The European Union’s DAC8 directive, set to take effect on January 1, 2026, aims to increase tax transparency for crypto-assets by mandating transaction reporting by crypto service providers. This change will affect both individual traders and those operating through legal entities, as tax authorities gain access to a more comprehensive record of transactions. With this increased scrutiny, traders need to understand how DAC8 may impact them and whether using a legal entity offers any advantages.
What is DAC8?
DAC8, or the eighth amendment to the EU Directive on Administrative Cooperation, is designed to enhance tax compliance by ensuring crypto transactions are reported to tax authorities. The directive aligns with other regulations such as the OECD’s Crypto-Asset Reporting Framework (CARF) and the Markets in Crypto-Assets Regulation (MiCA), ensuring EU-wide coordination in monitoring crypto-related activities.
Under DAC8, Reporting Crypto-Asset Service Providers (RCASPs) must disclose transaction data to national tax authorities, who will then share this information across EU member states. This marks a significant shift from previous tax enforcement mechanisms, as tax authorities will now have automated access to detailed reports of crypto transactions, reducing the possibility of non-compliance.
Impact on individual crypto traders
For individual traders, DAC8 introduces significant changes:
- Increased transparency – Tax authorities will receive detailed reports of crypto transactions, including transaction amounts, types, and tax residency information of the trader.
- Potential for stricter tax enforcement – With better visibility into crypto activities, authorities can more effectively enforce tax obligations on gains and income.
- Administrative burden – Individual traders may need to provide self-certifications confirming tax residency and comply with due diligence requests from service providers.
- First reporting year and deadlines – Transactions conducted in 2026 will be reported by service providers, with authorities exchanging this data by September 30, 2027.
With this level of transparency, individual traders who have previously avoided reporting their crypto income may find themselves under greater scrutiny.
Impact on traders using legal entities
Crypto traders who operate through legal entities will also be affected by DAC8. However, the level of impact depends on how the entity is classified:
- If the entity is active – Only the entity’s transactions will be reported, with no additional disclosures regarding its owners or controllers.
- If the entity is passive – The directive mandates that tax authorities also receive information on the controlling persons behind the entity, effectively removing anonymity for traders using passive entities.
- Tax residence considerations – Legal entities will need to certify their tax residence, with authorities assessing whether they qualify as active or passive for reporting purposes.
For traders using legal entities to manage their crypto activities, DAC8 introduces complexity. While active entities maintain a degree of separation between personal and business tax obligations, passive entities may expose individual controllers to increased tax scrutiny.
For example
- Passive entity: A company set up by an individual trader to hold Bitcoin and Ethereum, earning staking rewards and capital gains, with no employees or active trading operations. If over 50% of its income comes from these passive sources, it’s passive, and the trader (as the controlling person) would have their details reported alongside the entity’s transactions.
- Active entity: A company employing staff, running proprietary trading software, and generating income from active crypto trading services or market-making. If this exceeds 50% of its income, it’s active, and reporting would focus on the entity alone without necessarily identifying controlling persons.
Key differences: individual traders vs. legal entities
| Aspect | Individual traders | Traders through legal entities |
|---|---|---|
| Reporting scope | Personal transaction details | Entity transaction details + controlling persons if passive |
| Due diligence | Self-certification for tax residence | Entity tax residence + CDD for controlling persons if passive |
| Tax impact | Increased scrutiny on personal income/gains | Entity tax obligations, potential personal liability for controllers |
| Administrative burden | Providing self-certifications, updates | Entity compliance + additional reporting for controllers |
| First reporting | 2026 transactions, exchanged by Sept 30, 2027 | Same timeline, with additional controller details if applicable |
Compliance timeline and implementation
- By December 31, 2025 – EU member states must incorporate DAC8 into their national laws.
- From January 1, 2026 – The directive officially applies, and transactions start being recorded under the new reporting framework.
- By September 30, 2027 – The first batch of reported data will be exchanged between tax authorities.
Service providers failing to comply may face restrictions, including the potential loss of operating licenses.
Investor 2.0’s Investment Purpose Vehicle: reduce the complexity
With DAC8 increasing tax transparency, traders may consider restructuring their approach to crypto trading. One possible solution is using an Investment Purpose Vehicle (IPV), such as the one offered by Investor 2.0.
An IPV allows traders to legally structure their trading activities through a legal entity with tax efficiency and compliance in mind. Key benefits include:
- Separation of personal and business finances – Reduces personal tax exposure by maintaining a clear distinction between individual and entity-level taxation.
- Active entity – Active operations (e.g., frequent crypto trading with employees or infrastructure) under DAC8 may avoid the controlling person reporting requirement.
- Tax deferral – Keep the assets within the entity and you can benefit from the tax deferral until profits are distributed from the legal entity.
- Efficient record-keeping – Automates tax reporting obligations, ensuring compliance while minimizing administrative workload.
- Access to professional tax strategies – Helps traders navigate tax regulations with expert guidance, potentially lowering overall tax liability.
- Operational ease – Estonia’s e-Residency program and digital infrastructure make it simple to sign up for an IPV and manage it remotely.
- Estate planning – Simplifying nheritance or asset management with your IPV to ensure a seamless and efficient transfer of wealth to heirs or beneficiaries
DAC8 surely marks a significant shift in how crypto transactions are monitored and reported within the EU – complicating the reporting and making transactions more transparent. Both individual traders and those using legal entities will likely face greater administrative burdens and an increased risk of incorrectly declared taxes.
For traders looking to maintain efficiency and compliance, solutions like Investor 2.0’s Investment Purpose Vehicle provide a structured approach to managing crypto investments while optimising tax obligations. As DAC8’s implementation approaches, now is a good time for traders and investors to evaluate their strategy and ensure they are prepared for the new regulatory landscape.
