Tax is a nightmare for compliance. And crypto taxes — which include a variety of innovative mechanisms and products that have no analog in traditional finance — are 10 times worse.
Complicating matters even further, the global industry operates across borders and jurisdictions. But there are definitely better and worse countries for the newly crypto-rich to base themselves as tax havens — even Americans who get followed around by the IRS with its hand out no matter where they are.
(The information provided is not legal or financial advice and should serve only as a starting point for further research.)
To start off, we need to define what income and capital gains are.
What is income for crypto tax?
Income tax generally covers things such as wages, dividends, interest and royalties. Within the context of digital assets, these might include income earned via mining, staking, lending, crypto-denominated salaries and even airdrops.
In many jurisdictions, these would be taxed according to the market value on the day they were received. You can often subtract expenses (such as the cost of electricity for mining).
What are capital gains for crypto tax?
Capital gains are the profits from selling things like stock or a house. They are usually calculated on the difference between the price you bought something for and how much you sold it for. In most cases, capital gains are taxed at a much lower rate than normal income, and the sale of cryptocurrency and NFTs generally count as capital gains.
Switzerland gets an A for effort with crypto taxes. (Pexels)
Jurisdiction matters for crypto taxes
The first issue is whether one needs to pay tax at all. In certain countries, including Bahrain, Barbados, Cayman Islands, Singapore, Switzerland and the UAE, no capital gains are generally levied on things like stock or digital asset sales. For most people, determining the country of their tax residence is as simple as answering “where do you live?”
For the lucky few in…