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The friendliness of a given country toward cryptocurrencies is measured by two things in my mind: the degree to which it regulates cryptocurrency, and the degree to which it taxes cryptocurrency.
Therefore, readers in the United States familiar with crypto rules shouldn’t be surprised to learn that it didn’t make the cut. Crypto investors have been aware that the U.S. would take a hard-line stance on the issue for years. If you’re worried about the Internal Revenue Service and Uncle Sam coming for your capital gains from your crypto appreciation, you probably have good reason. The rules are tightening, and that leaves investors wondering where regulations are more friendly.
Elsewhere there are multiple jurisdictions that have a softer approach. So, for those looking to invest in Bitcoin (CCC:BTC-USD) and other cryptocurrencies, these countries make for a better choice:
Crypto-Friendly Countries: Portugal
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In Portugal the tax authorities have chosen to adopt a soft stance on cryptocurrency investment. Portuguese law is known to be very cryptocurrency friendly. Individuals in Portugal who profit from the purchase and sale of cryptocurrency are not taxed on the capital gains. Further, the exchange of cryptocurrency for other currency is also free of taxation.
For individual investors worried about income tax levied on payments received in cryptocurrency, Portugal is also very favorable. The situation differs for companies in Portugal who receive payment in cryptocurrency where normal capital gains taxes apply. The thrust here is that if you are an individual who is paid in cryptocurrency then you can avoid paying heavy capital gains taxes.
Portugal’s tax authorities are quoted as stating that “an exchange of cryptocurrency for ‘real’ currency constitutes an on-demand, VAT-free exercise of services.”
In a nutshell, individual cryptocurrency investors would be wise to consider the country of Portugal for its advantageous stance on taxes. Companies aren’t afforded the same leniency, so it doesn’t seem likely that a wave of companies will be moving to Portugal anytime soon for the benefits.
The country has many programs that allow crypto investors to set up base in the Iberian Peninsula country. Residency and citizenship regulations are equally open-minded and make it high on many such lists.
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Switzerland is known for many things. In the realm of finance, it is known for Swiss banking standards, which allow for high levels of privacy with low levels of risk. It therefore might not surprise anyone that the country has lenient regulations for crypto investors as well.
However, the unique system of regions into divisions called cantons plays heavily into what can and cannot be done. Each of Switzerland’s 26 cantons has its own legal definitions regarding the treatment of cryptocurrency.
One Swiss canton may tax cryptocurrency while another may not. And within each canton the rules that trigger taxation may differ. In Zurich, capital gains from movable private wealth are tax exempt, which could be interpreted to mean that Bitcoin and other crypto could be tax free. However, mining gains are taxed as regular income. In Bern, the regulations are stricter and mining and trading are treated as regular income. Lucerne is much more in line with the canton of Zurich and treats capital gains with tax-exempt status.
At the national level, it cannot be said that Switzerland is a completely crypto-friendly country. But on a canton level, many regions in the country are.
Crypto-Friendly Countries: Germany
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Germany regards cryptocurrency as private money, as it isn’t treated as legal tender across the nation. The laws regarding cryptocurrency favor long-term buy-and-hold investors. Day traders of cryptocurrency may want to reconsider their plans to use the country to avoid taxes.
Residents who hold cryptocurrency for over a year won’t pay any tax on it regardless of its value. But for investors who hold a given crypto for less than a year, capital gains taxes are levied on amounts above 600 EUR (approximately $712). It is clear, then, that Germany doesn’t favor its residents using the country as a base for high volume crypto trading by individuals.
Just as in many other crypto-friendly countries, corporations in Germany are subject to capital gains taxes. So for individual investors in crypto with a longer-term view, Germany is an attractive nation.
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Singapore is known for having one of the most stable and well-developed economies in the world. It is also noted as one of the best places in the world to do business, with access to many developed and developing nations.
Singapore is known as a hub of fintech within southeast Asia. The Monetary Authority of Singapore, its central bank, takes the view that the cryptocurrency ecosystem must be monitored to prevent laundering and other illegal activity but that innovation must not be stifled. That has led some to describe the city-state as a balanced regulatory and legal environment for crypto. It’s also in line with Singapore’s business-forward stance that has caused so many to admire the city-state.
Sopnendu Mohanty, Singapore Central Bank’s Chief Fintech Officer said in an interview that the city-state’s financial institutions are looking at “allowing crypto to be an experimental construct.”
The Payment Services Act of 2019 regulates Singapore’s legal environment for crypto. The law sets clear expectations that balance regulatory necessities to prevent illegal activity while balancing a growth environment for crypto. Cryptocurrencies are also exempt from capital gains taxes in Singapore.
Both individuals and corporations should give it consideration when looking for crypto-friendliness. Don’t be surprised if Singapore sets itself apart within the next few years as one of the best places for crypto in the coming years.
Crypto-Friendly Countries: Malta
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The small Mediterranean island nation has long been on the radar of crypto investors as a friendly face. Many crypto exchanges and blockchain projects operate from the country because of its friendliness.
The country welcomed Binance after Hong Kong tightened its regulations, sending the exchange in search of friendlier jurisdictions.
There are a few other reasons that Malta makes strategic sense for crypto-focused companies as well. Malta is a member of the European Union. That means that crypto projects with operations based in Malta can operate freely throughout the entirety of the European Union.
The country’s lax attitude toward regulating crypto hasn’t gone without criticism. The Financial Action Task Force (FATF), an intergovernmental policy making body with 39 member states has been vocal in its concern regarding Malta. The FATF held a confidential meeting in which concern was vocalized regarding an alleged 60 billion EUR ($71.2 billion) in cryptocurrency which had passed through Malta’s borders. There were no allegations of it being utilized for illicit purposes or even suggestions thereof. The primary concern seems to be that there was a lack of a regulatory body providing oversight.
Whether increased regulation comes to the small Mediterranean island remains to be seen. In the meantime, rich crypto investors from non-EU countries will continue to consider it for its 1.5 million EUR ($1.78 million) citizenship offer and lax attitude toward crypto.
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Cyprus is another Mediterranean island nation known for its laissez-faire attitude toward cryptocurrencies including Bitcoin. Although cryptocurrency is not yet regulated, the country looks to be on such a path.
The Central Bank of Cyprus is clearly worried about the potential for losses and issued official guidelines about crypto risks as far back as 2014. And the Cyprus Securities and Exchange Commission has established an Innovation Hub for entities to share knowledge in line with its mission to ensure investor protection within regulated entities. Overall though, things remain fairly wide-open for crypto in Cyprus.
ICOs (initial coin offerings) are the one area of crypto that clearly does currently fall under legal jurisdiction in Cyprus now. Funds derived from ICOs are treated as taxable income in Cyprus. At the same time, Cyprus is noted for its attractive 12.5% corporate tax rate.
The Cyprus SEC is pushing for more oversight but for now there looks to be no mining restrictions, reporting requirements, and no legal framework for the treatment of cryptocurrencies within estates.
Crypto-Friendly Countries: Bermuda
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Bermuda’s Digital Asset Business Act 2018 set out its regime for regulating individuals and entities who undertake the following: issuing, selling and redeeming cryptocurrency and other digital assets; operating as a crypto payment provider, including the provision of services for fund transfers; operating a cryptocurrency exchange and providing wallet services; and operating a cryptocurrency services vendor.
All of this simply dictates what constitutes digital business within Bermuda, which levies zero income and capital gains tax. It really acts as a sort of magnet for individuals and businesses as one of the first regimes for digital business.
As an example of Bermuda’s crypto-friendly nature we can look to Bitcoin ETFs (exchange-traded funds). In late 2020, after years of unsuccessful attempts to launch a Bitcoin ETF in the U.S., the Bermuda Stock Exchange approved the Hashdex Nasdaq Crypto ETF. It was one of the first of its kind and proves that the country should continue to be forward thinking.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.