Natasha Dean
Editor
Editor
A growing number of individuals and businesses are preparing to migrate to tax havens where cryptocurrencies are tax-free or have crypto-friendly tax rules. Crypto Briefing talks you through the top 15 places in this guide.
Crypto Traders’ Favorite Tax Havens
Over the last decade, cryptocurrency has proven to be a profitable asset class for many investors and traders. Bitcoin, Ethereum, and other major cryptocurrencies have increased several times their original worth in the last year alone.
Given that cryptocurrency prices have returned to all-time highs, some traders may ride market volatility and reinvest winnings; other investors may adhere to the tried-and-true buy and hold strategy. Location, in addition to one’s risk profile, plays a role in picking between these two strategies.
When an investor trades bitcoin for a profit, the subsequent capital gains may be subject to significant taxation.
However, in certain jurisdictions, crypto earnings are exempt from capital gains taxes or special taxes (such as VAT and corporation taxes). These areas are also appealing to crypto businesses looking to set up shop. As a result, there is an increasing interest in havens.
Barbados
Because of its closeness to the United States, Barbados is an enticing destination for crypto investors and businesses. The island government has created a fintech sandbox to entice firms through tax breaks.
Overall, Barbados is not regarded an absolute haven, although it offers very low corporation taxes for offshore firms and their owners, ranging from 0-5.5%.
A foreigner resident in Barbados is only taxed on income earned in Barbados, therefore bitcoin profits acquired on overseas exchanges are exempt from taxes. To increase trading activity, the Barbados Stock Exchange has embraced the technology and even listed crypto assets and security tokens.
Belarus
Belarus’ President, Alexander Lukashenko, signed a Decree in 2017 to transform the country into a crypto-based digital economy. The Decree exempted digital tokens from the same rules that apply to traditional marketplaces in the country. Individuals who engage with cryptocurrencies are free from paying taxes until January 1, 2023, according to the statute.
Bermuda
Bermuda enacted a comprehensive digital asset legislation known as the Digital Asset Business Act in 2018. Bermuda has no income or capital gains taxes, therefore cryptocurrency transactions are tax-free. Furthermore, any taxes owed can be paid using Circle’s USDC. Many crypto companies, including Gemini, Bittrex, and Circle, have established offices in this tax haven throughout the years.
British Virgin Islands (BVI)
The British Virgin Islands (BVI) has emerged as a significant offshore tax haven for multinational corporations, notably in the banking and technology sectors, during the previous decade. The BVI does not levy any capital gains, income, or corporation taxes on enterprises or persons that reside there.
During the ICO boom, the country was successful in enticing several crypto projects. Bitfinex, one of the largest cryptocurrency exchanges, and its sibling business, Tether, are both based in the British Virgin Islands.
The Cayman Islands
Another popular haven for people and businesses is the Cayman Islands. In the Cayman Islands, there are no taxes on any form of cryptocurrency activities. Cayman Islands is a popular location for many crypto companies due to its lenient tax legislation. For example, BlockOne, the company that created the EOS blockchain, is based in the Cayman Islands and raised over $4 billion in its Initial Coin Offering (ICO) from here.
Germany
Germany is an unexpected haven in certain ways. In Germany, if you hold Bitcoin and other cryptocurrencies for more than a year, you do not have to pay any taxes on your earnings. Furthermore, if you sell your Bitcoin for fiat money or trade it for other cryptocurrencies within a year, you can still claim an exemption of up to €600 (or $727).
However, if someone sells their bitcoin within a year and makes more than €600, it must be recorded as income for tax purposes.
Hong Kong.
With its straightforward regulatory and taxation environment, Hong Kong has been a favored destination for many Internet businesses and investors. Furthermore, unlike Malta’s tax system, Hong Kong’s overseas income is not taxed. This has contributed to the city’s status as a worldwide financial center, drawing many renowned crypto investors.
According to the Inland Revenue Department (IRD) of Hong Kong, if cryptocurrencies are purchased and held for long-term investment reasons, any earnings are deemed capital and are not subject to profits tax.
According to a PwC analysis, short-term gains from crypto activities in Hong Kong, including as trading, would be subject to profits tax.
Malaysia
Malaysia’s approach to cryptocurrency taxes is fairly similar to that of Singapore. Malaysia has no capital taxes, making it even another appealing haven for bitcoin investors. The tax regulator, the Inland Reserve Board, underlined that bitcoin revenues are only taxable if they are generated via trading activities on cryptocurrency exchanges.
Furthermore, despite discussions about changing the law, there is no provision in the country’s GST Act of 2014 for taxing bitcoin transactions. The absence of an indirect tax system, like as GST, makes it simpler for businesses to establish crypto service platforms and exchanges while avoiding transactional taxes.
Malta
As a marketing strategy to recruit bitcoin enterprises, Malta is also known as “blockchain island.” Binance is the world’s largest cryptocurrency exchange and it operates out of Malta. The island country of Malta provides several advantages to non-domicile (foreign) businesses who operate there. Income and capital gains generated outside Malta and not transmitted to the banking system are not taxed for foreign enterprises or foreign residents.
In Malta, the effective corporate income tax rate for non-domicile enterprises is merely 5%. It is, however, substantially greater for firms incorporated in Malta. This remittance-based scheme is viewed as a loophole in the EU’s otherwise rigorous tax legislation. Only foreign organizations, including enterprises and resident foreigners, are eligible for tax breaks in the nation.
Portugal
Portugal is one of Europe’s most appealing tax havens for cryptocurrency investors. The Portuguese Tax Authority (PTA) declared in 2016 that all cryptocurrency transactions would be tax-free from capital gains and income tax.
Puerto Rico
Puerto Rico is another enticing place for cryptocurrency traders and investors, particularly those looking to save money on taxes on their holdings.
Puerto Rico is a US territory, yet it is treated as a foreign nation for federal income tax purposes. Puerto Rico is widely recognized for Act 22, which keeps capital gains tax at zero and income tax at 4%. The Act was enacted in 2012 to encourage wealthy persons to migrate.
Switzerland
In Switzerland, cryptocurrency exchanges are treated the same as regular payment transactions. Individual earnings and losses from crypto transactions are free from taxation, according to the Swiss Federal Tax Administration. Individuals are exempt, but earnings produced by crypto firms are taxed under Swiss regulations.
The European country is home to various crypto foundations, including Ethereum, Tezos, and the Diem Association, due to its advantageous legislation.
Slovenia
In Slovenia, cryptocurrencies are considered moveable property. Personal income tax is not paid on earnings from the sale of moveable property, according to Article 32 of the Personal Income Tax Act, generally known as ZDoh-2. Commercial activity involving cryptocurrencies, like as mining, is taxed at a rate of 25% of yearly income.
Singapore
Singapore taxes are advantageous if you are a long-term investor in all assets, including cryptocurrencies. In Singapore, capital gains taxes do not apply to all assets. Cryptocurrencies are also excluded from the country’s ordinary 7% goods and services tax (GST).
Nonetheless, the Inland Revenue Authority of Singapore (IRAS) produced an e-tax guidance in April 2020 that explained short-term crypto gains from trading activities taxable as regular income. Singapore’s progressive resident tax rate starts at 0% for individuals earning less than $20,000 and rises to 22% for those earning more than S$320,000.
Seychelles
Seychelles is another tax haven that many crypto firms prefer. BitMEX, a cryptocurrency derivatives exchange, is based on the archipelago.
Cryptocurrency revenue is tax-free in Seychelles, whether earned through crypto trading or exchange activities. The tax breaks are exclusively available to offshore corporations and foreign residents. Domestic or native enterprises and citizens, on the other hand, must pay taxes on their earnings in Seychelles.
Final Remarks on Tax Havens
Most jurisdictions tax investors and traders on top of their income taxes a significant amount of their crypto winnings as capital gains. For example, in the United States, taxes range from 10% to 25%, depending on an investor’s income level and other circumstances.
Companies and investors involved in bitcoin and other digital assets have discovered that relocating their headquarters to a tax haven makes things considerably simpler. Many tax havens, like Malta, Singapore, and the Cayman Islands, have openly embraced blockchain technology, making it simpler for crypto natives to conduct business.
With an eye for detail and understanding of this exciting industry. My experience has given me an understanding of crypto trends and how to effectively break them down. I have a soft spot for NFTs and the Metaverse.
