Cryptocurrency tax havens and the impact of international regulation

Since Bitcoin was created in 2009, the cryptocurrency market has experienced rapid growth. At present, cryptocurrencies have become a part of the global financial market that cannot be ignored. With the popularization and development of cryptocurrencies, more and more individuals and businesses have begun to use cryptocurrencies for transactions and investments, while also facing challenges in taxation and regulation. This article will introduce the tax policies of several cryptocurrency tax havens, and explore the trends in the international regulation of cryptocurrencies and their implications.

1. Cryptocurrency tax haven

Because cryptocurrencies are subject to different degrees of taxation and regulation in different countries and regions, some countries or regions have given greater incentives or flexibility in taxation policies in order to attract individuals or companies related to cryptocurrencies, thus forming some cryptocurrencies. tax haven. The following will introduce six typical cryptocurrency tax havens and their tax policies.

Liechtenstein is located between Switzerland and Austria. It is one of the smallest countries in Europe. It is famous for its low tax rate, high financial freedom and friendly business environment. Liechtenstein is also very open and positive towards cryptocurrencies. It passed a law called the Blockchain Act in 2019, which aims to provide for cryptocurrencies and blockchain-related Activities provide a comprehensive and clear legal framework. The bill defines cryptocurrency as a "trust technology" (TT) service, divides cryptocurrency holders, issuers, service providers, etc. into different categories, and stipulates corresponding licensing and regulatory requirements. In terms of taxation, Liechtenstein has adopted relatively loose and flexible policies for personal income tax and corporate income tax for cryptocurrencies. According to the guidelines of the Liechtenstein Tax Administration, individuals who hold cryptocurrencies do not need to pay wealth tax or capital gains tax, only when individuals sell or exchange cryptocurrencies for other currencies or goods. Its income level pays the corresponding income tax. Enterprises holding or trading cryptocurrencies do not need to pay capital gains tax or value-added tax, and only need to pay 12.5% corporate income tax on their operating income. In addition, Liechtenstein also allows individuals and businesses to use cryptocurrency as a legal payment method or donation object, and gives certain tax incentives.

Malta, located in the center of the Mediterranean Sea, is a country committed to becoming a leader in the field of blockchain and cryptocurrency. It passed three laws on blockchain and cryptocurrency in 2018, namely the "Innovative Technology Arrangement" The Innovative Technology Arrangements and Services Act, the Virtual Financial Assets Act and the Malta Digital Innovation Authority Act. These three laws aim to provide a complete and transparent legal system for blockchain and cryptocurrency-related activities, including definitions, classifications, licensing, supervision, auditing, etc. In terms of taxation, Malta has also adopted more favorable and flexible policies for personal income tax and corporate income tax of cryptocurrencies. According to the guidelines of the Malta Tax Authority, individuals holding or trading cryptocurrencies do not need to pay wealth tax or capital gains tax, only when individuals use cryptocurrencies as salary or business income, they need to pay according to their income level corresponding income tax. Enterprises holding or trading cryptocurrencies do not need to pay value-added tax or stamp duty, and only need to pay 35% corporate income tax based on their operating income. However, if the enterprise meets certain conditions, such as its place of registration in Malta, its shareholders are non-Maltese residents, etc., it can apply for a partial or full refund of corporate income tax, thereby reducing the effective tax rate.

Austria is a European country with an open and friendly attitude towards cryptocurrencies. It released a report on blockchain and cryptocurrencies in 2017, arguing that blockchain and cryptocurrencies are a Innovative and potential technologies that can have a positive impact on the economy and society. The report also made some policy recommendations on blockchain and cryptocurrencies, such as supporting research and development of blockchain and cryptocurrencies, establishing a coordinated and cooperative regulatory framework, promoting education and popularization of blockchain and cryptocurrencies wait. Austria has also adopted a more reasonable and flexible policy on the personal income tax and corporate income tax of cryptocurrencies. According to the guidelines of the Austrian Ministry of Finance (Austrian Ministry of Finance), individuals do not need to pay wealth tax or value-added tax for holding or trading cryptocurrencies. income tax. Whether an individual is subject to capital gains tax when they sell or exchange cryptocurrencies depends on how long and how much they are held. If individuals hold cryptocurrencies for more than one year or if the value of cryptocurrencies sold or exchanged does not exceed 440 euros per year, they do not need to pay capital gains tax; otherwise, they need to pay capital gains tax at a rate of 27.5%. Enterprises holding or trading cryptocurrencies do not need to pay value-added tax or stamp duty, and only need to pay 25% corporate income tax on their operating income.

Belgium is a country located in Western Europe, and its tax policy is relatively strict. However, the country is very friendly to the tax policy of cryptocurrencies. Belgium allows individuals and businesses to trade cryptocurrencies within its borders, treating them as a type of stock or foreign exchange transaction. According to the guidelines of the Belgian Ministry of Finance, individuals do not need to pay wealth tax or value-added tax for holding or trading cryptocurrencies. income tax. Whether individuals are subject to capital gains tax when they sell or exchange cryptocurrencies depends on the nature and purpose of their transactions. If an individual sells or exchanges cryptocurrencies for personal or occasional reasons, such as meeting daily needs or for a one-time gain, no capital gains tax is payable; if an individual sells or exchanges cryptocurrencies for professional or Recurring reasons, such as speculative activities or steady income, are subject to capital gains tax at a rate of 33%. Enterprises holding or trading cryptocurrencies do not need to pay value-added tax or stamp duty, and only need to pay 25% corporate income tax on their operating income. In addition, Belgium also allows businesses to use cryptocurrencies to pay wages and services.

Luxembourg is a small country located in Western Europe, and its tax policy is very friendly to innovative companies and investors. The country allows individuals and businesses to transact in cryptocurrencies and considers them a legitimate means of payment. Capital gains tax is payable when buying and selling cryptocurrencies in Luxembourg, but profits from sales can be taxed at a lower rate. According to the guidelines of the Luxembourg Tax Administration, individuals do not need to pay wealth tax or value-added tax for holding or trading cryptocurrencies. income tax. Whether an individual is subject to capital gains tax when they sell or exchange cryptocurrencies depends on how long and how much they are held. Individuals are not subject to capital gains tax if they hold cryptocurrencies for more than six months or if the value of cryptocurrencies sold or exchanged does not exceed €500 per year; otherwise, they are subject to capital gains tax at their applicable income tax rate. Enterprises holding or trading cryptocurrencies do not need to pay value-added tax or stamp duty, and only need to pay corporate income tax ranging from 17% to 24% according to their operating income. The country also allows businesses to use cryptocurrencies to pay for goods and services.

Switzerland is considered one of the most cryptocurrency-friendly tax havens in the world. The country has a well-established financial and legal framework that allows individuals and businesses to transact using cryptocurrencies. According to guidelines from the Swiss Federal Tax Administration, individuals who hold or trade cryptocurrencies are subject to wealth taxes but not VAT. When individuals use cryptocurrency as salary or business income, they need to pay corresponding income tax according to their income level. Whether individuals are subject to capital gains tax when they sell or exchange cryptocurrencies depends on the nature and purpose of their transactions. Individuals who sell or exchange cryptocurrencies for personal or casual reasons are not subject to capital gains tax; individuals who sell or exchange cryptocurrencies for professional or recurring reasons are subject to their applicable income tax rates capital gains tax. Enterprises holding or trading cryptocurrencies do not need to pay value-added tax or stamp duty, and only need to pay corporate income tax ranging from 12% to 24% according to their operating income.

These countries all have very friendly cryptocurrency tax policies. They allow individuals and businesses to transact using cryptocurrencies as a means of payment. Additionally, profits from selling cryptocurrencies after holding them for a certain period of time can be taxed at a lower rate in most countries.

2. Common tax avoidance methods used by encryption companies

Since cryptocurrencies are subject to different levels of taxation and regulation in different countries and regions, some companies engaged in cryptocurrency-related activities have adopted some tax avoidance methods by taking advantage of the "tax haven" policy in order to reduce tax burdens and risks. Several typical tax avoidance methods will be introduced below.

1. Leveraging cross-border structures:

Usually, a subsidiary or branch is registered in a country that is friendly to encrypted assets, and the funds or profits involved in cross-border business are transferred to the subsidiary or branch, thereby avoiding high tax expenses. These countries have lower tax rates for crypto asset holdings and transactions.

Through transfer pricing, internal transactions are used to adjust income distribution, thereby reducing tax burdens in different countries or regions to the greatest extent. In the process of transnational operations, transfer pricing is realized by establishing overseas companies or control structures, as well as price differences between different markets, so as to achieve the purpose of tax avoidance.

2. Take advantage of tax incentives:

"Crypto-friendly" countries usually provide some tax incentives, such as tax exemptions, preferential tax rates, tax reductions, etc. Often by taking advantage of these policies, the amount of tax paid can be reduced.

3. Open a secret bank account:

Banks in some tax haven countries offer secret bank accounts, which are usually not supervised and regulated by local regulators. Such secret bank accounts are usually opened to transfer their assets to bank accounts in these countries, thus avoiding the need to pay taxes in the first place.

3. The status quo, trend and impact of international regulation of cryptocurrencies

The international regulation of cryptocurrencies mainly includes the strengthening of KYC (Know Your Customer) and AML (Anti-Money Laundering) regulations, which are key measures to prevent financial crimes and terrorist financing.

The OECD's regulation of cryptocurrencies is mainly focused on taxation. It released a report in 2018 called "Tax Challenges Arising from Digitalization – Policy Solutions" (Tax Challenges Arising from Digitalization – Policy Note) put forward some principles and suggestions on cryptocurrency taxation, such as ensuring tax fairness, avoiding double taxation, and enhancing tax transparency. OECD has also established a platform called "Global Forum" (Global Forum), which aims to promote communication and coordination among countries in tax information exchange and cooperation.

Agencies such as the U.S. Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Financial Industry Regulatory Authority (FinCEN) have all regulated cryptocurrencies and issued regulations over the past few years. The U.S. Revenue Service (IRS) and the Department of Justice have also begun to get involved in the regulation of cryptocurrencies. Around 2021, the United States has strengthened the supervision of exchanges and wallet service providers, and issued warnings to those companies that violated the regulations. A growing number of states and cities are also rolling out regulatory frameworks for digital assets and blockchain technology. Judging from the existing trends, the trend of U.S. encryption regulation may be more detailed, coordinated and balanced.

** In order to ensure market compliance and protect the interests of investors, the European Union and its member states have also gradually strengthened the supervision of the cryptocurrency market. **The European Securities and Markets Authority (ESMA) has issued guidelines on cryptocurrencies in 2019 and is working on stricter regulations to control the behavior of cryptocurrency trading platforms, exchanges and wallet providers. Under the European Union’s anti-money laundering regulations, cryptocurrency service providers must comply with the same regulations as traditional financial institutions, including customer due diligence and suspicious transaction reporting. In September 2020, the European Union proposed to formulate a unified encrypted asset regulatory framework MiCA (Market Infrastructure Act), which aims to promote innovation and competitiveness in the encrypted market while protecting consumers and investors. MiCA classifies and regulates the issuance, trading, custody and service providers of encrypted assets, requiring them to comply with standards of transparency, disclosure, anti-money laundering, consumer protection, etc., and to obtain EU licensing and supervision. Moreover, MiCA also sets stricter requirements for stablecoins, including capital adequacy, reserve management, governance structure, auditing, etc., to ensure their financial stability and trust. On May 16, 2023, MiCA has been passed by the European Parliament Committee and is expected to come into force in 2024. At that time, the EU will become one of the most advanced and complete encrypted asset regulatory regions in the world, bringing more opportunities to the encrypted industry and challenge.

**The overall trend of cryptocurrency international regulation is to strengthen regulation, increase transparency and compliance. International regulation has strengthened the regulation of cryptocurrency exchanges, ICO, etc., requiring these companies to comply with KYC and AML regulations, and to comply with securities regulations. **This may increase the operating cost of the enterprise, reduce the competitiveness of the enterprise, and may cause certain restrictions on the market innovation of encryption enterprises.

**But from another perspective, strengthening the international supervision of cryptocurrencies can reduce market risks, attract more institutional investors to participate in the market, and improve market stability. **Encryption companies can actively cooperate with regulatory agencies to promote industry standardization and healthy development to reduce market risks.

**Although cryptocurrency tax havens are attractive to some investors and companies, the strengthening of international regulatory trends will gradually limit this behavior. **Cryptocurrency companies and investors should pay attention to compliance and supervision, abide by local laws and regulations, and plan ahead for industry development and long-term sustainable development while protecting their own interests.