DISCLAIMER: Please be advised that this article is not intended as investment, tax, financial or legal advice. Interested readers should seek out professional advice for their particular situation.
Cryptocurrency lending has seen a lot of success in the European Union. Many excellent crypto lending platforms such as CoinLoan and YouHodler are based in the EU. On the other hand, regulation when it comes to cryptocurrency is getting stricter and stricter in the EU. Will the crypto landscape be able to survive, or is there a risk of over-regulation?
In this article, we will be looking at crypto regulation in the EU including how crypto is taxed and how to get a crypto loan in the EU.
First of all, cryptocurrency is completely legal in the EU although it is not accepted as legal tender everywhere and the rules differ from country to country. That being said, there are cities like Berlin, Germany where you can actually pay with Bitcoin at some restaurants, coffee shops, hairdressers, and even a university. When you compare this to the rest of the world, Europe is definitely one of the most progressive regions.
However, in January 2020 a new regulatory framework came into effect - 5AMLD. First introduced in June 2018, the 5th Anti-Money Laundering Directive expanded upon the previous directive 4AMLD and represented a major update for cryptocurrency platforms. Not only does it apply to crypto platforms based in the EU, but also platforms that operate in EU member states.
5AMLD was a landmark regulation when it comes to cryptocurrencies, as this was the first time that crypto service providers were classified as obliged entities. This means that platforms that managed their users’ private keys now have to conform to the same anti-money laundering and counter-terrorist financing requirements as mainstream financial institutions. Additionally, any crypto platforms and custodial wallets need to register with their local authority.
The most important aspect of 5AMLD is that crypto platforms now have to perform Know Your Customer (KYC) for users on their platform. Essentially this means that crypto platforms now have to verify a user’s identity (typically with a piece of government-issued ID) in order for them to use their services.
And more regulation is coming. In June 2021, 6AMLD comes into effect and it requires member countries to take concrete steps towards eliminating the risk that comes with virtual assets. Reporting entities such as crypto exchanges, digital asset exchanges, crypto wallet providers and more will be facing increased AML/KYC compliance scrutiny in 2021.
Taxation in the European Union varies greatly as each member country has their own taxation rules. For lenders, in some countries (such as France, Belgium and the UK) any interest earned on cryptocurrency is subject to capital gains tax, which can range anywhere from 28% to 37%.
In other countries, such as the Netherlands, profits from lending are to be taxed as income. Germany is a unique exception in the EU as there is no taxation if you keep your cryptocurrency for at least one year. Malta has a similar taxation scheme to Germany whereby cryptocurrency is not taxed if it is held long term. In Switzerland, cryptocurrency held by private individuals is equivalent to holding cash or precious metals with the resulting tax treatment. Some countries, such as Portugal and Belarus, have no taxation at all for cryptocurrency.
For borrowers, the situation is a little more complicated. For example, in the United Kingdom borrowers are not subject to taxation for a loan unless they are exchanging collateral for a fiat loan. In other countries in the EU, loans are subject to value added tax (VAT), but only if fiat currency is involved.
The taxation of cryptocurrency in Europe is a complex and vast subject that varies greatly depending on what country you reside in. It’s important that you do your research and fully understand what taxation you may be subject to. If you are using a crypto loan platform based in the EU but do not reside there yourself, you may only be subject to taxation in your country of residence.
The first step is to find a crypto lending platform that offers services to EU residents. Luckily, the majority of platforms cater to EU residents and so you are spoiled for choice. Some of the very best crypto lending platforms are based in the European Union, so there are plenty of options.
Once you find your preferred crypto lending platform, the process to get started is relatively simple. For borrowers, you will need to determine how much you want a loan for and how long you want the loan terms to be. Once you have selected your loan terms (on many platforms it’s completely customizable), your loan will be sent for review and then approved, sometimes within 24 hours.
From there, typically you will be required to deposit some of your own cryptocurrency as collateral before receiving a loan. As a lender, the process can be even simpler. You will need to agree to the terms, deposit your crypto on the platform, and then start earning interest.
Thanks to 5AMLD, crypto lending platforms will require that you verify your identity before getting started on their platform. However, most platforms do not require a credit check, which is part of what makes crypto lending so accessible.
As always, you should do your due diligence before committing to any platform and make sure you understand how the platform works. Any platform that is worth its salt will clearly outline the process and loan terms before you join. If you’re newer to crypto lending, check out our Introduction to Cryptocurrency Lending article to start your journey.
Here are the top three lending platforms that are based in the EU and offer their services to EU residents:
Based in Estonia, CoinLoan is a P2P lending platform for crypto-collateralized loans. Since launching in 2018, it has become one of the most popular European crypto lending platforms. With a simple lending process backed by bank-grade security, it’s easy to see why. The platform offers one of the largest choices of cryptocurrencies, fiat (including EUR and GBP), and stablecoins on the market.
The platform is registered and licensed in the European Union and is, therefore, subject to EU financial law, which offers unparalleled protections for consumers. Repayments are guaranteed, and all transactions are SSL-encrypted. In fact, since opening in July 2018, every lender has received their repayments in full and on time.
With offices in Cyprus and Switzerland, YouHodler is a fintech platform focused on crypto-backed lending with fiat, crypto, and stablecoin loans. The platform offers a high and flexible Loan-to-Value (LTV) rate, which is available at 90%, 70%, and 50%. As a result, users can obtain a higher credit line for a lower deposit.
Another major advantage is that YouHodler offers its users access to instant cash, which is provided by the platform’s fiat-based funds. The platform takes a different approach from most crypto platforms; YouHodler works with the banks instead of avoiding them. This allows YouHodler to partner with trusted fiat payment providers and hold its fiat funds in the most reputable banks in Europe to ensure their safety.
Based in Switzerland, Nexo was one of the earliest crypto loan platforms and was the first in the world to offer instant loans. Much like most other loan platforms on this list, Nexo lets users use their crypto as collateral for fiat loans. There are no minimum repayments, no hidden fees, and loans are instantly available with no credit checks.
For lenders, Nexo offers the opportunity to earn interest on both fiat currency and stablecoins, with other crypto options coming soon. With an interest rate of 8% and a 100% asset back guarantee, you can put your crypto to good use and know that it is in safe hands.
While regulation is tightening in the European Union, cryptocurrency lending is still alive and well in the region. Europe continues to be a cryptocurrency hub in the Western world and offers some of the best crypto lending platforms on the market. Much of the regulations surrounding cryptocurrency are focused on financial crimes and so far, haven’t had a major impact on the services that crypto lending platforms are able to provide in the EU.
If you’re an EU resident looking for a crypto loan, things just got a lot easier with the introduction of the SelfKey Loans Marketplace. The Loans Marketplace grants SelfKey Wallet users access to the world’s most exciting lending platforms and users are able to easily compare and register for crypto lending services. This is an exciting prospect for the SelfKey community and adds impressive new functionality to the Wallet.
If you aren’t a user of the SelfKey Wallet already, you can download it here and start exploring the Loans Marketplace.