Cryptocurrencies have been present on the market for more than a decade, but their implementations, opinions, and proposals for their regulation are still not globally harmonized. In the last article, we pointed out the basic concepts of cryptocurrencies, as well as the tax liability related to cryptocurrencies in the Republic of Croatia, which you can read HERE.
Although the very definition of cryptocurrency, as well as their taxation, is not yet globally defined, some nations have adopted a more liberal approach than others. For example, in Singapore, cryptocurrencies are defined as a service, in the United States as capital goods, in Germany as private money, and in the Republic of Croatia as capital income. In today’s article, we are introducing countries that we can call “tax havens” for all those who deal with cryptocurrency.
HONG KONG
First on the list is Hong Kong, one of the two special administrative regions of the People’s Republic of China. Hong Kong’s tax legislation on cryptocurrencies is very general and does not pay attention to small details. Whether cryptocurrency is taxed depends solely on its use.
This means that if digital assets are purchased for long-term investment – any gain from the alienation would not be taxed. The directive was passed in March 2021 and does not apply to corporations because their profits from operating in cryptocurrencies are taxed.
GERMANY
Unlike most countries, Germany has a very open stand towards cryptocurrencies such as bitcoin. It offers a unique approach to taxing digital currencies, and bitcoin is considered as a private money.
Any cryptocurrency held in Germany for more than a year is tax-free regardless of the amount. Any retention of cryptocurrency for less than one year is subject to capital gains tax, only if the amount of the sale exceeds 600 euros.
As for companies, for example, a Startup established in Germany still has to pay income tax on cryptocurrencies, as well as for any other assets it owns.
Also, on August 2, 2021, a new law was passed stating that German institutional funds have the option of holding up to 20% of their assets in cryptocurrencies, which will potentially set the stage for wider approval of bitcoin and other cryptocurrencies by the country’s pension funds.
BELARUS
Although Belarus approaches cryptocurrencies quite carefully and experimentally, in March 2018 a new law was passed that legalizes the activities of cryptocurrencies in this Eastern European country. According to the 2018 law, individuals and companies are exempt from taxes until 2023, when the law will be on the table of the ruling party in Belarus again.
Under current law, mining and investing in cryptocurrencies is considered as a personal investment, which is from capital gains tax and income tax. Such laws aim to encourage the development of the digital economy and technological innovation.
SINGAPORE
There is no capital gains tax in Singapore, so individuals and corporations that own cryptocurrencies are not required to pay it, except for those companies that accept digital currencies as a type of payment for goods and services. They are required to pay income tax.
MALAYSIA
Cryptocurrencies in Malaysia do not qualify for capital gains tax and are not considered an asset or legal tender by the Malaysian authorities. Also, all cryptocurrency transactions are currently tax-free in this state.
Although the law is currently quite flexible, companies dealing with cryptocurrencies are required to pay income tax. Also, the profit from active crypto trading can be considered as income that as such is subject to taxation.
MALTA
The Maltese government recognizes a bitcoin unit as an “account, medium of exchange or repository of value”, does not apply capital gains tax to long-term cryptocurrencies (such as bitcoin), but cryptocurrencies are considered like stock trading and are subject to operating income rates of 35%. Although this figure sounds large, practice shows that it is possible to mitigate the percentage to only 5% to 0% through the various structures available in the Maltese system.
SWITZERLAND
The country that is home to the innovation centre also known as the “crypto valley” has one of the most advanced tax policies. Profits from cryptocurrencies made by a qualified individual through investment and trading are treated as tax-exempt capital gains. On the other hand, income from professional trading and mining is subject to income tax.
Swiss laws also vary at a regional level, and the annual “wealth tax” is calculated according to the total amount of cryptocurrencies an individual owns, along with the rest of their net worth.
SLOVENIA
Individuals in Slovenia are not taxed with capital gains tax when selling cryptocurrencies, and gains are not considered as income. Companies that receive payment in cryptocurrencies and/or those engaged in mining are required to pay tax at the corporate rate.
Although Slovenia does not allow business in cryptocurrencies only, at the end of 2020 Slovenia Times reported that the crypto communities of Slovenia work closely with regulatory and tax authorities to clarify the tax law.
EL SALVADOR
El Salvador is the first country in the world to recently recognize bitcoin as a legal tender. In that case, if bitcoin is used to pay for transactions, goods, services, etc., it is subject to regular laws as well as any other legal tender (in this case the dollar).
The government is also announcing assistance to the private sector regarding the integration of new mechanisms. A trust fund will be created to provide current conversions to US dollars for companies and will educate the public on how to use digital currencies. Also, the provision of tax breaks for companies focused on bitcoin is in the negotiations.
