break offered by the new tax rules is the exemption amount of €2,000. You only pay taxes when you make gains above the exemption amount. 

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But there are a few transactions that help you reduce your tax bill and listed below are some of them:

• HODL your crypto assets, you won’t be making any gains unless you sell them
• According to the new Italian crypto tax rules, losses over €2,000 will now be considered tax-deductible and can be carried forward for up to five years.
• Both individuals and corporate donors have the opportunity to deduct their charitable contributions from their income tax liability. Donors may claim up to 10% of their declared income, with a cap of €70,000 per tax year. This provision offers a valuable incentive for charitable giving while also providing potential tax benefits for donors.
• Opt-in for the “substitute value tax” option. This will help you significantly reduce your tax bill by paying a 14% tax on holdings as of January 1 of each year.

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Crypto Cost Basis Method Italy

The LIFO accounting method is recommended by the Agenzia Entrate for cost basis calculation in Italy. LIFO accounting stands for "Last in, First out" and is the most common method for cost basis calculations in Italy. It assumes that the last item you purchased is the first one you sell. LIFO accounting can be easily understood using an example.

Let's say that on January 1st, 2022, Giuseppe purchased 1 Bitcoin for €30,000. On February 1st, he bought another Bitcoin for €35,000, and on March 1st, he bought a third Bitcoin for €40,000.

Later in the year, on October 1st, Giuseppe sold 1 Bitcoin for €45,000. At this point, he would use the LIFO method to determine which Bitcoin was sold and what the cost basis of that Bitcoin was.

According to LIFO, the third Bitcoin that Giuseppe purchased for €40,000  would be considered the first one sold since it was the newest in his inventory. Therefore, the €45,000 sale price would be matched with the €40,000 cost basis, resulting in a capital gain of €5,000.

The remaining 2 Bitcoins in Giuseppe's inventory would be valued at their most recent purchase price of €35,000 and €30,000, respectively. If Giuseppe were to sell one of those remaining Bitcoins at a later date, he would use the same LIFO method to determine the cost basis and gain or loss on the sale.

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Crypto Income Tax Italy

The Imposta sui redditi delle persone fisiche (IRPEF), also known as Personal Income Tax, consists of national, regional, and municipal income taxes. While Agenzia Entrate has not provided clarity on the taxation of crypto, it is commonly accepted by tax authorities globally that mining and staking rewards should be considered as income. Therefore, it is reasonable to assume that Agenzia Entrate may adopt the same stance.

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Income Tax Rate Italy

The IRPEF, being a national income tax is progressive, meaning that the more income you have, the more taxes you pay. You can refer to the table below to identify your tax bracket.

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In contrast, regional and municipal income tax rates offer a considerably lower financial burden. Depending on your place of residence, regional income tax ranges from 1.23% to 3.33%, while municipal income tax can fall anywhere between 0% and 0.9%.

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How to calculate your crypto income?

To calculate your crypto income, it's crucial to know the gains you’ve made over a tax year in fiat currency beforehand. This involves tracking the fair market value of the assets you acquired in EUR on the day you obtained them. This value will serve as the basis for calculating the Income Tax you owe.

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Tax-Free Crypto Transactions

Listed below are some of the tax-free crypto transactions in Italy:

• Buying crypto with fiat
• HODLing crypto in your wallets or exchange accounts
• Donate Crypto
• Transferring crypto between your wallets

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Taxed Crypto Transactions

Following are the crypto transactions that attract tax liabilities in Italy:

• Disposing of crypto assets
• Swapping one crypto asset for another
• Buying goods or services with crypto assets
• Mining or staking crypto
• Making De-Fi investments
• Gifting crypto

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When to Report Crypto Taxes in Italy?

In Italy, the tax year runs from January 1st to December 31st, and you can submit a tax return in two different types of forms: the 730 form and the Modello Redditi form.

Both tax forms have different deadlines, as mentioned below.

Form 730 is for individuals with employment income, credits, and deductions to claim and has a deadline of September 30th of the year following the tax year.

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On the other hand, you can use Form Modello Redditi for reporting employment income, tax withheld, capital gains (using Form RT), foreign income/assets (using Form RW), and other transactions, including cryptocurrency. The filing deadline for the Modello Redditi form is November 30th of the year following the tax year.

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How to File Crypto Taxes in Italy

Here is a step-by-step tutorial to help you file crypto taxes in Italy using the Agenzia Entrate portal, if you’re an individual taxpayer.

1. First, you need to register for the Agenzia Entrate portal if you haven't already. You can do this by visiting the Agenzia Entrate website and clicking on the "Registrati" (Register) button on the top right corner of the page. Follow the instructions to create an account.

2. Once you have an account, log in to the Agenzia Entrate portal.

3. Click on "Fatture e Corrispettivi" on the left-hand side of the screen, then click on "Criptovalute" (Cryptocurrencies).

4.  Here, you have to enter information about your cryptocurrency transactions, including the type of cryptocurrency, the date of acquisition, the date of sale, the purchase price, and the sale price. You can also enter information about fees or commissions associated with the transactions to claim your possible deductions.

5.  Once you have entered all of your cryptocurrency transactions, the portal will automatically calculate your capital gains or losses. You can then download the tax return form for your capital gains/losses.

6.  Now, you can fill out the tax return form, including all of your cryptocurrency transactions for the year.

7.  Submit the tax return form through the Agenzia Entrate portal.

8.  After the submission, you will receive a confirmation that your tax return has been received and processed. If you owe taxes, you will need to pay them through the Agenzia Entrate portal as well.

9.  Keep records of all of your cryptocurrency transactions, including purchase and sale prices, as well as any fees or commissions associated with the transactions. This will help you accurately report your capital gains or losses and avoid any penalties for underreporting.

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Does this lengthy tax filing procedure make you feel overwhelmed?

With the ever-changing tax laws and regulations, it can be challenging to keep up and ensure that you're complying with all the requirements.

But fret not, help is on the way. Allow me to introduce you to Kryptoskatt, the ultimate tax filing tool that can make the process of preparing and submitting your taxes a breeze. While it's true that tax laws can change, Kryptosatt stays up-to-date with the latest updates and developments to ensure that you are always in compliance and helps you throughout the tax filing process.

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Tax on Mining Crypto Italy

We know that Agenzia Entrate has not officially released guidelines on how to tax mining rewards. Although two published resolutions have discussed the tax implications for businesses and individuals who deal with cryptocurrencies, they do not offer any specific guidance for mining.

However, not having guidance does not mean that mining rewards are tax-exempt. We suggest reporting your mining rewards as general income on your annual tax returns to be in a safe spot. This approach is also consistent with how mining rewards are taxed currently in most other countries.

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Crypto Margin Trading, Futures, and CFDs

At the moment, the Italian tax authority is yet to issue any official guidelines on how to tax crypto margin trading, futures trading, and CFDs.

Nevertheless, based on our active deliberations with tax experts and their interpretation of current tax guidelines, we have discovered that any gains over €2,000 are subject to a flat tax rate of 26%. Similar tax treatment may apply to gains from crypto-related activities.

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NFT Taxes Italy

Agenzia Entrate has not given specific guidance on the matter, but it is highly likely that individuals who earn more than €2,000 in profits from trading crypto assets, such as NFT tokens, must pay a flat tax rate of 26%. Remember that taxes may need to be paid when disposing of NFT tokens.

Currently, it is still being determined how NFT creation and transfer are taxed in Italy. There’s a possibility that individuals engaged in these activities may not need to pay taxes, but Agenzia Entrate must provide additional guidance to confirm this.

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Defi Crypto Taxes

The Agenzia Entrate hasn’t released specific guidance on how to tax DeFi transactions yet. However, the tax treatment will likely depend on the type of DeFi transaction involved.

For instance, if you have earned interest on your cryptocurrency through a DeFi lending platform, this income may be subject to income tax in Italy. Additionally, if you have participated in a DeFi liquidity pool and earned income from fees or rewards, this income may be subject to taxation.

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Can the Agenzia Entrate Track Crypto?

Agenzia Entrate has various means to obtain data related to crypto transactions and ensure compliance with tax regulations. Although crypto transactions may seem anonymous and decentralized, most investors use centralized crypto exchanges to buy, sell, and trade crypto. These exchanges are directed by European Union to implement "Know Your Customer" or KYC identification processes and collect customer data to ensure tax compliance and prevent money laundering.

Furthermore, the proposed update to the EU directive on administrative cooperation, DAC8, aims to extend EU tax transparency rules to cover crypto assets. As such, it is essential to adhere to tax regulations and seek guidance from a tax professional with expertise in cryptocurrency taxation in Italy to ensure compliance.

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What Crypto Records will the Agenzia Entrate want?

While there is no official list of records or bookkeeping details that Agenzia Entrate may require for cryptocurrency transactions during a tax audit, it is prudent to maintain certain records as a minimum. These records include the following:

• The date of the transaction
• The type of cryptocurrency involved in the transaction
• The type of transaction (buy, sell, or exchange)
• The amount of cryptocurrency bought, sold, or exchanged
• The value of the cryptocurrency in euro at the time of the transaction
• Exchange records and any other relevant statements

By keeping accurate records of your cryptocurrency transactions, you can ensure compliance with tax regulations and facilitate any potential tax audits.

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How are Airdrops and Forks taxed in Italy?

Agenzia Entrate has yet to provide specific guidance on the taxation of Airdrop and Fork activities in Italy, similar to mining, DeFi, and Staking. However, any profits gained from Airdrop and Fork activities exceeding € 2000 may be subject to a flat tax rate of 26%. We will continue to update our information if the Italian tax authorities issue further guidance.

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Frequently Asked Questions(FAQs)

1. Is crypto legal in Italy?

Yes, cryptocurrency is legal in Italy. The Italian government has been taking steps to regulate the use of cryptocurrency in the country. In 2019, Italy implemented a regulatory framework for cryptocurrency service providers, which requires them to register with the Italian authorities and comply with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations. Additionally, Italy has also clarified that the purchase and sale of cryptocurrencies are exempt from Value Added Tax (VAT). However, it's worth noting that cryptocurrency regulations can vary by country and are subject to change over time.

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2. How is Crypto taxed in Italy?

In Italy, cryptocurrency is subject to taxation. The Italian Revenue Agency has guided how cryptocurrencies should be taxed.

For individuals, profits from cryptocurrency transactions are considered capital gains and are subject to a flat tax rate of 26% on the net gain. The net gain is calculated by subtracting the purchase price from the sale price, or the fair market value of the cryptocurrency at the time it was received if it was acquired through mining or as payment for goods or services.

In addition, if an individual holds cryptocurrency for more than 7 days, they are required to declare it on their tax return. Failure to declare cryptocurrency holdings can result in fines and penalties.

For businesses, cryptocurrency transactions are subject to corporate income tax, and profits are treated as business income.

It's important to note that cryptocurrency tax regulations are subject to change and can vary by jurisdiction, so it's always a good idea to consult with a tax professional or accountant for guidance on how to comply with tax regulations in your specific situation.

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3. Is any crypto tax-free in Italy?

No, no cryptocurrency is tax-free in Italy. All profits from cryptocurrency transactions, regardless of the type of cryptocurrency, are subject to taxation.

However, it's worth noting that Italy has clarified that the purchase and sale of cryptocurrencies are exempt from Value Added Tax (VAT), which is a tax on goods and services. Meaning individuals and businesses are not required to pay VAT when buying or selling cryptocurrencies.

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4. How to file crypto taxes using Kryptoskatt?

We’ve already discussed how to file your crypto taxes in the above sections of the guide offering a step-wise breakdown of the entire process. However, we agree that it is unreasonably complicated even for someone with a fair amount of prior knowledge. Although there’s an easy way to file your crypto taxes using a crypto tax software called Kryptoskatt.

Where all you need to do is log in on the platform, add all your trading accounts, wallets, and De-Fi accounts and sip coffee while Kryptoskatt does all the heavy lifting for you. The platform can auto-fetch all your transaction from the tax year and generate a legally compliant tax report within minutes while suggesting ways to lower your tax bill. It works like magic, you need to do is try it once.