How to avoid & reduce crypto taxes using offshore company

[cryptovkng]

Por tugal was a good solution apart of a low cost of living, weather, security and other reasons for living there, but it seems that going deeper, if you are doing crypto daytrades and apart of this, trading is your unique source of income, autorities can be consider you professional trader, even doing that individually and with your own capital and tax. This happens to in other supossed crypto friendly countries as Malta and others.

Yes that is correct I believe. Most countries distinguish between "hobby investors" and "professional traders". If your main activity and source of income is related to trading, you will most likely be considered professional trader and will need to pay (more) tax on your profits. Same goes with Slovenia which doesn't tax crypto profits for individuals, but professional traders are taxed up to 50% (progressive income tax).

Apart this possible choice of Georgia -maybe someone can confirm this- or the 10% flat rate in Bulgaria. I have not seen any other option. Belarus is another choice and no doubt there you will not have any problem with crypto taxes until 2023, but get the TRP (Temporary Residence Permit) is really difficult as happens with Malaysia.

My solution is likely to be to incorporate in Bulgaria for my business (not trading) so that I can get Bulgarian residentship and become tax resident. I don't mind paying 10% taxes on profit, and what's even better is Bulgaria ONLY tax you on crypto-fiat transactions. So you can trade crypto-crypto, margin trading, and with stablecoins, without being taxed. I had this confirmed over Skype with a reputable law firm that has helped several hundreds of foreigners becoming Bulgarian tax residents, so I do trust them.

Belgium - a no-brainer for EU citizens.

Get a ~700 eur/quarter (2.8k a year) medical insurance from there, and register with Brussels city council as "economically self-sufficient" permanent resident.

No capital gains tax on crypto sales. Feel free to leave after you've cashed in. I give no guarantees on what your home country will think of this.

I had no idea Belgium did not tax on crypto. Do they tax differently for professional traders, ie. if your main activity and source of income is from trading?

 

[cryptovkng]

Belgium - a no-brainer for EU citizens.

Get a ~700 eur/quarter (2.8k a year) medical insurance from there, and register with Brussels city council as "economically self-sufficient" permanent resident.

No capital gains tax on crypto sales. Feel free to leave after you've cashed in. I give no guarantees on what your home country will think of this.

https://www.taxpatria.be/how-bitcoins-are-taxed-in-belgium/
Seems like crypto is taxed anywhere from 25% to 50% in Belgium for traders. Even if you are not consider a trader, you might need to pay 33% tax.

".... you are carrying out transactions with a speculative character in the eyes if the Belgian taxman. In that case the capital gain will be taxable as miscellaneous income to which a flat tax rate of 33% (+ communal tax) will apply."

 

[Soulec]

My solution is likely to be to incorporate in Bulgaria for my business (not trading) so that I can get Bulgarian residentship and become tax resident. I don't mind paying 10% taxes on profit, and what's even better is Bulgaria ONLY tax you on crypto-fiat transactions. So you can trade crypto-crypto, margin trading, and with stablecoins, without being taxed. I had this confirmed over Skype with a reputable law firm that has helped several hundreds of foreigners becoming Bulgarian tax residents, so I do trust them.

Thanks a lot for the info, mate. If you has confirmed that crypto-crypto trades, margin trading, and with stablecoins, yoare not to be taxed, this is something really interesting that I didn't know. Now I have a doubt about the residance permit. I have read that you are already a UE citizen, so I thought being like that, it was not necessary to have a business for get this temporary resident. For me, 10% flat tax rate would be nice too, assuming there are many other options in the UE. Filipinas, Paraguay and Panama are other choices outside the UE, for get an easy residence permit and avoid taxes thanks to territorial taxation.

I have been searching how to send you a private message, but it seems is not availble through the forum. I would like to contact you, if you don`t mind to let me your mail . Thanks in advance, cryptovkng.

 

[Tax Cow]

TaxPatria is more of an amateur opinion. It's not a good source of information because it only gives the point of view when taxes are due. Not offering any clarity when taxes are not due - use of words like "depends" and "circumstances". Writer almost suggests that crypto enthusiasts who made gains will always be liable for tax, one way or another, which is not true. He could be a government shill, or even a government employed tax collector.

The 33% Tax mentioned in that article must be from this piece of legislation; came into force in 2016: Belgium to introduce a new capital gains tax - Tax News

Let me add more clarity to TaxPatria's article with quotations.
---

• Triggering event: transfer for valuable consideration, be it on financial instruments held in portfolio (‘long’) or not (‘short’), which are voluntary (i.e. excluding operations exclusively held at the issuer’s initiative and for which the taxpayer has no opportunity to choose) and not within the conduct of a business activity.
• 6-month holding period: the transfer for valuable consideration is only taxable if the holding period is less than 6 months (calculated as the number of months between the purchase date and selling date). Gifts inter vivos are disregarded for calculating the holding period.

---

1. I remain by my opinion that 0% tax is due for any crypto "cash-in" activities carried out in Belgium. With cash-in, I mean an individual becomes a Belgium resident, and then sells the coins he already has. At least 6 months must have passed since the purchase/acquisition of coins. There is no basis for taxation regardless of how high the gains are.

2. In continuation to #1. Buy n' hold (long-term) crypto investors pay 0% tax in Belgium. The 6 month holding period is relevant.

3. Although day traders, speculators and professionals are liable for tax in Belgium, it's not that easy to enforce any of this on individuals. Just use various non-EU crypto exchanges and don't cash-in every year. Instead of cashing-in to fiat every year, you may cash in once every two years to make it more bullet proof. Personally, I'm not intimidated at all that the tax man wrecked a low hanging fruit, a clueless IT student who could have easily avoided this: "(Ruling nr. 2017.852, 5 December 2017)." (Referred source: https://www.taxpatria.be/how-bitcoins-are-taxed-in-belgium/)


tl;dr. Belgium is still a crypto paradise. If you're intimidated by the Belgian court ruling over that IT student, consider Luxembourg because it offers the exact same benefits (no tax @ 6 month holding), but they do not care to go to court to collect a few thousand from IT students who don't comply.

 

[Tax Cow]

Another interesting option (not only for crypto investors). Relocate to Estonia and incorporate a "OU" limited liability company for your day trading activities. Corporate substance (office/employees) are not required if you as the director and beneficial owner live in Estonia.

You pay no tax at all, until the year you decide to take (sizeable) profits out of the company. Approx 14K (not a verified number) is your annual personal allowance. Dividends paid to a resident shareholder are not taxable if the individual's total income remains under personal allowance.

Let's take an example. You live in Estonia and day trade through a OU:

1. Year 2020, income 1 million
- Distribute 14k in dividend, keep the rest in company. Pay 0% tax on personal and corporate level
2. Year 2021, income 1 million
- Distribute 14K in dividend, keep the rest in company. Pay 0% tax on personal and corporate level
...
3. Year 2050, income 1 million
- Distribute ~30 million in dividend. Pay 20% tax on dividend withholding. No other taxes will apply.

This is a very simplistic view. In practice, you would pay yourself a several-hundred euro monthly salary (subject to SS tax) to get the medical insurance etc. In the big picture, this won't change anything.

The longer your time horizon, the more attractive Estonia becomes because of the compounding effect. I'm not good with math samples, but Estonia's 20% dividend withholding burden is certainly better than day-trading as an individual at 8-10% personal income tax burden in the Balkans. With an Estonia OU, you will accumulate more capital which lets you make even more income. Absence of progressive tax rates makes the eventual exit, even if in absurd amounts, very tax efficient.

 

[Andrei636]

Hi all!

After researching and reading this forum for weeks I have finally come up with a plan that I think MIGHT work to reduce taxes from crypto as much as possible.

(Sorry for the long post but it was a lot to explain..! )

Strategy:
- I am currently tax resident in a high tax country in Europe which tax "professional" crypto investing and trading as personal income tax (up to 50%)
- I will move to and become tax resident in another country that benefits my crypto investments and trading, and Bulgaria is my top candidate. I will need to rent an apartment all year so I can actually prove to my goverment that I am permanently living somewhere else and also to get temporary residence in Bulgaria and become tax resident.
- Bulgaria has 10% flat tax rate on income and capital gains, which is not a lot, but I hope to reduce this (for parts of my investment / trading)
- Create a 0% tax offshore IBC that I will use to trade/invest from.

hey interesting setup ! did you have a confirmation that this works from local lawyers and that there are no problem with these CFC? are you allowed to get residency there without working but just with earning dividend or capital gains ? what country for LLC is the best to choose ?
what would be the additional cost for opening and running this ibc ?

 

[blockchain4ever]

There's some confusion in this thread regarding CFC and

... I should note that I am aware of CFC rules and how they could impact, but it seems to not be an issue with Bulgaria according to this article: Bulgaria introduces new interest limitation and CFC regimes

"Separately, a last-minute amendment in the rules introduced an exemption from the CFC regime that may render the regime futile with respect to certain offshore jurisdictions, which are traditionally in the focus of CFC systems. In particular, it was added that CFCs which are not subject to corporate taxation on their profits in the foreign jurisdiction, will not be taxed in Bulgaria."

I think there's some misunderstanding here regarding what CFC rules are all about.

CFC rules are about people holding shares in an offshore company, typically minimum 20-25%. They will get taxed as if the company was onshore. This is if the owner either has this much control or is entitled this much part of the profits.

CFC rules have nothing to do with rules about tax residence of a company. If central management and control of the company is in a country, it can be considered tax resident in that country.

A company under CFC rules is not tax resident in the country. The company isn't even taxed in the country. It's the shareholder that is taxed.

Your setup reflects this misunderstanding of CFC rules.

 

[John Andrews]

Guys keep it simple. I don't understand why you keep talking about offshore IBCs, CFC rules etc all kinds of nonsense simply to cash out crypto.

Move to Croatia during summer, obtain residence there. If you've been holding crypto for 2 years or more you are free to cash out and there is no need to pay any tax.

Croatia is EU, has solid crypto-friendly banking and there are plenty of people who have done this already.

OP send me a message if you need help doing this.

-----

For day trading/investing you can open an Estonian OU - there are no CFC rules for individuals. If you want to run a business (and need PayPal/Stripe) I would suggest opening a dormant UK Ltd and a branch office in Croatia (12% tax), this way you can also be employed/have medical insurance here but do not have to pay the minimum director/board member salary since it's a branch office and not a local company. Also you can get a local bank account for a UK Ltd if you have a certificate of good standing.

Also if you can figure out banking you may also daytrade through an IBC, as I said there are no CFC rules for individuals and no one gives a s**t if you have an offshore company. The only takeaway is that as a Croatian tax resident you pay 12% PIT & (not +!) local surtax on dividends which depend on your address within the country.

 

[OTR365]

Move to Croatia during summer, obtain residence there. If you've been holding crypto for 2 years or more you are free to cash out and there is no need to pay any tax.

Croatia is great - a pretty coastline and very livable cities. Also within a driving distance from many other nice places.

Another solution I just learned today is Portugal. Their tax authority has decided that crypto profits are tax exempt. Getting a residency permit in both of these countries is easy for EU citizens. If there are no other, nasty details, I'll be heading to Portugal for the next 2-3 years.

 

[JohnLocke]

Both Croatia and Portugal are nice places in the Summer. But I believe you will have to live there for a few years to avoid troubles with your home country even you give up residence there.

 

[OTR365]

But I believe you will have to live there for a few years to avoid troubles with your home country even you give up residence there.

I have lived abroad since 2014, so in my home country I have a limited tax liability (=not taxes on foreign income).

In Portugal, Madeira (or even Azores) is also an option. They have a great weather year-around. I briefly visited Madeira less than 3 weeks ago. I keep hearing Algarve etc. are pretty empty and desolate during winter.

 

[JohnLocke]

Do you live within the EU? I'm not aware of what it takes to get rid of the tax on profits you earn while you may stay in another country for 1 or 2 years.

 

[OTR365]

Do you live within the EU? I'm not aware of what it takes to get rid of the tax on profits you earn while you may stay in another country for 1 or 2 years.

Yes, I am tax resident in Cyprus at the moment. I am not sure I understood the latter sentence, but as far as I know, Cyprus does not have an exit tax for individuals. Only companies are subject to anti-tax avoidance legislation.

 

[Almouk]

Another solution I just learned today is Portugal. Their tax authority has decided that crypto profits are tax exempt. Getting a residency permit in both of these countries is easy for EU citizens. If there are no other, nasty details, I'll be heading to Portugal for the next 2-3 years.

If you read carefully the Portugal Tax Authorities (PTA) published Ruling 5717/2015, in his last paragrapgh says:

It is concluded that the sale of cryptocurrency is not taxable under the Portuguese tax system, the
unless it is a taxpayer professional or business activity due to its habituality,
in which case it will be taxed in category B.

This was also my first option when they made this announcement, but after reading this I consider it very risky. They can study your case and qualify you as a professional trader.

If you are actively trading and is your only source of income, be sure that you will be taxed. This only must apply for "hobby investors" with a few operations during the year. Even having other source or income, if they make more money than with your usual work activity, they could tell you that your trading activity is your primary source of income and tax you as well.

Of course, I am not a law expert or a tax advisor and it is simply my opinion. If anyone has other information, it is welcome and appreciated.

 

[OTR365]

It is concluded that the sale of cryptocurrency is not taxable under the Portuguese tax system, the unless it is a taxpayer professional or business activity due to its habituality,in which case it will be taxed in category B.

Thanks for this. Somehow I suspected it wouldn't be so easy. I would surely be included in the category B.

There's the non-habitual residence program, which gives a 10-year tax-exemption to some foreign-sourced income. But to take advantage of that properly is not a piece of cake. I will visit Portugal soon, let's see if I manage to visit a law office too.

 

[Almouk]

I don't mind paying 10% taxes on profit, and what's even better is Bulgaria ONLY tax you on crypto-fiat transactions. So you can trade crypto-crypto, margin trading, and with stablecoins, without being taxed. I had this confirmed over Skype with a reputable law firm that has helped several hundreds of foreigners becoming Bulgarian tax residents, so I do trust them.

This is a very interesting point. You can trade then cryptocurrencies at 0% taxes. USDT particularly and other stablecoins are widely used apart of crypto/crypto pairs. Can you tell us @cryptovkng which reputable law firm confirmed you this point? Maybe interested in getting in touch with them as well. Thanks.

Trading at your own name, it seems you must pay social security contributions as pply in othee eurpean countries. I opened a thread asking for this, but any answer at the moment clarifying it.

In addition to this, if you trade traditional finantial markets as well, capital gains from transactions with securities of public companies on a regulated Bulgarian stock exchange or on a regulated stock exchange in another EU/EEA country are tax-free (I don't know if Eurex markets are included between them). So you pay 0% taxes as well.

 

[manwithtoupe]

Yes, I am tax resident in Cyprus at the moment.

I am curious as to why you are seeking alternative solutions when you are already Cyprus non-dom?

Why not stay in Cyprus for 60 days a year (not during the heat) and then spend the rest of your time in other more "livable" Southern European countries with public transport and higher standard of living (like Spain, France, Portugal and Northern Italy)?

If you don't want to move too much, you could simply spend 5 months in Spain/Canary islands, 5 months in Portugal and 2 months in Cyprus.

Is Cyprus non-dom too high maintenance cost to be worth it? I know that you do have to shell out at least 10k on rent and utilities and 6k on the Cyprus LTD (per year).

 

[OTR365]

I am curious as to why you are seeking alternative solutions when you are already Cyprus non-dom? Why not stay in Cyprus for 60 days a year (not during the heat) and then spend the rest of your time in other more "livable" Southern European countries ...

I am not tax resident via the "60-day rule", but via the ordinary way, as a private EU citizen. I have to stay 180 days/year in order to maintain my tax residency. The "60-day rule" has high-ish maintenance costs, as you mentioned.

People in Cyprus are nice, English is spoken everywhere, and I've been treated well by the Immigration, Tax Office etc. Still, I would choose Spain/Portugal any time over Cyprus, if there was an easy way. In fact, I am in Portugal right now.

 

[Almouk]

Thanks for this. Somehow I suspected it wouldn't be so easy. I would surely be included in the category B.

There's the non-habitual residence program, which gives a 10-year tax-exemption to some foreign-sourced income. But to take advantage of that properly is not a piece of cake. I will visit Portugal soon, let's see if I manage to visit a law office too.

I have read you @OTR365 in your last post, that you are in Portugal right now. If you finally can confirm what I pointed previously in the thread, it would be really nteresting to know, mate. But iI really guess is exactlly as I said.

 

[OTR365]

If you finally can confirm what I pointed previously in the thread, it would be really nteresting to know, mate. But iI really guess is exactlly as I said.

Here is one relatively fresh Portuguese article, which tells the Tax Authority wants to tax crypto profits in all cases.

I wish I could confirm 100%, but I already dropped the idea of visiting a tax lawyer here. The reason being, even if bitcoin gains were tax-free, I would still have to pay sizable taxes on my other capital gains. So, no Portugal NHR for me, unless I set up a EU company to convert my capital + bitcoin gains into tax-free dividends.