The Top 15 Crypto-Friendly Tax Havens
This guide examines some of the leading countries that are tax-friendly for cryptocurrency investors.
- When an investor trades cryptocurrency for a profit, they have to pay pretty hefty taxes on the resulting capital gains.
- In tax havens, cryptocurrency income is free from a myriad of taxes found in heavily regulated nations, like the U.S.
- Many tax havens like Malta, Singapore and Cayman Islands have embraced blockchains, making it easier for crypto natives.
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An increasing number of investors and companies are ready to relocate to tax havens where cryptocurrencies are tax-exempt or have crypto-friendly tax policies.
In this guide, Crypto Briefing walks through the top 15 destinations.
Leading Tax Havens for Crypto Traders
Cryptocurrencies have proven to be a lucrative asset class for many investors and traders over the past decade. In the last year alone, assets like Bitcoin, Ethereum, and other major altcoins have appreciated many times their value.
Given crypto prices are back at all-time highs, some traders may ride market volatility and take profits to reinvest; other investors would stick to the age-old buy and hold method.
Beyond one’s risk profile, location also plays a role in deciding between these two strategies.
When an investor trades cryptocurrency for a profit, they may have to pay pretty hefty taxes on the resulting capital gains.
However, in some locations, crypto profits are free from capital gains taxes, or special taxes (such as VAT and corporate taxes) are not levied. These locations are also attractive for crypto firms to open up shop.
Hence, the growing interest in tax havens.
live somewhere with easy / simple / no crypto taxes
— 찌 G 跻 じ ( 𝙃𝙚𝙣𝙩𝙖𝙞, 𝙎𝙚𝙣𝙥𝙖𝙞 ) (@DegenSpartan) September 19, 2020
Barbados is an appealing destination for crypto investors and entrepreneurs due to its proximity to the U.S.
The island nation has established a fintech sandbox to attract companies using tax incentives.
Overall, Barbados is not considered an absolute tax haven but has considerably minimal corporate taxes for offshore companies and their owners, between the range of 0-5.5%.
Heading to Barbados to talk with the Gov about Blockchain Education pic.twitter.com/RVhap3p9cL
— Charles Hoskinson (@IOHK_Charles) October 23, 2017
A foreigner residing in Barbados is taxed only on income arising in Barbados, and therefore, cryptocurrency gains made on foreign exchanges are outside the scope of taxation.
The Barbados Stock Exchange has embraced the technology and even listed crypto assets and security tokens to boost trading activity.
In 2017, the President of Belarus Alexander Lukashenko signed a Decree to turn the country into a crypto-based digital economy.
The Decree excluded digital tokens from the same regulations as applied to traditional markets in the nation. The law exempts individuals who interact with cryptocurrencies from taxes until Jan 1, 2023.
Bermuda formed a comprehensive regulation on digital assets known as Digital Asset Business Act in 2018. There are no taxes on income or capital gains in Bermuda, and therefore, crypto transactions are tax-free. What’s more, any taxes incurred can be paid with Circle’s USDC.
This week in crypto:
1. Bitcoin’s 18th millionth BTC mined
2. Digital dollar becomes more likely
3. Binance hits $1B in total profits
4. Fidelity rolls out custody & trading
5. Bermuda accepts USDC for taxes
6. Libra adopts initial charter
7. Bitcoin still not dead 🙂
— Pomp 🌪 (@APompliano) October 19, 2019
Over the years, the country has attracted many crypto businesses, including Gemini, Bittrex, and Circle, who set up offices in this tax haven.
The British Virgin Islands
Over the last decade, the British Virgin Islands (BVI) has become a leading offshore tax haven for international businesses, particularly in the finance and technology sector.
BVI does not impose any capital gains taxes, income tax, or corporate taxes for companies and individuals who reside there.
The country was successful in luring many crypto projects during the ICO boom. One of the biggest cryptocurrency exchanges, Bitfinex, and its sister company, Tether, are located in BVI.
The Cayman Islands are another popular tax haven for individuals and companies. There are no taxes for all types of crypto activity in the Cayman Islands.
Due to their relaxed tax regulations, Cayman Islands is a favorite spot for many crypto firms.
For instance, BlockOne, which develops the EOS blockchain, is headquartered in the Cayman Islands and raised over $4 billion in its Initial Coin Offering (ICO) from here.
One surprising tax haven of sorts is Germany. In Germany, you do not have to pay any taxes on gains you make with investments in Bitcoin and other cryptocurrencies if held for more than a year.
Moreover, if you sell your Bitcoin for fiat money or exchange it with other cryptos within one year, there is still an exemption of up to €600 (or $727).
But if someone sells their cryptocurrency within a year and makes over €600, it must be reported under income for tax filing.
Hong Kong has been a popular choice for many tech companies and investors for its simple regulatory and taxation framework.
Furthermore, Hong Kong’s foreign income is not taxable, quite similar to Malta’s tax system. This has helped make the city a global financial hub, attracting many prominent investors in the crypto space.
“Hong Kong applies no capital gain tax to crypto investment, making it a huge incentive for investors”
Hey @IRS take some notes from Hong Kong! 👍🏼 https://t.co/q95r5qv8Z5
— Crypto Tax Girl (@CryptoTaxGirl) August 30, 2018
According to Hong Kong’s tax authority Inland Revenue Department (IRD), if cryptocurrencies are bought and held for long-term investment purposes, any profits would be considered capital and not be liable to profits tax.
Another vital point to note is the short-term gains from the crypto activities in Hong Kong, such as trading, will be charged a profits tax, as per a PwC report.
Malaysia’s treatment of cryptocurrency taxation is very similar to Singapore. There are no capital taxes in Malaysia, which makes it another enticing tax haven for cryptocurrency investors.
Inland Reserve Board, the tax regulator, clarified that cryptocurrency profits are only taxable if earned through trading activity on crypto exchanges.
Further, there is no provision for taxing cryptocurrency transactions under the country’s GST Act of 2014, even though there have been talks about making a change.
The lack of an indirect tax system such as GST makes it easier for companies to operate crypto service platforms and exchanges without affecting transactional taxes.
Malta is also known as “blockchain island” as a marketing move to attract cryptocurrency firms. The largest cryptocurrency exchange in the world, Binance operates out of Malta.
The island nation of Malta offers many benefits to non-domicile (foreign) companies operating there. For overseas companies and foreign residents, the income and capital gains are not taxable if they arise outside Malta and are not remitted to the banking system.
Binance having an office in the EU for fiat on-ramp is quite interesting. I expect more Blockchain companies to go to Malta. EU based, everyone speaks English, friendly regulatory environment for fintech. Also a lovely island. https://t.co/3VbaHRlc08
— WhalePanda (@WhalePanda) March 23, 2018
The effective corporate income tax rate for non-domicile firms in Malta is only 5%. It is, however, much higher for Malta-registered companies.
This remittance-based tax system is considered a loophole to the otherwise strict tax laws in the E.U. nations. The country offers tax benefits only to foreign entities, including companies and resident foreigners.
Portugal is one of the most attractive tax havens for crypto investors in Europe.
In 2016, the Portuguese Tax Authority (PTA) ruled that all crypto transactions will be free from capital gains and income tax.
Puerto Rico is another appealing relocation option for crypto traders and investors, particularly those who may wish to save taxes on their holdings.
Puerto Rico comes under U.S. Territory, but it is considered a foreign country for U.S. federal income taxes. Puerto Rico is well known for Act 22 that maintains zero capital gains tax and only a 4% income tax rate.
The Act was established in 2012 to promote high net worth individuals to relocate.
"Move to Puerto Rico and Pay ZERO taxes on crypto" – Only Partially true. 😅
Here's the truth 👇
Only the gains you make after becoming a bona fide resident of PR are eligible for the 0% tax rate.
Gains you have before moving to PR is still taxable in the US ‼
— Shehan (@TheCryptoCPA) January 19, 2021
In Switzerland, the exchange of cryptocurrencies is considered the same as traditional payment transactions.
According to the Swiss Federal Tax Administration, all profits and losses from crypto transactions made by individuals are exempt from tax reporting.
While individuals are exempt, profits made by crypto businesses are taxed under Swiss regulations.
Due to its favorable tax rules, the European nation is home to many crypto foundations such as the Ethereum, Tezos, and Diem Association.
Cryptocurrencies are considered movable property in Slovenia. As per Article 32 of the Personal Income Tax Act, also called ZDoh-2, personal income tax is not paid on gains from the sale of movable property.
Income made commercial activity using cryptocurrencies such as mining is taxed at 25% on annual income.
Taxes in Singapore are desirable if you are a long-term investor in all assets, including cryptocurrency. Capital gains taxes in Singapore are not applied to all assets.
Cryptocurrencies are also exempt from the standard 7% tax under the country’s goods and services tax (GST) system.
Nevertheless, in April 2020, Singapore’s Inland Revenue Authority of Singapore (IRAS) published an e-tax guide that clarified short-term crypto profits from trading activity taxed as ordinary income.
Singapore’s progressive resident tax rate begins at 0% up until $20,000 and ends at 22% for those making more than S$320,000.
Singapore is one of the most affluent and crypto friendly countries in the world:
+ largest bank launching STO exchange
+ no cap gains tax
+ home to large funds & market makers
+ trading "digital payment tokens" exempt from 7% goods/services tax pic.twitter.com/NczPxA1WMa
— Messari (@MessariCrypto) January 26, 2021
Seychelles is another tax haven that is a favorite spot for many crypto businesses. The archipelago is home to crypto derivatives exchange BitMEX.
Cryptocurrency income, whether made through crypto trading or exchange operations in Seychelles, is entirely free of tax. The tax exemptions apply only for offshore entities and foreign individuals residing there.
However, domestic or native companies and citizens have to pay taxes on their income in Seychelles.
Final Thoughts on Tax Havens
Most countries charge investors and traders a substantial portion of their crypto profits as capital gains taxes on top of their income taxes. For example, the U.S. applies anywhere between 10-25% depending on an investor’s income level, among other factors.
Companies and investors active in cryptocurrency and other digital assets have found that it’s much easier if they relocate their offices to a tax haven.
Many tax havens like Malta, Singapore, and the Cayman Islands have embraced blockchain technology outright, making it easier for crypto natives to go about their business.
Disclosure: None of this is intended as tax or investment advice. The author did not hold crypto mentioned in this article at the time of press.