Like it or not, blockchain is becoming an increasingly important part of our lives. Countries are investing heavily in this new technology which could hold the promise of becoming as important to our everyday world as 5G networks will be in communications. Basically, blockchain is a software-like computer system called cryptology that connects individuals by creating a permanent indelible record of their interactions, like a ledger in the accounting records of debits and credits. A good visual image is a spider’s web connecting parties to transactions. The blockchain is simply a public database of transactions, spread over thousands of computers around the world. Each computer that hosts the entire blockchain network is called a “full node”. The blockchain works without a central controller and decisions are made by consensus of all participants – transaction by transaction.
Cryptocurrency is a new form of digital asset designed to function as a medium of exchange, based on the blockchain network which is distributed across a large number of computers. This decentralized structure allows the digital asset to exist outside the control of governments and central authorities. The first cryptocurrency was Bitcoin (BTC) and its main value proposition as a global currency was that it is immutable, censorship resistant, unauthorized, accessible to anyone, and controlled by no one.
Digital assets and their treatment by country
Although Bitcoin first appeared in January 2009, and many other cryptocurrencies have emerged since, a majority of countries still do not have relevant laws regulating the use of digital assets. Some countries, such as India and China, have banned the use of crypto assets or the operation of crypto exchanges. Most other countries such as US, Canada, UK and others have just decided to deal with these assets de facto in the same way that they treat stocks and securities in matters of taxation. Despite this rather cautious stance by the majority of national governments towards cryptocurrencies and blockchain communities, there are still countries where individuals who own, buy or sell these digital assets are not taxed. In these countries, the adoption of blockchain has been more favorably received. Let’s take a look at how these countries treat cryptocurrencies and why they may be the most suitable places to work and live for traders and investors.
Portugal – Crypto Asset Friendly
In Portugal, personal transactions in cryptocurrencies are exempt from both value added tax (VAT), capital gains and income tax. However, these tax exemptions only apply to private activities with digital assets by individuals. If cryptocurrencies are part of business activity, such as operating a crypto exchange, crypto hedge fund, or running a blockchain start-up, etc., the usual tax rates apply, which amount to 21% of income. As part of the Portuguese residency by investment program, to qualify to live temporarily in Portugal and benefit from preferential tax treatment of digital activity, a candidate must purchase real estate worth 500.00 euros, or only 350,000 euros in urban regeneration areas. Investing in sparsely populated areas reduces the above qualification requirements by 20 percent. Malta appears to be the only country identified here that will accept Bitcoin for investment purposes. With an investment as stated above, the treatment is completed within a few months. Permanent residence or citizenship is available after five years. Due to the tax treatment, speed of residence and the nature of the investment required, and most importantly because the country has one of the highest quality of life in the world, Portugal is a leader in our review blockchain friendly countries.
Germany – A country open to traders and investors of crypto assets
Germany has a similar approach to Portugal when it comes to cryptocurrency investors and crypto-related businesses. Bitcoin and other crypto assets are not considered fiat currencies, securities or commodities, but rather as a private means of payment and are therefore exempt from VAT. Under German income tax law, cryptocurrency investors are not taxed for holding their tokens for a year or less and trading them privately, as long as the total profit from the private sale transactions is less than 600 euros per calendar year. Anything over this amount is taxed. If investors keep their virtual assets for more than a year, they pay no capital gains tax. However, companies related to cryptocurrency must pay corporate income taxes which amount to 15%. If Germany does not have a residency-by-investment program, however, if an investor is willing to invest 350,000 euros over five years in the form of a property purchase for 250,000 euros and an additional investment of 100,000 euros paid into a development fund for five years, this investor can thus obtain a legal temporary residence in Germany. Processing is a matter of months. If the investor learns enough German, from 21 months the investor and his family members can also become permanent residents. Finally, they can obtain citizenship as early as seven years after arriving in Germany, provided that certain language and integration requirements are met. Besides its friendliness with the blockchain world and its business activities, Germany is the powerhouse of Europe and offers a high standard of living to those who come to live there and therefore scores high in this area.
Malta – A blockchain-friendly country
Malta has taken the most user-friendly approach to blockchain and crypto assets when held for the long term. While day traders are subject to a 35% corporate income tax, if an individual holds or makes one-time token transfers and these transfers are not part of day trading or other trading businesses. parts, no tax need be paid. The Maltese citizenship or residency by investment program is changing at the moment, but essentially involves an investment of over one million euros. Treatment for residency is a matter of a few months. Citizenship is available in a year. Malta is renowned for being the gold standard in the investment migration community and for these reasons it is included in this review.
In addition to being crypto-friendly, each of the three countries mentioned is a member of the European Union and therefore holders of Portuguese, German or Maltese passports have complete freedom of movement throughout the European Union which includes 28 European countries and the European Economic Area. which consists of four additional countries. These three countries are not the only countries interested in promoting the development of blockchain in their jurisdictions. Cyprus is another country with a citizenship by investment program which may very well also be added to the list mentioned above. It has been active in advancing regulatory oversight of this area within the EU and can be compared to others identified. There may be others.
While this article does not purport to provide authoritative tax advice or detail all immigration requirements for the jurisdictions mentioned, it does provide tips for investors and traders to consider when discussing a possible move to one of the countries mentioned with expert tax and immigration advisers. Two additional considerations should be kept in mind. First, investors must provide a clear explanation of their source of funding to obtain residency or citizenship. Second, in the case of Americans, to get free from U.S. tax if they moved to one of these countries, Americans would have to renounce their citizenship since that country taxes world income on the basis of citizenship.