Understanding Crypto Tax

In this episode of Understanding Crypto, Paul Abercrombie and James Burtt discuss crypto taxation methods around the world. Paul and James believe that this topic is relevant for the re-education of investors and potential investors amidst the fragile market. They highlight various strategies implemented by governments globally in an attempt to either incentivise or censor crypto use. James observes that though “crypto by its very nature is decentralized, every country is treating it very differently." Crypto-friendly countries are listed alongside countries with restrictive taxation practices. 

Crypto-Friendly Countries

James rates the top ten crypto friendly countries or tax havens; these include Germany, Belarus, Portugal, Singapore, and El Salvador. "You won't pay any tax if you're a crypto investor and you're earning an income from crypto related activities,” he says of these crypto-friendly countries. “You will not pay a penny in tax if you live in one of these countries." As expected, tax removal is a powerful incentive to stimulate blockchain innovation and expertise on a geopolitical level. On the other hand, countries such as France, the Netherlands, and Japan have the most restrictive taxation practices. [Listen from: 3:49]  

Taxable Income Types

Paul lists the major crypto-based taxable income types recognized by most countries. These are, he says, "Number one: getting paid in crypto; number two: mining crypto; number three: staking crypto; and number four: earning interest on crypto." James adds that cryptocurrency could be taxed in both the digital space and within the tangible fiat market. When you stake crypto on the Anchor platform, for example, you get staking rewards. “Although it's not classed as interest and it's not paid as interest, it's viewed as a type of income," he points out. As such, it becomes taxable. Taxation can also happen after the liquidation process. "The moment you liquefy those assets and bring them back into pounds and exit the crypto market, bringing fiat currency back into your UK bank account, you'll be paying tax," Paul tells listeners. In the UK, tax laws continue to evolve, as seen with HM Revenue and Customs' announcement that crypto would be treated as any other form of equity, and investors can offset crypto losses against future gains. This announcement is a glimmer of hope for crypto investors who are struggling in the aftermath of the crash. [Listen from: 8:54]

Tax Havens

Crypto taxation is viewed differently across the globe as sovereign countries employ a variety of strategies from restrictive to lenient. According to James and Paul, Germany ranks near the top of the list of crypto-friendly countries. Germany recognises cryptocurrencies as private money and not as capital assets. Consequently, crypto held for 12 months can be liquidated tax free. Staking is also encouraged through tax free incentives, but only after a 10 year hold. Similarly, Belarus has tax exemptions for both corporate and individual crypto-based investments until 2023. James says that in countries such as the Cayman Islands, El Salvador, and Portugal, you don't pay any tax. In some of these countries, crypto is not even considered an investment income, so crypto trading is also tax free. [Listen from: 14:00]

Key Takeaways

• Tax exemptions are a powerful incentive to stimulate blockchain innovation.
• Countries such as the Cayman Islands, El Salvador, and Portugal are tax havens for crypto investors.

Resources 

James Burtt on Twitter | LinkedIn | Instagram | Clubhouse

Paul Abercrombie on Website | Twitter | LinkedIn | Instagram 

Koinly.io