Cryptocurrency and blockchain technology is transforming the way many people do business, and that has provoked a response from governments around the globe. In some cases, this response has been negative, with national governments either placing restrictions designed to limit crypto trading or else banning it outright.
However, other countries have embraced it by passing legislation that’s designed to foster its continued development. In this article, we’ll discuss the most crypto-friendly countries in the world as well as the advantages of investing in these nations.
Some of the Most Pro-Crypto Countries
In order to facilitate further development of blockchain technology, a number of countries have passed legislation designed to encourage investment in cryptocurrencies and other virtual tokens. Some of the more well-known crypto-friendly countries include the following.
Home to the “Crypto Valley” of Europe, Switzerland is a hub of various blockchain-based firms, shops, and businesses. Swiss banks were actually the first in the world to offer business accounts to crypto companies, largely due to an effort to reduce fraud while fostering honest businesses.
The law in Switzerland classifies cryptocurrencies as assets, with some areas even recognizing Bitcoin as a legal tender. Crypto transactions are exempt from tax reporting, and individuals are exempt from capital gains taxes on their trading. Businesses may still be subject to income taxes on their virtual currency transactions, however.
Germany takes a somewhat different approach to cryptocurrency from other nations in the European Union in that it considers it to be “private money,” making it exempt from VAT taxes and long-term capital gains tax for individuals. Short-term capital gains are also only taxed on amounts above €600 (roughly equivalent to about $700).
It’s worth noting that these rules only apply to individuals. Businesses operating in the country are subject to corporate income taxes on their crypto transactions, just as they would be with any other asset.
Singapore is often considered the FinTech hub of Southeast Asia, and its support of cryptocurrency and blockchain technology certainly demonstrates that. The nation does not have a capital gains tax, which already reduces the tax burden for investors looking to profit from cryptocurrency.
For individuals, cryptocurrency is considered intangible property, with payments being treated as barter trades. This means individuals are often not subject to taxation for their cryptocurrency transactions. However, businesses acting as trading firms or that accept virtual tokens as payment still pay income taxes.
Malta is highly favorable toward cryptocurrency, and it’s for this reason that Binance has set up its headquarters there. The Maltese government has passed a number of laws designed to facilitate crypto trading within the country (in spite of resistance from the banks operating within its shores).
There are no income or capital gains taxes for long-term investments in Malta, and taxes assessed on crypto trades under stock trading rules can be reduced by various structuring options. It’s worth noting that financial tokens are considered separate from Bitcoin under the nation’s laws, with financial tokens being subject to income taxes.
In April 2020, Portugal established their Digital Transitional Action Plan, which is a plan designed to facilitate digitization. In addition, the Portuguese Tax Authority (PTA) declared crypto transactions exempt from taxes on income and capital gains, making it a highly favorable jurisdiction for crypto trading.
As with other nations, businesses that accept cryptocurrency as payment for goods or services are still subject to income taxes.
Finally, Slovenia is widely known as one of the most crypto-friendly countries in Europe. For individuals, Bitcoin is not treated as income, making it exempt from capital gains and VAT taxes. Businesses must still treat crypto payments as taxable income, however, and ICOs are subject to taxation under the Slovenian government.
Commercial activity and mining may also be subject to a 25% tax, making the nation’s laws more favorable toward individual trading than large-scale business operations.
What About NFTs?
While many nations are adapting their laws to accommodate virtual currencies like Bitcoin and Ethereum, there’s little in the way of legislation when it comes to non-fungible tokens (NFTs). In many cases, the laws put in place for other virtual tokens may be extended to NFTs, but only time will tell what shape those will actually take.
That said, artists looking to sell NFTs should be aware of local copyright laws and royalty rights. The United States has no safeguards in place when it comes to ensuring royalty payments to artists, but other jurisdictions (such as the United Kingdom and the European Union) do. These regions are more likely to guarantee resale royalties to artists who sell their work as NFTs, and thus would likely be friendlier NFT trading locations.
Using Favorable Jurisdictions for Crypto Investing
Investing or selling in jurisdictions that are promoting blockchain technology can help minimize tax obligations and limit liability, but it must be done in a certain way. Setting up offshore entities to handle foreign transactions can prevent your local government from assessing taxes or requirements that would otherwise fall under its jurisdiction, potentially giving you valuable legal protections in the process.
That said, these offshore structures should be put together in a way that is consistent with legal requirements and best practices. A great deal of care and professional expertise is necessary in order to keep your operations consistent with all applicable laws and best practices. Doing so can be profitable in the long run, making it worth the investment.