How to avoid & reduce crypto taxes using offshore company

[cryptovkng]

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

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 paying︈ 10% taxes on profit, and what's even better is Bulgaria ONLY tax you on crypto-fiat︉ transactions. So you can trade crypto-crypto, margin trading, and with stablecoins, without being taxed. I︊ had this confirmed over Skype with a reputable law firm that has helped several hundreds︋ of foreigners becoming Bulgarian tax residents, so I do trust them.

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]

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]

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 interesting︁ that I didn't know. Now I have a doubt about the residance permit. I have︂ read that you are already a UE citizen, so I thought being like that, it︃ 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 the︅ UE. Filipinas, Paraguay and Panama are other choices outside the UE, for get an easy︆ residence permit and avoid taxes thanks to territorial taxation.

I have been searching how to︇ send you a private message, but it seems is not availble through the forum. I︈ 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 gains︀ tax - Tax News

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

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1. I remain by my opinion that 0% tax is︇ due for any crypto "cash-in" activities carried out in Belgium. With cash-in, I mean an︈ individual becomes a Belgium resident, and then sells the coins he already has. At least︉ 6 months must have passed since the purchase/acquisition of coins. There is no basis for︊ 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 is︌ relevant.

3. Although day traders, speculators and professionals are liable for tax in Belgium, it's︍ not that easy to enforce any of this on individuals. Just use various non-EU crypto︎ exchanges and don't cash-in every year. Instead of cashing-in to fiat every year, you may️ 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 14K︂ in dividend, keep the rest in company. Pay 0% tax on personal and corporate level︃
...
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'm︇ not good with math samples, but Estonia's 20% dividend withholding burden is certainly better than︈ day-trading as an individual at 8-10% personal income tax burden in the Balkans. With an︉ Estonia OU, you will accumulate more capital which lets you make even more income. Absence︊ of progressive tax rates makes the eventual exit, even if in absurd amounts, very tax︋ efficient.

 

[Andrei636]

hey interesting setup ! did you have a confirmation that this works︆ from local lawyers and that there are no problem with these CFC? are you allowed︇ 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 additional︉ cost for opening and running this ibc ?

 

[blockchain4ever]

There's some confusion in this thread regarding CFC and

I think there's some misunderstanding here︁ 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 was︂ onshore. This is if the owner either has this much control or is entitled this︃ much part of the profits.

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

A company under CFC rules︆ 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.

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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 you︀ can also be employed/have medical insurance here but do not have to pay the minimum︁ director/board member salary since it's a branch office and not a local company. Also you︂ can get a local bank account for a UK Ltd if you have a certificate︃ of good standing.

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

 

[OTR365]

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]

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]

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]

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 are︁ actively trading and is your only source of income, be sure that you will be︂ 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 usual︄ work activity, they could tell you that your trading activity is your primary source of︅ income and tax you as well.

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

 

[OTR365]

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 a︀ law office too.

 

[Almouk]

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? Maybe︀ 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. I︂ 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 transactions︃ with securities of public companies on a regulated Bulgarian stock exchange or on a regulated︄ stock exchange in another EU/EEA country are tax-free (I don't know if Eurex markets are︅ included between them). So you pay 0% taxes as well.

 

[manwithtoupe]

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

 

[OTR365]

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've︀ been treated well by the Immigration, Tax Office etc. Still, I would choose Spain/Portugal any︁ time over Cyprus, if there was an easy way. In fact, I am in Portugal︂ right now.

 

[Almouk]

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. But︀ iI really guess is exactlly as I said.

 

[OTR365]

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 up︀ a EU company to convert my capital + bitcoin gains into tax-free dividends.