In the letter
- The levying of taxes on income and capital gains from Bitcoin and other cryptocurrencies is now common.
- However, there are several countries that are bucking the trend to see how this emerging asset class performs and to encourage innovation.
- In these countries too, tax laws can change and are often complex.
Tax debt is a cause for concern for all concerned Bitcoin and other digital assets. In sum, some have described it as nothing less than a nightmare.
While some countries put pressure on investors and levy taxes on income and capital gains from Bitcoin transactions, many take a different approach – often with the aim of fostering greater adoption and innovation in the crypto industry. They introduced friendlier laws, allowing investors to buy, sell, or hold digital assets with no tax liability.
Here is our list of the most crypto-friendly tax jurisdictions, updated for 2021.
Belarus
Belarus may be a bitcoin tax haven, but it has also been the scene of mass protests against rigged elections in recent weeks. Image: Shutterstock
Belarus is taking an experimental approach to cryptocurrencies. In March 2018, a new law legalized cryptocurrency activities in the Eastern European state, with individuals and companies involved in them being exempt from taxes until 2023 (when they are up for review).
By law, mining and investing in cryptocurrencies are considered personal investments and are therefore exempt from income tax and capital gains.
The liberal laws aim to promote the development of a digital economy and technological innovations. The country was recently ranked third in Eastern Europe and 19th globally P2P crypto trading.
Germany
Neuschwanstein Castle in Bavaria, Germany. Image: Pixabay
Germany offers a unique opportunity to tax digital currencies like Bitcoin. Unlike most other countries, Europe’s largest economy views Bitcoin as private money as opposed to a currency, a commodity or a share.
For German citizens, any crypto currency that is held for over a year applies tax freeregardless of the amount. If the assets are held for less than a year, no capital gains tax will be incurred on a sale as long as the amount does not exceed 600 euros ($ 692 USD).
For businesses, however, this is a different matter. As with any other asset, a startup registered in Germany will still have to pay corporation tax on cryptocurrency profits.
In 2021, however, a controversial new tax law came into force that effectively ended trading in crypto derivatives in Germany, as losses can no longer be deducted. The legislation reflects Europe-wide measures to regulate derivatives.
Hong Kong
Bitcoin ads in Hong Kong’s banking district. Image: BAHK
It is not a country in itself, but a special administrative region of China with theoretical autonomy over its own affairs. And Hong Kong’s cryptocurrency tax laws remain a broad issue after that new instructions was exhibited earlier this year.
Whether or not cryptocurrencies are taxed largely depends on their use Henri Arslanian, a global crypto leader at PwC.
“When digital assets are bought for long-term investment purposes, gains on disposal are not included in profit tax,” he wrote in March when the policy was introduced. But he added that this doesn’t apply to companies – their profits from Hong Kong cryptocurrency deals are taxable.
PwC made it clear in a comprehensive guide on how to handle crypto taxes in various jurisdictions in late 2020 that Bitcoin is considered a virtual commodity for tax purposes.
Malaysia
Malaysia is working to revise its crypto tax policy by the end of this year. Image: Shutterstock.
Cryptocurrency transactions are currently being conducted in Malaysia tax freeand cryptocurrencies do not qualify for Capital gains taxbecause digital currencies are not taken into account Assets or legal tender from the authorities.
But the law is currently fluid; This only applies to individual taxpayers, and companies involved in cryptocurrency are subject to Malaysian income tax.
And things might change soon. Mohamad Fauzi Saat, director of the tax department of Malaysia, said in 2018 that Malaysia was determined to work towards an emission comprehensive guidelines on the tax treatment of the cryptocurrency until the end of 2020.
However, there are no new guidelines yet.
Malta
Malta is trying hard to lose a reputation for tax evasion and money laundering. Image: Shutterstock
The government of so-called “Blockchain Island” recognizes bitcoin “As a unit of account, medium of exchange or store of value.”
Malta does not levy any capital gains tax longstanding digital currencies Like Bitcoin, but crypto trades are considered to be similar to day trading in stocks or shares and levy a business tax of 35%. However, this can be reduced to five to zero percent through the “structuring options” available within the Maltese system.
Malta’s tax guidelines, published in 2018, also differentiate between Bitcoin and so-called “financial brands”, which correspond to dividends, interest or bonuses. The latter are treated as income and taxed at the applicable tax rate.
Malta ranked second after Liechtenstein in PwC’s Crypto Tax Index, which evaluates jurisdictions based on its comprehensive guidelines.
Portugal
Portugal has passed liberal cryptocurrency tax laws to encourage innovation. Image: Shutterstock
Portugal has one of the most crypto-friendly tax systems in the world.
Income from the sale of cryptocurrencies by individuals was generated tax free As of 2018, trading in cryptocurrencies is not considered a return on capital (which is usually subject to a 28% tax rate).
However, companies that accept digital currencies as a means of payment for goods and services are subject to income tax.
Singapore
Singapore is a hub for fintech innovation. Image: Unsplash.
There is no capital gains tax in Singapore, so neither individuals nor companies are liable with cryptocurrency.
But companies are based in Singapore subject to income taxif their core business is trading in cryptocurrencies or if they accept cryptocurrency as a means of payment.
Authorities view payment tokens like Bitcoin as “intangible property” rather than legal tender, and payment in cryptocurrency is a “barter” in which goods and services are taxed but not the payment token itself.
Slovenia
Slovenia has taken a wait and see approach to taxing cryptocurrencies. Image: Shutterstock.
Slovenia is another country that treats individuals and businesses separately under its cryptocurrency tax system.
No capital gains tax is levied on individuals if they are Sell bitcoinand profits are not considered income. However, companies that receive payments in cryptocurrencies or through mining must pay taxes at the corporate rate.
In particular, the Mediterranean country does not allow business activity in cryptocurrency alone (e.g. only accepting Bitcoin as a means of payment).
In late 2020, the Slovenia Times reported that crypto communities in the country are working closely with regulators and tax authorities to bring clarity to tax law.
Switzerland
A Bitcoin Awareness Game sticker in Basel, Switzerland. Image: @btcstreetart
No wonder that Switzerland, where the innovation center known as “Crypto Valley” is located, has one of the largest forward-looking tax policy also.
Cryptocurrency profits that a qualified person makes through investing and trading are treated as tax-exempt capital gains.
However, income from professional trading and mining is subject to income tax. In particular, the tax laws differ regionally and an annual “Property tax“is charged on the total amount of cryptocurrencies owned, as well as on the remainder of a person’s net worth.
Bermuda
Bermuda does not levy taxes on digital assets. Image: Shutterstock
There is of course another type of country where cryptocurrency profits are not taxed. Tax havens where digital assets are not given special consideration, but which have an all-inclusive low-tax system.
The island state of Bermuda is one such area; No income, capital gains, withholding taxes, or other taxes are levied on digital assets or on transactions in digital assets.
What taxes there are can now also be paid for the use of cryptocurrency. In October 2019, Bermuda became the first government to accept payments for taxes, fees, and other government services with USD Coin (USDC).
