The crypto industry needs worldwide regulatory clarity. However, many regulators haven’t been clear about a future framework, and the global view on digital assets is scattered. Taxes could become a nightmare to investors because of the many grey areas, but this depends on the law’s considerations from each country and some have made it easier.
So far, when taxes on digital assets-related activities are very high and unfair, investors and companies fly away as a response. Japan is a live example of that scenario.
However, there are crypto-friendly and tax havens places where investors fly to when regulations get heated, or simply when looking for an ideal location to set up a startup.
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Crypto Tax Havens And Friends
Some countries are aiming for blockchain adoption and innovation, hoping it brings in investments, thus growth. Here is an updated sum-up of the ones that have cryptocurrency-friendly taxes at the moment:
Puerto Rico: Its tax laws are very favorable to cryptocurrency investors because of its capital gains tax exemption.
Bloomberg reported that several American millionaires are moving to Puerto Rico because “High-earning investors in the U.S. pay up to 20% in capital gains tax and as much as 37% on short-term gains. In Puerto Rico, they pay nothing.”
However, investors must make contributions of at least $10,000 to not-for-profit organizations each year and acquire a residential property.
Bermuda: is “one of the first legal and regulatory regimes in the world specifically designed to govern digital assets”, explains Freeman Law. This country doesn’t impose taxes –like capital gains– on digital assets, or related transactions.
Switzerland: people call it the “Crypto Valley”. Cryptocurrency gains are only subject to income tax if they come from businesses, mining, and self-employed traders, otherwise capital gains from cryptocurrencies and other private wealth assets are exempt.
Singapore: digital assets trading, custody, and other related activities are legal. Their law defines cryptocurrencies as property –not as legal tender–. Long-term gains are not taxed as capital gains don’t exist at all in this country’s framework.
Businesses that make regular transactions in cryptocurrencies are subject to income tax. Companies or professional traders with bitcoin profit will be taxed at a 17% rate, but there are gray areas between the definitions of trading and investment when considering cryptocurrency capital gains.
If Bitcoin or Ether are used to purchase goods and services, those payments are considered tax-free.
Portugal: revenue from buying and selling digital assets are not subject to capital gain taxes or value-added tax (VAT) since 2018.
Gains from cryptocurrency trading are not considered investment income, and this activity will only be taxed if the individual does it professionally on a regular basis. Companies that offer digital assets-related services, however, are taxed on capital gains from 28% to 35%.
Malta: long-held digital currencies are not subject to capital gains tax, but cryptocurrency traders are considered similar to traders of stocks and shares and taxed accordingly at the rate of 35%.
However, the country’s system has “structuring options” that could diminish this rate to 5% or even 0%, reportedly.
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Malaysia: digital currencies are not defined as assets or legal tender by the country’s law, so transactions and cryptocurrencies are tax-free and not subject to capital gains. Cryptocurrency trading, on the other hand, is seen as a profession thus the revenue generated is subject to income tax.
Germany: Bitcoin is not seen as a currency, commodity, or stock, but private money. All digital assets, regardless of the amount, held for more than a year are exempted from taxes. Digital assets transactions under 600€ are not taxed and cryptocurrencies held individually are exempt from VAT.
Belarus: cryptocurrency-related activities have been legal since 2018. They consider cryptocurrency mining and investments as personal investments and tokens are not required to be declared, allowing individuals and businesses involved to be completely exempted from taxes until 2023 when the effects of this law will be reviewed.
El Salvador: Overly bitcoin enthusiastic, this country allegedly will exempt foreign investors with Bitcoin gains from paying taxes.
As president Nayib Bukele aims to build a ‘Bitcoin city’ with the issuance of a $1 billion Bitcoin Bond and use a volcano’s geothermal power for mining the coin, he claimed that the only tax in this place will be a 10% value-added tax to fund city construction and services, and residents won’t pay any income, property, capital gains or payroll taxes.
