There is a frenetic competition for welcoming investment companies, high and ultra-high-net-worth individuals in several countries around the world.
From a crypto perspective, many companies in the world are looking for a country that brings: clear and strong regulation regarding investments in crypto assets, which will bring confidence to investors and, a favorable tax treatment, which will be translated into higher profits for investors in the mid and long terms.
From an individual’s perspective, this might be a little different, since not everything is an administrative and tax perspective, but a living perspective.
Through the years, many European countries, such as Spain and Portugal, has been issuing programs, to attract new investors as legally subject to several benefits, such as the famous Golden Visa programs, which, in exchange of a certain amounts invested in specific fields (i.e. restauration of historic buildings, investment in real estate and tourism industry, among others), several rights are granted (i.e. when the individual is not European, instead of being considered as a tourist, have permission to stay for longer periods of time, education for individual’s children in some cases, among others).
As of 2022, around 34% of the high-net-worth individuals already have a second nationality, while circa 15% of the ultra-high-net-worth individuals have requested for a second passport last year.
The winners in this game are, so far: United Arab Emirates, United States of América, Spain, Portugal, Switzerland, Israel, Singapore, Greece, Australia, and Canada, while, the losers in this game are: Mexico (my country), Russia, China, India, Hong Kong, Ukraine, Brazil, and Indonesia.
After obtaining their residence status, most of the countries also offer the possibility to obtain a tax residence, which is different from the legal residence status, as it is clear now. These tax residences have several benefits compared to the tax regimen that a regular tax resident has in any country that offers this type of benefit; for example in Switzerland and in Italy, there are a lump-sum system based on estimated expenses of living therein, where the individual pays only a portion of the his/her consumption, or even a fixed amount on an annual basis, while in countries such as Spain, there are special tax regimens, where the individual pays income tax on a reduced basis and is exempt on offshore income (i.e. the Beckham regimen).
For cryptocurrency, is the same story. There are several countries that already have special tax regimens for crypto enthusiastic investors and high and ultra-high-net-worth individuals that seek to move to a country that is considered crypto friendly.
But there is a very important lesson that people need to learn before entering into this type of programs: the fact that you become a tax resident in a country different than your original country does not mean that you stop being considered as a tax resident in your original country. This understanding is key to achieve a successful migration and avoid having serious tax contingencies in your original country.
In most countries of the world, the definition of tax residence is based on where is the permanent home available, as well as where is the center of vital interest (individual’s closer personal and economic relations), so the fact that a particular individual obtains a tax residence in a different country where he resides, and starts collecting income that is subject to a special or to non-tax rate in such country, does not mean that the country in which the individual is living does not have the right to tax such income as well, and in the worst case, a double taxation might be triggered.
In many of such cases, the individual thinks that profits in cryptocurrencies are hidden from their local tax authorities, since they are not operating in the FIAT world, but they ignore that since August 2022, the Organization for Economic Co-operation and Development (OECD) has approved a new program known as Crypto-Asset Reporting Framework (CARF), which provides reporting of tax information on several transactions made with crypto assets that are traded through centralized Exchanges to the tax authorities of the individual’s country.
In summary, I hope that when an individual or even a company, looks for a change of tax residence, a thorough analysis of their particular situation and local tax regulations is carried out; this, in order to avoid undesirable surprises from their original countries tax authorities.