Where to Find Information
Start with the tax laws in your country. Carefully study all of its provisions to find mention of Forex trading. Not every country has included this point in its legislation. Look for similar formulations:
- Financial trading
- Long-term and short-term investment, etc.
If you can’t find anything close enough, then your Forex profits will most likely be taxed like a regular business. It is best to play it safe and consult with a specialist: tax consultant, tax officer, etc. You will also be advised what time to file your tax declaration. Typically, data is submitted once a year. Request and store monthly reports on your Forex trading in one folder. This will make it easier for you to fill out your tax declaration at the right time.
What the Tax Is Charged for
The answer is also ambiguous. The main options are:
- Payment for direct income. In this case, the amount of unprofitable trades is deducted from the sum of winning ones. The resulting volume is taxed, no matter if you withdraw your money or keep it on a trading account.
- In some countries, tax is paid only on the profit that the trader withdraws from the account.
If the second option is used in your region, you try not to withdraw profit unnecessarily. This way you will pay less taxes and increase the return on the money left on the account.
Taxes in Different Countries
Above I’ve advised to consult with a specialist. Don't ignore this hint. In addition to the general principle of paying taxes, you might learn about nuances that will allow you to pay smaller amounts. For example:
- In the UK, the taxes are paid only for income that exceeds a statutory amount. In 2020, that amount was £12,300.
- In Canada, traders who have other main jobs pay only 50% of the established tax size. Full-time traders pay the full amount.
- Switzerland has a similar situation. Only professional traders who trade Forex full-time pay taxes. Part-time traders don’t pay tax at all. However, professional traders can also avoid payouts. For example, by keeping profits below 50% of total capital.
There are also countries where Forex trading is not taxed at all:
- New Zealand
Professional traders who make significant profits in Forex may consider moving to one of these countries in order to keep 100% of their profits.
Why Pay Taxes
Tax evasion is illegal. In different countries, the punishment varies from a fine to imprisonment for several years. Most brokers are not responsible for calculating and paying your taxes. This obligation if fully yours.
Finally, check the updated tax code regularly. The size and rules of payments may change from year to year. Ignorance of the law will not relieve you of responsibility.