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Article by 0xzh Edited by Trewkat Cover Art by Feems
While a number of nations have banned the use and/or trading of crypto altogether, and some are looking at ways to get as much tax revenue from the growing cryptocurrency industry as possible, others are embracing it — working to become attractive destinations for cryptocurrency businesses and holders with lower tax rates and rewards.
For economies committed to taxation of cryptocurrencies, there are many questions that they must answer to effectively implement their policies. Some unique characteristics make taxing cryptocurrency activity very different from other types of taxable events. A lot of tax agencies find it very hard to classify cryptocurrency activity due to the anonymity of cryptocurrency users, methods of storage, privacy, and the wide variety of protocols and market mechanisms. As a result, legislation will vary from country to country and maintaining current knowledge can be a burden.
Pro-crypto countries usually have low or zero tax on cryptocurrency income, cryptocurrency capital gains, and cryptocurrency exchange activity. They may also provide tax credits and other incentives to companies that are willing to relocate.
For digital nomads, planning for tax compliance can be especially tricky due to their movements between different regions. However, having a better understanding of which countries are pro crypto can help to prepare for their unique crypto tax planning challenges and opportunities.
For Germany, crypto presents an opportunity for economic growth. It has taken a steadfast approach to embrace blockchain investments with pro-crypto regulations.
Germany considers cryptocurrency to be private money, not a capital asset. This means that cryptocurrency held for more than a year can be exempt from capital gains tax. Long-term holders of bitcoin and other cryptocurrencies are able to save on taxation of their capital gains. In cases where the cryptocurrency is exchanged for fiat or other cryptocurrencies within a year and the profit made is below €600, the holder can be exempt from paying tax. Holders that make profits above this must report their income for taxation purposes.
Cryptocurrency transactions that can be considered income in Germany include rewards from mining or staking activities. Such income can be subject to taxation. Individuals who earn this type of income only have to pay tax if they earn over €256 each year for additional income.
Cryptocurrency users who participate in staking are also able to benefit from waiting longer before trading their tokens. After a year of keeping cryptocurrencies in a proof-of-stake consensus protocol, a cryptocurrency user’s holdings can be tax-free in Germany.
To become a resident in Germany, you may need a German EU Blue Card. It is a German residence work permit provided to non-EU nationals who have university education and work in skilled positions in Germany. The EU Blue Card is valid for four years. Providing you maintain your job, you can get a permanent residency after thirty-three months.
In order to become a citizen of Germany by naturalization, one must legally live in Germany (with the appropriate residence permit) for at least eight years.
As the crypto-valley of Europe, Switzerland is home to many cryptocurrency businesses. This is due, in part, to the crypto-friendly approaches to tax in the nation. While taxation differs in each canton, residents of most cantons in Switzerland are exempt from tax.
Switzerland’s Federal Tax Administration considers cryptocurrency transactions to be the same as traditional fiat transactions. For this reason, cryptocurrency transactions are exempt from tax reporting.
Similar to Germany, cryptocurrency is classified as a private wealth asset, which allows private investors to be exempt from taxation on capital gains. However, the value of crypto assets and income from cryptocurrencies are subject to taxation, even for private investors.
Those who want to move to Switzerland and take advantage of its pro-crypto policies can apply for work, study, or family visas. After receiving the visa, they can work on getting the appropriate residence permit.
EU/EFTA citizens are able to enter Switzerland without visas but will be required to register and apply for Swiss residence permit if they want to live in Switzerland for over three months. Individuals that are not EU/EFTA citizens will likely have to apply for a long-stay visa before they can apply for a residence permit.
Despite being a territory of the United States, Puerto Rico holds a different view on treatment of cryptocurrency, and has much lower federal income tax compared to the mainland U.S.
Those who acquire digital assets as residents of Puerto Rico may not be subject to capital gains tax. This means that if you move to Puerto Rico and buy cryptocurrency there, you won’t have to pay taxes on it. Cryptocurrency bought outside of Puerto Rico, however, would have to be considered in light of the tax policy of the revenue body of your native country.
With a 0%, those who choose to set up residency in Puerto Rico could gain tax saving benefits. The Individual Resident Investor Tax Incentive has played a significant role in saving on taxes for crypto users in the nation. The law makes sure that Act 60 decree holders are exempt from paying any tax on capital gains.
In Portugal, digital tokens held for less than one year will be subject to 28% taxation on capital gains, whereas cryptocurrencies held for more than a year will be exempt from taxation. Portugal does not impose VAT for the purchasing and selling of cryptocurrencies.
There is a 28% — 35% tax on capital gains made by companies that offer cryptocurrency services. This is a stark contrast to the nation’s tax policy before its 2023 Budget Draft Proposal, which included a 0% tax rate.
Before the new proposal, there was no income tax on cryptocurrencies or capital gains tax on profits. Additionally, investment income from cryptocurrencies was free of tax. With new changes coming in place, there may be some uncertainty as to tax rates. However, the creation of more cryptocurrency tax legislation provides clarity which many other nations do not have.
Authorities in Portugal have stated that income tax won’t be paid by individuals for receiving payments in cryptocurrency.
The Golden Visa program of Portugal allows for residency by investment. This gives a path to European citizenship that could in turn open up doors to benefiting from residency in other pro-crypto countries in Europe. Investment options include:
Capital transfer of €1.5 million.
Investment of €500,000 into a Portuguese Investment fund.
€500,000 for companies in the national scientific or technological system.
€500,000 to increase or incorporate the share capital of a Portuguese company.
€250,000 into eligible Portuguese arts or national heritage.
Investment in real estate valued between €280,000 and €500,000.
Laws in Malta support the pro-crypto narrative. Where cryptocurrency is classified as a store of value, individual holders are not subject to capital gains tax on long-term profits.
While cryptocurrency trades are subject to 35% tax (due to their legal definition that makes the activity the same as stock trading), structuring options offered can reduce the amount to 0–5%.
Foreign residents and companies holding cryptocurrency in Malta can benefit from privileges such as not having to pay income or capital gains tax on long-term investments. Companies that are not domiciled in Malta may have to pay 5% income tax.
Citizenship in Malta can’t be bought but it can be gained through naturalization and permanent residence programs. Foreign investors can apply for permanent residency in Malta provided they have €110,000 for the Malta Permanent Residence Program. Investors that qualify through the scheme can settle with their family members. The Maltese Citizenship by Naturalization Program can be used by the non-EU and non-EEA who have €600,000 to invest in the country’s economic development.
As more countries recognize the importance of creating effective tax policies and legislation to manage tax revenue, it becomes increasingly important to prepare for the tax implications of using cryptocurrency in different regions across the world. Crypto-friendly countries can be a great hub for innovation where individuals and companies can achieve synergies.
There is great value to be gained in considering how quickly tax laws can change, especially for a new medium of value transfer like cryptocurrencies. This can mean that a country with a favorable approach to cryptocurrency taxation today could have less favorable crypto taxation laws in a matter of months. The shift from 0% crypto tax in Portugal to a declaration of 28% tax is an important reminder of how quickly tax policies can change in pro-crypto countries.
While only time will tell which economies prosper (or don’t) as a result of their approach to cryptocurrencies, those nations that have expanded monetary policy to include clear or pro-crypto legislation could well see a rise in popularity as more people embrace the principles of self sovereignty and decentralized finance.
Author Bio
0xzh is passionate about web3 technology and its use to improve human development. He enjoys writing, sports, learning about tax regulations, video games and reading.
Editor Bio
Trewkat is a writer and editor at BanklessDAO. She’s interested in learning about crypto and NFTs, with a particular focus on how best to communicate this knowledge to others.
Designer Bio
Feems is a DAO governance operator, creative producer, and community instigator.
BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.
This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.
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