Cryptocurrency investors feel the heat as tax laws on cryptocurrencies increase. As a result, more investors consider offshore options as viable means of reducing tax obligations. Second residencies and passports are on the cards for such investors who are dealing with increasing bouts of uncertainty in relation to tax laws on cryptocurrency.
Cryptocurrency Taxation
Taxes on cryptocurrencies reduce through funding of offshore private placement life insurance. Investors hold private placement policies for a few years. They provide for tax deferrals like a traditional IRA.Offshore private placement life insurance do not have contribution limits. They do, however, require a minimum investment of $1.5 million.
Even countries with clearer legal frameworks on cryptocurrencies may still have complex laws which are, in some instances, difficult to abide by. In Denmark, for example, gains in private capital may not be subject to tax, except in the case that the cryptocurrency is used in a commercial transaction.
In Singapore, applying for a bank account is next to impossible without a permanent residency or citizenship. Other nations such as Malta have similarly difficult opening procedures for bank accounts. Thus, it is very important to consider the procedures needed to open bank accounts in other countries.
US Citizenship
Giving up US citizenship is a big decision to make. You’re essentially leaving the land of the free for a new “dream” filled with lower taxes. This is a decision people have made, trading the American dream for cryptocurrency tax havens. It comes with its costs in the form of an exit tax and a second passport. Passports in Malta can cost $1.2 million while passports in St. Lucia can cost $500,000. Some nations request long periods of stay (5 years) before an application can be made for a passport and citizenship. Panama, for example requires $20,000 investment and 5 years of residency to be successful in an application to become a citizen.
For US citizens, reducing tax obligations by way of secondary residence or passport is a relatively complex process. US citizens must pay taxes on the capital gains on cryptocurrencies, irrespective of where they live. Fortunately, there is an exception. In Puerto Rico, US citizens do not have to pay taxes on capital gains or business income that is classified as sourced from Puerto Rico. The exclusion of the territory from Federal taxation makes this possible.
Attention to Details
There are a lot of nuances to consider for investors looking to benefit from countries with cryptocurrency friendly tax laws. In Canada, cryptocurrencies may be treated as investment commodities with 50% of gains being tax deductible. Traders in Canada may be subject to significant annual income tax in such cases. Different jurisdictions have different interpretations of cryptocurrencies.
The valuation of cryptocurrencies will, expectedly , differ by region. In Switzerland, for example, cryptocurrencies are valued according to year-end average prices of the Swiss Federal Tax Administration.
With time, more countries will come to accept the need for tax laws that attract cryptocurrency investors. It is wise to plan ahead for such a time, keeping in mind the implications of failing to plan.
Edel is an Editor with a decade of print and digital media experience – specializing in Science, Technology, Finance, Entertainment, and Advertising. He is also a stock and cryptocurrency investor. When Edel is not editing or analyzing charts, you can find him with his DIY lightbox taking timelapses of plants.