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It’s a common saying that in life, two things are certain: death and taxes. However, what if there was a way to avoid income tax and capital gains tax on your gains?
There are crypto tax havens, and smart investors are loading up their bags and moving to crypto-tax-free countries to wait for the next bull market. This is because the market is currently in a bear market. But before you pick a country and head straight to the airport, there are a few mind-numbing details you’ll need to know about crypto tax and how it could impact buying, selling, lending, or borrowing crypto.
Why You Should Move to a Crypto Tax Haven
As the name suggests, cryptocurrency is a currency. However, most governments, including the US government, view crypto as property.
Because the IRS taxes cryptocurrency as property, you will have to pay a capital gains tax on your crypto, as you would for stocks, metals, and other valuables. At the same time, you'll have to pay income tax on your earnings from mining and staking your cryptocurrency.
Another thing to keep in mind is that profits from investments held for less than a year are considered short-term capital gains, while investments held for over a year and sold afterward are considered long-term capital gains, and your investment income will be taxed as such. If that didn't sound complicated enough, the IRS sees crypto trading as an exchange of properties.
Once we add volatility into the equation, crypto transactions such as paying with your digital assets become a mess. Most likely, the price of your digital assets when you buy them will be different from the price of the same asset when you sell it or buy it from someone else. Therefore, paying taxes turns into a huge mess.
By changing your residence status to a country with tax-exempt capital gains, you should be able to avoid the entire charade and, more importantly, keep your gains all to yourself. Here are your options for cryptocurrency-tax-free countries.
Best Crypto Tax Havens
Moving to a foreign country is a big deal, and you should expect to experience frustration during the process, but avoiding crypto capital gains tax or income tax and keeping the profits all to yourself will make it all worth it in the end. Here are the choices you have:
Puerto Rico
When US investors or even some foreign investors want to avoid paying taxes, Puerto Rico is often the first country they look into. That's because Puerto Rico's an unincorporated US territory, and therefore the country establishes its own tax rules.
The income tax rate in Puerto Rico is lower than the federal income tax rate in the US, and buying cryptocurrency as a resident of Puerto Rico is tax-free. Keep in mind that if you purchased your digital assets before becoming a resident of Puerto Rico, you will still be subject to US tax laws.
Becoming a Resident
To reap the benefits of Puerto Rico's tax laws over a longer period of time, you will have to purchase property within two years and make it your primary residence. Because of the mentioned law, real estate prices have risen significantly in recent years; however, if you can afford a house in America's tax haven, you'll be able to live comfortably on less than $2,000 per month.
The best place to move would be the capital of Puerto Rico, since it has so many different stores, boutiques, and outlets. The country is also known for some of the best beaches in the world. All in all, you'll be able to live a pleasant and exciting life.
Portugal
In the past few years, Portugal has become a hotspot for crypto investors and traders in the EU. In addition to having amazing tax laws regarding digital assets, Portugal is a country worth living in.
Exchanging cryptocurrency for another cryptocurrency is tax-free in Portugal, and exchanging crypto for a legal tender isn't subject to tax laws either. However, professional or entrepreneurial activity regarding crypto will be subject to income tax. You can keep all your bitcoin and altcoin profits to yourself if you're not a professional trader. Business income tax and corporate income tax are subject to different laws than individual income tax.
Becoming a Resident
People from outside the EU can become tax residents of Portugal if they buy or invest 350,000 euros in a home, a business, or something similar. Because the residency stay requirement for the non-habitual residency (NHR) program is only 7 days per year, you may not need to relocate to avoid paying taxes. Some $2,200 a month will make for a pleasant stay in Portugal, which offers some of the greatest weather on the planet, among many other benefits.
Malta
Malta is another, more exotic, European location that could help you avoid having to pay capital gains tax on all your digital assets.
Long-term crypto investors have nothing to worry about, as purchasing and selling cryptocurrency won't be susceptible to capital gains tax. However, the Maltese tax system has a business income tax rate of 35% for daily crypto trading, the same as if you were trading in the stock market.
Becoming a Resident
EU citizens need to show that they are financially stable or have a job in order to get a residency visa in Malta. As a non-EU national, you will require approval from Maltese authorities.
Living in Malta will cost you roughly 2,500 euros per month, and while it isn't a place for those seeking excitement, it's perfect for individuals who wish to live peaceful lives.
Cayman Islands
The Cayman Islands have long been known not only as one of the best crypto tax havens but also as one of the best business and financial service locations in the world.
The Cayman Islands Monetary Authority will support your personal investments and business endeavors, and as for their cryptocurrency tax laws, they'll let you keep the majority, if not all, of your cryptocurrency gains.
The Cayman Islands are pretty much a paradise, so most of the government's money comes from tourists. This means that you won't have to pay income tax or capital gains tax on your cryptocurrency as an individual, while as a business, you won't have to pay corporate income taxes.
Becoming a Resident
To become a tax resident of the Cayman Islands, you must be eligible for a visa and buy a piece of real estate.
The cost of living is pretty low, as you'll be able to sustain yourself with less than $1,328 monthly. This beautiful tropical place has lots of exciting things to do, but it could get boring after a while.
Malaysia
Malaysia is another crypto country where long-term crypto investors don't have to pay taxes. This is due to the fact that the government does not view cryptocurrencies as money, but rather as securities that fall under Malaysia's securities laws.
But almost any kind of day trading with digital assets will be subject to tax laws. The Malaysian Inland Revenue Board says that crypto transactions are not taxed if they don't happen often or in the same way. In other words, Malaysia might not be one of the best crypto tax haven countries for day traders, and you might want to look elsewhere.
Becoming a Resident
The best way to become a Malaysian resident and pay tax under Malaysian laws is through their Malaysia My Second Home (Mm2h) program.
Malaysia is a safe place to live, with monthly living costs of $2,500 a month. You'll never get bored in the country, as there's plenty to do and explore. The weather is tropical, and the overall atmosphere in the country is easygoing and stress-free.
El Salvador
El Salvador might just be the country for crypto investors, period. In September 2021, El Salvador made Bitcoin a legal tender, even going so far as to offer government-issued digital wallets to its citizens.
If there was a single country where you could truly use only Bitcoin, it would be El Salvador. Because it is a legal tender, businesses must accept payments in Bitcoin for their goods and services.
Being a legal tender, Bitcoin gains are exempt from capital gains tax. More importantly, the government of El Salvador believes in Bitcoin, invests in it, and uses it. This means that any future laws about Bitcoin are sure to help you.
Becoming a Resident
Through the investment program, by investing $100,000, you will be granted El Salvador residency.
Many believe that this is a country with a high crime rate, which is, in fact, not true. You’ll be able to enjoy the tropical crypto tax haven as long as you stay out of "bad" neighborhoods.
Dubai
Dubai is another one of the best cryptocurrency tax-free countries, with no income tax or capital gains tax. In addition to not having to pay taxes on crypto, you can sell your capital assets and spend the money at a variety of high-end places.
Becoming a Resident
One of the best ways to become a resident of Dubai is to invest in real estate or a business that is already up and running.
Dubai is an expensive country to live in, but those who can afford it will enjoy the amazing lifestyle filled with expensive supercars, high-end nightclubs, boutiques, and similar.
Singapore
Cryptocurrency businesses, such as crypto exchanges, are based in Singapore because the country doesn't impose a capital gains tax. This is excellent for businesses and individuals, as both can get around paying crypto taxes.
However, if you're a business owner and your company is based on cryptocurrency trading, your company will be subject to income tax. Your company will also be subject to income tax if you accept Bitcoin or any other cryptocurrency as payment.
Singapore also charges goods and services tax (GST) on anything you buy with your digital currency because it is considered intangible property and the transaction is seen as a barter trade instead of a payment.
Becoming a Resident
Singapore residency is slightly difficult to obtain, as one of the best ways requires you to invest 2.5 million Singapore dollars (1.9 million USD) to obtain residency by investment.
However, Singapore is such a safe country with the best of everything that it's difficult to find a better place to live.
Switzerland
Switzerland is known for having a high quality of life, and it is also a crypto tax haven. It has been dubbed "Crypto Valley" due to its excellent and modern policies.
You'll still have to pay tax, as it's not one of the tax-free countries. However, the laws are friendly to businesses and individual investors that invest in, trade in, or profit from crypto in most ways.
Crypto taxes in particular are pretty great, as capital gains tax doesn't exist for individual investors who aren't trading as professionals. But you can expect to pay income tax if you mine crypto, stake crypto, or trade crypto professionally on the same day. You'll also be subject to the wealth tax rate, which depends on your total net worth and the area you live in.
Becoming a Resident
Obtaining Swiss tax residency will require you to be under 55 years of age and to invest roughly 1.2 million dollars in a business that benefits Switzerland.
However, being one of the safest and best countries in the world, Switzerland is an amazing option for those who can afford the investment as well as the high cost of living.
Worst Crypto Tax Countries
On one hand, we have tax-free crypto countries, while on the other, we have countries that will enforce an enormous tax rate on almost every crypto venture.
Japan
The current stock market profits in Japan are taxed with a capital gains tax of 20%. But in Japan, any cryptocurrency transaction is considered a miscellaneous income tax and will be taxed at a rate of up to 55%.
Crypto whales from Japan might want to start looking at tax-free crypto countries, but hopefully, Japanese laws regarding crypto will change as adoption around the world grows.
Netherlands
The Netherlands might just be the worst country for cryptocurrency. Instead of taxing crypto upon a transaction, the Netherlands taxes crypto on fictitious gains. That means that they will tax you between 0.54% and 1.58% on unrealized gains. Also, mining and staking digital assets are considered income and will have to be taxed as such.
Still, there are various countries, such as Colombia or Bolivia, in which cryptocurrency is banned. However, we believe that crypto adoption will force those countries to reconsider their bans, while other countries that aren't as crypto-friendly will reconsider their tax laws and enforce fewer crypto taxes for crypto interest. As for wealthy crypto investors, there will always be tax-free crypto countries; it's just a matter of choosing the best one for you.
