Paying taxes on cryptocurrencies can present a logistical nightmare for many, not to mention a significant financial loss. So, what’s the solution?
For many in the crypto community, working out of a country with favourable tax conditions seems to be the most financially attractive option. But it’s a big world of blockchain out there, where works best?
Ultimately it depends on what you need from your crypto investments, but as a little food for thought we’ve compiled a list of some of the most cost-effective countries when it comes to paying tax on cryptocurrencies.
Best For: Mining
Dubbed as “Europe’s last dictatorship,” Belarus may have its work cut out in terms of tourism, but it could well become a haven for crypto users. In March this year, a decree on the Development of the Digital Economy was published, paving the way for the country to become a crypto-friendly environment for entrepreneurs.
As part of the decree, tax breaks and incentives apply in Belarus until January 1st, 2023. Companies who profit from the mining, issuing and placement of digital coins, for example, won’t be taxed. Neither will individuals who earn an income from mining and trading in cryptocurrencies.
Since the moves were announced, there has reportedly been a 25 percent rise in residents of High-Tech Park (HTP), the Belarusian version of Silicon Valley. Our advice? Do your homework before jetting off to this crypto paradise – there are concerns that new regulations could still be introduced.
Best For: Long-Term Investors
Where many countries choose to treat cryptocurrencies as property, Germany has said it will view them as legal tender. And earlier this year, Germany’s Ministry of Finance announced that no taxes will apply to individuals who use cryptocurrency as a means of payment.
For those who are trading, every trade is considered to be a taxable event, but you won’t be taxed unless the amount exceeds €600. Crucially, long-term investments (such as digital assets held for over a year) are not subject to tax.
If you’re mining, there’s more good news. Block rewards received won’t be taxed, as your services are considered to be voluntary. Selling or buying cryptocurrencies in your own name will mean you are exempt from taxes, but crypto exchanges operating as marketplaces will be.
Best For: Startups
With nearby mainland China imposing strict regulations, and even bans, on certain cryptocurrency activities, a growing number of investors are choosing to relocate to Hong Kong to take advantage of its liberal economy.
In Hong Kong, Bitcoin is not defined as a currency, but rather a virtual commodity, meaning that it isn’t regulated by financial bodies. Instead, it falls under the jurisdiction of Customs and Excise. Since Hong Kong is classed as a free port, there are very few restrictions or tariffs on imports and exports.
The bottom line: with no VAT or Capital Gains Tax in existence here, there are very few headaches when compared to paying taxes in other countries.
Startups can also reap the rewards of this friendly economy; profits earned in Hong Kong are taxed at 16.5 percent, but if your transactions arise or derive from outside of Hong Kong, you qualify for exemption.
Best For: Cashing Out
Singapore has traditionally been a great environment for investors and entrepreneurs. Just like fiat currency, if cryptocurrency is held for long-term investment purposes, it is not taxable.
Buying and selling cryptocurrencies is seen as a personal investment, and any profits from this activity are also not taxable. However, if you’re receiving cryptocurrencies as revenue or remuneration, you will need to pay tax.
It’s worth mentioning that those cashing out their crypto as foreigners in Singapore can do so tax-free. But they should also bear in mind that there are strict regulations in place to guard against money laundering. When cashing out, always do so through a reputable exchange and obtain a receipt for the transaction.
Best For: Casual Traders
Denmark has been hailed as one of the best countries in the world for trading crypto. According to a 2014 ruling, the Danish government doesn’t see cryptocurrencies as a legal means of payment, thereby making them exempt from regulation.
While casual crypto trading is not subject to taxation here, it should be noted that if you have a business that is focused purely on digital currencies, you will still be taxed like any other business. A word of caution before you head over to Denmark though: these rules are likely to change very soon.
This list is by no means exhaustive – what other countries would you add here? Let us know by leaving a comment.