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Portugal joins the ranks of cryptocurrency-friendly countries

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Key points to remember

  • Portugal introduces a 28% tax on cryptocurrency capital gains.
  • El Salvador remains the top tax destination for cryptocurrency investors.
  • The Cayman Islands’ lax tax laws extend to cryptocurrencies, ranking it behind El Salvador as the second best destination.
  • Seven of the top 12 countries are European as nations strive to establish themselves as cryptocurrency hubs, including Slovenia, Malta, Georgia, Belarus and Germany.
  • Bitcoin is de facto legal tender in Madeira (Portugal) and Lugano (Switzerland).
  • The Asian countries of Malaysia and Singapore also have favorable tax laws for digital assets.

Introduction

I have wrote on the introduction of a 28% tax on cryptocurrency capital gains, scheduled for 2023, and how this could undermine Portugal’s goal to become the European cryptocurrency center.

After having spoke with Paolo Ardoino, who connected from the Swiss town of Lugano where Tether and Bitcoin are in fact legal tender, I began to wonder which nations were leading the way in terms of cryptocurrency-friendly jurisdictions.

In the first part of what could become a series of similar events, I examine taxation. Which countries are the most lax in the world when it comes to cryptocurrency tax legislation?

Breaking down the assessment into three main areas-short-term capital gains tax, long-term capital gains tax, and income tax-we put together a table outlining the most tax-friendly countries.

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Of course, this comes with the huge caveat that the tax is complicated and that there are many loopholes, additional withholding and other idiosyncrasies with these laws. But broadly speaking, the rankings below indicate where tax-hating crypto-criminals might be headed in the future.

El Salvador is the biggest tax haven for cryptocurrency holders.

Surprise Surprise. El Salvador is really over the top when it comes to cryptocurrencies, and that extends to taxation.

There is no capital gains tax, either short term or long term, and almost all laws are designed to encourage cryptocurrency adoption. While visiting the country this summer, I saw firsthand the massive push toward cryptocurrencies. In particular, all laws extend to foreign investors.

President Bukele’s legal advisor, Javier Argueta, was clear that “if a person has assets in Bitcoin and makes high profits, there will be no taxes to pay…. There will be no taxes to pay for the increase in capital or income.”

Adding that “this is obviously done to encourage foreign investment,” all is in agreement with the Bitcoin experiment in the beautiful little (volcanoes!) Latin American nation.

Cayman Islands takes the second place.

Mention the Cayman Islands to anyone, and the first response you’ll probably get is “taxes”.

The British Overseas Territory, nestled in the Caribbean paradise, has no corporate tax, capital gains tax or income tax, in any respect. Therefore, there is nothing specific to cryptocurrencies, but it has been confirmed that these laws include digital assets.

This island of 65,000 inhabitants, which relies mainly on tourism to finance its small economy, could soon see some cryptocurrency investors putting on their bathing suits to take a dip in the Caribbean Sea.

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Europe pushes cryptocurrencies

Lugano, a city in Switzerland, and Madeira, a Portuguese island, have declared Bitcoin as de facto legal tender (The currency of course has the same status in Lugano – I interviewed Paolo Ardoino on this subject in March).

Both nations also have favorable tax legislation. Portugal was already discussed, and although the 28% law on capital gains drops it to sixth place, it remains a haven for cryptocurrency enthusiasts.

Switzerland ranks eighth, but it is its compatriot Slovenia that may surprise in third place. The country intends to adopt a flat 10% tax on exchanging cryptocurrencies for fiat currency. That’s very little in the grand scheme of things.

But it has many other initiatives and its plans for the future look welcoming. On the other hand, there are more physical stores that accept Bitcoin than in the entire United States, and the largest shopping mall in the country is called “BTC.”

The other European nation worth mentioning is Belarus, where there are no taxes on mining, day trading, or virtually anything related to cryptocurrencies. The caveat is that everything will be reviewed in 2023. Of course, there are other concerns here as well, with its ties to Russia in the midst of the Ukraine war, meaning no cryptocurrency investor will want to move there anytime soon.

All that could change

Of course, all that could change, as we see with Portugal.

Regulation is still catching up with cryptocurrencies, and this is also related to taxation. Not only that, but there are many caveats and exceptions to the above laws, and regulation is also changing around foreign investors.

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However, so far, the aforementioned nations have separated themselves from the crowd when it comes to cryptocurrency tax laws.

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