Three Crypto-Friendly Countries
Neither this post nor any other on cryptofal.com should be taken as financial advice. It is not.
Cryptocurrencies are still a fairly new addition to our financial system. Regulators are still struggling with how to classify cryptocurrencies, which results in many confusing regulations, and regulations that don’t accurately fit the use-case of many cryptocurrencies.
One of these main issues is capital gains on cryptocurrencies that can be used as transfers or for purchases. Instead of being recognized as its own individual asset class, it’s often placed within the ruleset of older, significantly different asset classes such as securities.
Fortunately, there are some countries that are attempting to be more proactive with how they view and classify cryptocurrency. One country that supports cryptocurrency strongly is El Salvador. El Salvador’s support is so strong that they even made BTC legal tender alongside the dollar. It was the first country to make BTC legal tender. It’s taken a strong initiative in instituting ways for its citizens to use BTC for p2p transactions and even p2b (peer to business) transactions and beyond.
El Salvador has plans to build the first “Bitcoin City” as well through the first bitcoin-backed bonds. The city will be powered by geothermal means using the heat from a local volcano. The only tax in this city will be the VAT tax (or value-added tax). This VAT will go to funding the bonds issued to build the city and city services such as garbage collection. El Salvador exempts BTC profits from income tax and capital gains.
Switzerland is another country with cryptocurrency-friendly regulations. The Swiss Federal Tax Administration views cryptocurrency transactions as no different than fiat transactions which are exempt from tax reporting. One of the main reasons investors look to Switzerland as an option for cryptocurrency investing is their lack of taxation on cryptocurrency trading profits.
That is why many large projects have chosen Switzerland as home to their headquarters. It should be noted that crypto businesses and professional trading is subject to be taxed as income. This income tax can be different in each region, however, these businesses will also incur an annual wealth tax.
Germany’s take on cryptocurrency is different than that of the EU. Germany is another country that has a unique perspective on cryptocurrency taxation. When these assets are held for a year, it exempts them from capital gains tax. If your cryptocurrencies are then sold for fiat within a single year, but the profit is under €600, or around $700 you will be exempt from paying tax on that transaction. Beyond that, it will have to be reported for tax. Businesses must pay corporate income taxes for crypto gains, and it will work the same as other assets.
Some of these countries may change their laws in the long term, so it’s always important to keep up with regulatory developments. As the space grows regulatory changes will only become more and more likely, however, we hope that these regulatory changes will be a more accurate representation of what the space needs compared to what it currently has.