Tax Optimization Part 1

The growing popularity of cryptocurrencies has caused tax offices in many countries to take an interest in the topic.
Cryptocurrency in the USA is treated like real estate and other investments, not currencies. If you hold your cryptocurrency for a minimum of one year after purchase, you can qualify for a rate of 0 to 20% depending on your income. Shorter investments and trading are taxed at the levels between 10 and 37%.
In the UK, natural persons pay capital gains tax on their total gains above the annual tax-free allowance of £12,300. Any gains above this allowance will be taxed at 10% up to the basic tax rate (if available) and 20% on gains at higher and additional tax rates.
The success you may enjoy while investing into cryptocurrencies may make you start to consider moving to another country or at least changing or obtaining additional tax residency. Here are some ideas:

Portugal was one of the best places in the world to live if you wanted to avoid paying taxes on cryptocurrencies. Cryptocurrency trading was not considered to be investment income, so it was tax-free.
That was provided that you were not running a cryptocurrency company, your digital investments were also exempt from VAT and income tax in Portugal. For the vast majority of investors, Portugal was therefore a tax-free country for cryptocurrencies.
Changes are coming next year. Profits made on digital-asset holdings held for less than one year will be taxed at a rate of 28%, while crypto held longer than that will be exempt from taxes, according to the country’s 2023 budget plan. Authorities will also treat gains from the issuance of cryptocurrencies and mining operations as taxable income. The new policy will effectively end Portugal’s status as a crypto tax haven in Europe.
Portugal still has most of the things crypto investors and startups need to flourish: an aspiring tech scene, affordable living costs, great internet connectivity and even a visa for digital nomads. Add in about 300 days of sunshine per year, plenty of surf and tax breaks for foreign residents.

American residents have probably heard of Silicon Valley billionaires heading south to enjoy the luxurious Puerto Rican lifestyle and enjoy the relaxed tax laws. Although Puerto Rico is an unincorporated territory of the United States, it is considered a foreign country in terms of federal income taxes. The country therefore sets its own tax laws.
When it comes to taxes on cryptocurrencies, this is great news. The residents of Puerto Rico pay a significantly lower territorial income tax compared to the US federal income tax rate. What’s more, cryptocurrencies purchased while in Puerto Rico are completely exempt from capital gains tax, so whether you pay tax depends on when you bought your crypto. If you are an American resident who purchased cryptocurrency before moving to Puerto Rico, you still need to comply with IRS tax rules on cryptocurrencies. However, if you acquired your cryptocurrency after establishing residency in Puerto Rico, then it is completely exempt from capital gains tax.

There is a reason why many cryptocurrency exchanges, such as KuCoin and Phemex, are based in Singapore. Singapore is a tax haven for cryptocurrencies, both for natural persons and companies. This is because there is no capital gains tax in Singapore, so individual investors and companies are not required to pay cryptocurrency tax.
Furthermore, because cryptocurrencies are seen as intangible property from a tax perspective, when you spend cryptocurrencies on goods and services, it is seen as barter rather than payment. As a result, while goods or services can be subject to value-added tax, a coin or payment token, is no longer subject to this tax.
Of course, it is not possible to avoid all taxes. If you operate as a business and accept cryptocurrencies as payment, you will pay income tax on them. Similarly, if the company’s core service is related to cryptocurrency trading, the company will still be liable for income tax.

Other crypto-friendly countries include: Germany, Belarus (!), El Salvador, Malaysia, Malta, the Cayman Islands, Switzerland, Georgia and the United Arab Emirates.

Read more in my book ‘Second Crypto Revolution: Build Generational Wealth With Richard Heart’s Crypto Ecosystem’.

‘Second Crypto Revolution’ is now also available as an audiobook! Click here to listen!

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