The growth of the crypto industry has prompted many countries to regulate it, especially by imposing capital gains taxes on cryptocurrency. Despite this, some countries have emerged as crypto tax havens due to their governments’ relatively lax crypto tax laws. Legislators’ motivations for this are varied and may, in part, be attributable to a desire to attract crypto investors and businesses.
This article takes a closer look at those countries that are less strict when it comes to cryptocurrency taxation. Note that the following list of 10 is not arranged hierarchically.
Puerto Rico is a territory of the United States but is considered to be a foreign country when it comes to federal income taxes. Puerto Rico has very relaxed tax laws. Businesses do not have to pay capital gains on assets they obtained after moving to the island. Eligible investors can pay zero taxes on their crypto gains.
The Cayman Islands is an attractive spot for cryptocurrency startups and individuals due to its relaxed laws on crypto capital gains taxes. The jurisdiction offers tax exemptions on all kinds of crypto activities and has in this way established itself as a major financial center and forged a reputation for being business-friendly.
Most importantly, the Cayman Islands government, the country's financial regulator, the Cayman Islands Monetary Authority (CIMA), and industry bodies such as the Cayman Islands Blockchain Foundation are all aware of the importance of attracting fintech businesses. They have therefore significantly contributed to the growth of the local sector by introducing enabling regulations.
The Antiguan government took a major step in positioning the country as a major blockchain and cryptocurrency hub in the Caribbean when it passed favorable crypto legislation under its Digital Assets Bill 2020. Antigua’s relaxed stance on capital gains, income tax and wealth taxes has made it a popular destination for crypto businesses and individuals.
Barbados has emerged as a hotspot for cryptocurrency investors as it has adopted a friendly position towards the emerging sector. While the island nation cannot be fully designated as a tax haven, it does have tax laws that are attractive to crypto investors. The country imposes a tax rate ranging from 0% to 5.5% on profits for offshore companies and the tax rate decreases as the profits increase.
However, the country also has tax treaties with several countries including the United States and Canada.
Switzerland is one of the best-known global tax havens due to its lax tax and strong privacy laws, which have therefore come under pressure from regulators from both the U.S. and the European Union. The landlocked European country has long permitted wealthy individuals to pay low taxes and, for example, only levies taxes on households and not individuals.
Crypto transactions are treated in the same way as are traditional transactions, and the Swiss Federal Tax Administration considers all individuals’ crypto trading profits and losses to be exempt from tax reporting. However crypto companies do need to report their profits and are taxed.
Switzerland’s highly favorable crypto taxation policy is one of the main reasons why both shell corporations and several crypto foundations have set themselves up in the country.
German is probably the most unexpected crypto tax haven on this list. The country does not collect taxes on cryptocurrency investments that have been held for over a year. There is also a tax exemption of €600 on cryptocurrencies that have been exchanged for fiat or other cryptos. However, those who make a profit of €600 or more within a year are subject to tax.
Malta is popularly known as a “blockchain island” as the small island country markets itself as an attractive destination for crypto investors and businesses. The country does not impose capital gains on cryptocurrencies that have been held for a long time. By contrast, crypto traders do not enjoy the same benefit, as trading crypto is taxed similarly as trading stocks.
Crypto trading draws a tax rate of 35% although it can be brought down to below 5% through structuring options.
With a crypto-friendly law enacted in 2018 to legalize crypto activities and waive related taxes for five years until 2023, Belarus has made a serious bid to position itself as an appealing alternative for the crypto industry’s startups and traders. Given its commitment to boosting its growing digital finance sector, it’s no surprise that the country ranks in the global top 20 when it comes to crypto trading.
Slovenia has a slippery but potentially lax tax regime. The country does not tax cryptocurrency trading that falls outside of what is taken to be a “permanent business activity.” The biggest downside, however, is that there is no clear framework for defining a “permanent business activity.” Cryptocurrency investors may not know if they can be completely exempted from paying taxes, but if they are exempted, then they can enjoy a 0% tax rate on their crypto trades.
Portugal is one of crypto traders’ favorite countries. The European country ruled in 2018 that cryptocurrency traders are exempt from income tax, which is otherwise levied at 28%. This exemption only applies to individuals, as businesses that accept crypto payments are still liable to pay income tax.
Many businesses and individuals move to Singapore as they are attracted by its highly developed financial system and favorable tax legislation and rates. Individuals and businesses who hold crypto assets as a long-term investment are not required to pay capital gains taxes, as Singapore doesn’t impose this kind of tax at all. However, companies that focus on crypto trading or accept digital assets as a form of payment are liable to pay income tax. In 2020, the Singaporean tax authority released a short guide to crypto tax, which clarified that short-term trading profits are taxable.
Hong Kong is a special administrative region (SAR), rather than a country, yet it is a leading financial hub with friendly crypto taxation laws that secures it a spot on this list. Digital assets in Hong Kong that are bought and held as long term investments are not subject to any tax, as similar to Singapore, Hong Kong doesn’t impose capital gains tax. However, income tax on profits will be levied on registered business entities or individuals (17% tax cap) who trade crypto assets as “a normal course of business”.
Authorities in Malaysia do not consider digital currencies to be legal tender or assets. As a result, cryptocurrency transactions are not taxed and digital assets are exempt from capital gains tax. This law is only applicable to individuals. Cryptocurrency-focused businesses do have to adhere to Malaysian income tax rules.
Final Thoughts on Crypto Tax Havens
There is no universal framework for crypto taxation. Some countries have still not yet drafted comprehensive frameworks that clarify how and how much tax individuals and businesses pay when it comes to cryptocurrency.
On the other hand, several countries have seized the initiative and opted to establish favorable tax regulations in order to attract crypto businesses and investors. In this way, accommodating tax laws could play a vital role in strengthening the economies of certain countries by encouraging the growth of their fintech sectors.