Changing Crypto Regulation and Taxation: What You Need to Know

Cryptocurrency taxation is changing. Here's what you need to know...

The fangs are out for cryptocurrency profits — especially in the US. Central bank digital currencies (CBDCs) are starting to take shape. And greater scrutiny and regulation of cryptocurrency exchanges is an emerging theme. Find out how you can 100% legally reduce your crypto tax bill below…

An excerpt from our SMC Update on Global Crypto Regulations and Taxation, June 2021

Global cryptocurrency regulations and taxation are changing rapidly. And if you’ve got unrealized crypto gains weighing on your mind, now is the time to get in front of it.

Below we offer some available solutions to reduce or possibly even eliminate taxes on your future cryptocurrency profits — 100% legally —  if you’re willing to move.

[Note: While the full SMC Alert covers the regulatory frameworks and tax implications for eight countries, including the US and Canada, today we’ll focus on available tax reduction solutions. Be sure to join SMC to learn how you can stay 100% tax compliant with ease.]

What are the “best” crypto-friendly jurisdictions?

If you’re a US citizen, your cryptocurrency profits cannot completely escape Uncle Sam’s grubby tax hands… unless you renounce your US citizenship

US citizens living overseas can save on taxes on earned income with the Foreign Earned Income Exclusion (FEIE). But not on investment income, which includes crypto profits. 

The one exception: Puerto Rico, where Individual Investor Incentives can slash your crypto gains to zero.  

Non-US citizens have many more crypto-friendly jurisdictions to choose from.

You can opt for a country with:

  • No personal taxation — like Saint Kitts and Nevis, the United Arab Emirates, and over a dozen other countries;
  • Territorial taxation, where only income generated within the country (from a local job or business) is taxed — like Panama, Singapore, Georgia and nearly three dozen more countries;
  • Countries that do tax your worldwide income, but specifically choose to not tax capital gains, including cryptocurrency profits — like Uruguay and New Zealand. 
  • Countries that specifically decided to not tax crypto gains — like Portugal or Malta. More on those below.

(Of course, a country’s tax policy should not be the only variable when choosing residency. In our SMC June Monthly Letter, we highlighted 15 factors to consider for a new home abroad.) 

What Rational Tax Reduction Solutions exist for Cryptocurrency?

Note: The below information should not be mistaken for personal tax or financial advice.

In an age when irrational seems to be the default setting, you need to adopt the right mindset and act accordingly.

That means viewing cryptocurrencies for what they are: 

  • A speculation;
  • A still nascent asset that, despite the visions of ideologues, probably won’t completely displace government fiat currencies;
  • An asset that (in most cases) will incur taxation when you record profits.  

All that said, we’re not here to discourage or encourage owning cryptocurrencies. 

But once you’ve decided to buy cryptocurrency, you should take sensible steps to remain 100% in compliance, and could potentially explore opportunities to legally reduce your future tax liability…  

Consider moving to greener cryptocurrency pastures

If you’re anticipating sizable cryptocurrency gains in future, or if you’re an innovator in the cryptocurrency or blockchain space, a move to a more favorable jurisdiction might be in order:

Puerto Rico — a great backyard solution for US citizens 

US citizens: If you move to Portugal or Malta — two growing crypto-favorable destinations — you’ll still owe US capital gains tax on your cryptocurrency profits.  

So, for many Americans, if you’re bullish on cryptocurrencies and interested in maximizing your tax savings, Puerto Rico probably makes the most sense. 

What was formerly known as Act 22 — the Individual Investor Act — is now part of Puerto Rico’s Incentives Code, also known as Act 60. Under this incentive, traders and investors, including cryptocurrency traders and speculators, can become bona fide Puerto Rican residents and pay 0% capital gains tax on future cryptocurrency profits.

To be clear, you will still owe capital gains on your crypto from the time you bought it until the point you become a bona fide Puerto Rican resident. The only way out of this tax liability is to spend 10 years as a bona fide resident in Puerto Rico. In this case, your pre-move gains are taxed at a flat 5%. 

As always, you should weigh the costs against the future benefits: You’ll incur annual costs of $15,000 to maintain your tax-free status. Over 10 years, that’s $150,000 in maintenance fees.

Also, there’s the risk that Puerto Rico becomes a state and derails your long-term tax savings plan. This is not an overwhelming or immediate possibility in our opinion, but it is a risk nonetheless…

Join Sovereign Man: Confidential now to gain access to our latest, updated Black Paper on Puerto Rico’s tax incentives

Portugal — a favorable tax environment, and not just for crypto

Gaining residency abroad can be tricky. But in Portugal, the D7 Visa is a simple process and is easily obtainable. Plus, there’s no investment required. 

Another option is Portugal’s Golden Visa Program. Whether you go the D7 or Golden Visa route, as a new resident of Portugal, you can enjoy the country’s Non-Habitual Tax Residency Program. (You must apply for it separately.) 

Under this program, most income from outside of Portugal can be tax-free for your first 10 years of residency. 

And that’s on top of no VAT on cryptocurrency transactions, and no capital gains tax on your cryptocurrency profits.

Malta — the “Blockchain Island” 

Over the past few years, Malta has transformed into a top cryptocurrency destination, for both crypto companies and traders. (Cryptocurrency profits are not subject to income tax or capital gains tax here.)

But if you want a ticket to “Blockchain Island,” you’ll need to pay up.

Option number one is Malta’s Golden Visa program, which grants permanent residency. 

If you want to go for near-immediate citizenship, consider Malta’s Citizenship by Investment (CBI) Program. 

The bottom line?

Don’t be the person who gets publicly flogged.

Governments are itching to discover crypto traders not in compliance, and not paying taxes… and then make an example out of them. 

STAY IN COMPLIANCE. AND PAY 100% OF THE TAXES YOU OWE.

It’s that simple. 

And if you’re so inclined, look for greener cryptocurrency pastures. 

And also be sure to join Sovereign Man: Confidential to gain access to our up-to-date intelligence on crypto, residency, taxation and a host of other important “Plan B” considerations now.

Yours in Freedom, 

Team Sovereign Man 

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