Zero percent Bitcoin taxes?
International Bitcoin companies -and their owners- can operate in a way they do not pay taxes.
Yet nobody seems to understand this.
Down below we will first discuss a few fundamentals of taxation. Then we will look at two small case studies and discuss some downsides.
Important: This does NOT apply to US citizens or green card holders.
Everybody else (with an international mindset) follow me…
… it might be the most profitable 5 minutes of your life…
Fundamental 1. Individual Tax = Residency.
You are almost always taxed there where you are considered resident.
This roughly means that you pay taxes based on where you live and where your economic life takes place. Rules determining when you are considered resident differ per country.
For now, the most important to understand is this:
- There are countries that don’t have income (or corporate) taxes (like United Arab Emirates or the Cayman Islands).
- There are countries that don’t tax income that is generated abroad (like Panama, Costa Rica, Philippines, Malaysia, Hong Kong, Nicaragua, much more).
As an individual you can choose one of those countries as your new country of residence.
The rules for obtaining residency may vary greatly: you might need to get a job, investment in the country or start a company. In any case you will have contribute to the economy of the country you move into.
The first step is to…
…become a non-resident of your original high taxed country.
Countries tax Bitcoin differently. And they (deliberately?) create a bureaucratic burden to deal with them.
Your best bet is to simply move away all together (at least on paper). The more business ties you have with a country, the more work it will be to become a non-resident.
What do I mean with business ties?
Let me give you my case as an example.
After I found a job in Dubai, it took me 15 minutes to declare non-residency. I took a plane and stopped paying taxes.
Setting up a business after I had already left, meant that I do not have to worry about taxes right from the start (or reporting, audits, permits or bookkeeping, for that matter).
It would have been a different case if I would have had a bricks and mortar business or owned real estate in a high taxed jurisdiction. Even immaterial assets like intellectual property can produce a tax liability. Most governments will assume that value was created using the benefits they provided…
…and they just hate to see you go…
Get some advice from an expert on valuations and exit taxes if you have these kind of business ties BEFORE moving you or your business offshore. Because there are countries forcing you to make some sort of final settlement.
- Some countries will require you to proof that you have become resident of a new country before they release their sucking tentacles. If this applies to you, make sure your case is clear to not end up in a dispute. Western governments are bankrupt and out for blood. At the same time, they are not almighty and you do have opportunities if you have an international mindset.
- It might be a wise idea to formalize a company (if applicable) AFTER you have left. It can save you a lot of paperwork.
- You only have to become resident for tax purposes. You can still travel around. Just make sure you cut all ties to your current jurisdiction as swiftly as possible.
- Once you are an established non-resident you remain free of all taxes. Until you decide to go back to somewhere you are taxed.
I suggest you read the following article if you wish to understand more about the Difference Between Residency And Citizenship (opens in a new tab).
Fundamental 2. A Tax Free Company / Business
There are countries that don’t have any form of taxes for (offshore) corporations (like for example United Arab Emirates, Seychelles, BVI).
Others only tax on what happens inside their jurisdiction (like for example Hong Kong and Panama).
The idea is to set up your business in one of those countries.
Ok. Let’s say you are a Bitcoin investor living in a Western country. Or a trader.
You will run into a lot of reporting issues along the way. Conversions. Capital gains. You might need to proof declare all your private hodlings.
But if you live in a tax free environment as described, suddenly no-one is going to care about your books. Or how much money you make.
…or how much Bitcoins you convert into EUR or USD…
I have a friend who is a Bitcoin trader. He lives low cost in a small Emirate. The money he saves with low cost living and not paying taxes he uses to travel the world (September 2019 edit: this guy is now retired and left crypto all together).
For a Bitcoin hodler, lowering taxes can be as easy as getting on a plane.
Reducing Bitcoin Taxes: Possible Difficulties
Now this set up can be done easily, but there are a couple of things you have to keep in mind:
- Bitcoin can be a hard thing to explain. Even more so in an international setting. You might run into difficulties explaining your business model to legislators, corporate service providers, bank and other payment providers.
- For financial services such as bank accounts or exchanges you might need to provide a proof of residence like a utility bill. Take this into account while making plans.
- When your business requires things like hiring staff or renting an office space, you could run into challenges when you have a simple offshore company and you need a more solid solution.
- There are so many variables and every individual has a different situation. So it is difficult to get the right information that applies specifically to your situation.
- The fact that you use Bitcoin does not eliminate any tax requirements you might face).
Tax-free residency + tax free business /income = tax free life
An interesting experience and a good feeling. To say the least…
Well, there you have it…
The first introduction into how you can live free as an international –free and awesome– crypto currency entrepreneur.
To have zero percent Bitcoin taxes.
If you think this is interesting and if you want to live a a tax free life check out my book!
Hi where would you say is the best country to start a crypto derivatives trading company to avoid tax on the trades & on a future conversion back to fiat?