Bitcoin: is an overseas account a good idea?
Now, this is a topic that’s close to my heart. We will delve into all the nitty-gritty details of cryptocurrency, offshore bitcoin wallets, tax structures, and essentially what you need to do to keep more of your money, but first, allow me to say hi.
I remember when the word cryptocurrency first started floating around the atmosphere. I, like many fellow accountants, was skeptical of what this decentralized currency could mean. Was it a method to fund illegal activity? Was it a sheltering practice for the shady elite? Or was it genuinely a new way to think about currency in this interconnected world?
I invested in a few early crypto coins, well before bitcoin was popular. But really convinced me that this was going to make waves in the future was when my clients started asking me about it.
I began to see my clients reporting tens and hundreds of thousands in profit from crypto gains. The market was making millionaires left, right, and centre, and my clients wanted to know what to do.
And this is when my red alerts started to trigger. If my high net-worth clients are making money from this, surely the taxman is also watching closely.
And sure enough, they have been. It’s been my experience that the ATO leaves a 3-5 year gap to watch all new financial instruments, just to see if it’s going to be worth their while to create an auditing system for it. Well, the ATO has seen the signs and they are ready to pounce on your money.
That means that more and more Australians want to know what they can do to legally reduce their tax burdens, and in some cases, completely eradicate them without breaking a single Australian law. With my experience in Australian and international tax laws, I’ve been able to save my clients millions of their own money, just because they’re willing to take some admittedly unusual steps and take their bitcoin wallets offshore.
Panama, home to bitcoin millionaires
Ok, if you’re sick of the amount of money the ATO is demanding from your bitcoin gains, then you’re probably ready to look at what’s required to open a bitcoin wallet overseas. In this digital age, this is an increasingly common request I get from my clients, especially since business and trade can happen from anywhere.
Under the burden of an unbearable 48.5% tax rate, many of my clients are ready to simply pick up their bat and ball and leave Australia behind…at least for tax purposes. And I can help them with completely legal ways to do just that. In fact, I’ve been highlighted by the ABC article on the Panama Papers, showing that although my clients have taken business overseas, my methods of reducing their taxes were completely without fault.
So, while we’re on the subject of Panama, it’s just one starting place I’d suggest for handling your bitcoin wallet, as well as all your other business needs. Panamanian LLCs and corporations are very easy to set up, and the obstacles to starting are very minimal. The rules are friendly to foreign investment, and the tax laws are designed to invite more people to its lovely shores.
If you’re a full-time trader in bitcoin, (and I’ll come to that in a minute) Panama isn’t your only option. In fact, have you considered setting up an offshore bitcoin wallet in Costa Rica? Their migration laws are very welcoming to Australians, making it easy to set up a residence in the country. Malta is the same, a preferred place for clients who want to be closer to the European market.
That’s not all. Hong Kong is a great location for offshore entities, much like I would advise a bitcoin holder. Again, I’m getting ahead of myself here. But this is all to show that offshore locations around the world are both friendly to Australian business ventures, as well as allowing you to save serious tax dollars.
If you’re going to be operating as a trader, I’d recommend places like Singapore or possibly Malta, as the tax laws are designed to favor foreigners and keep the money you make without losing a chunk to international tax demands.
But if you want to just park some investments, this is where I’d suggest a bitcoin wallet offshore somewhere like the West Indies or Samoa. These countries offer incredible legal protection for your investments, separating you from the possible lawsuits or tax demands that would otherwise bankrupt you.
Now, there are some caveats that might deter some Aussies who would consider this option. First, you need to be willing to sever your residence ties with Australia. And for many of my clients who already travel for business, this is a step that doesn’t require much action. Second, if you can stay out of Australia for 183 days a year, then you can sever your residence ties and become exempt from the strict tax laws that burden the rest of us here. And besides, what’s not to love about spending 6 months of the year in the Caribbean Isles or in the hustle and bustle of Singapore?
But these are just a few general suggestions for where to hold an international crypto wallet.
Let’s get into some of the more exciting details (at least for me)…how to operate your bitcoin wallet.
I’m going to assume that since you’re considering the option of taking your bitcoin wallet offshore, you would admit that you’re fairly heavily vested in the cryptocurrency markets. And that’s a good thing because the more you can say that you’re a legitimate trader with proof of a frequency of trades and a system that you can demonstrate, that will work in your favor.
Here in Australia, even if your bitcoin wallet is offshore, if you’re considered a resident for tax purposes, you’re going to be asked to pay tax on any gains you make when you change it back into Aussie dollars. That’s when the government is going to start asking for its share. And I’ve never seen the ATO move so quickly, even before tax returns are due, to demand payment for crypto gains.
But if you’re a trader, that means that when you withdraw money from your offshore bitcoin wallet, it’s a capital gain, liable for capital gains taxes. But there are some benefits to that.
For instance, if you can show that your bitcoin investment has remained in your digital wallet for over 12 months, you’re only going to pay half the tax owing on your profits when you do sell. It’s very much treated like any property or business sale. So, that’s a nice perk right there.
I’m not exactly in sync with how the ATO thinks about the moment of ownership of a crypto asset. In my mind, as long as your currency is digital, even if you’re transferring between different coins, that’s not liable to be taxed. But the ATO wouldn’t really agree with me. But we’re walking that journey right now.
But this is where living overseas is really beneficial. For example, your capital gains from bitcoin trades aren’t taxed at all if you’re living in Panama. Neither are foreign income, corporate, or asset taxes. So, you can see where the appeal is for Australians fed up with their high tax bills.
Now, if you’re not a full-time investor, anything you earn from your crypto exchanges will be thought of as income. (Which doesn’t make sense to me either because full-time traders who depend on their trades aren’t making an “income”? What gives?). That means your bitcoin trades will be added to your normal salary, and that could put you up a tax bracket, possibly liable to pay the ATO a 48.5% tax rate. Yes, that’s likely.
For this, I’d recommend that your overseas bitcoin wallet is held, not by you, but by a family trust. There are several countries that welcome investment holding structures like trusts, and I’ve had many of my clients successfully park their investments and use a family trust to distribute the money among several beneficiaries. I don’t have the space to get into the significant advantages, but this is a very simple and an incredibly powerful way to eliminate tax burdens. And if the market happens to swing in your favour, you’ll be very glad you took the time to set the trust up.
There are many more ways to think about opening a bitcoin wallet offshore. And what I advised my last client would probably not work at all in your circumstance. Every business is different, and you hold your bitcoins for a different reason to others.
In conclusion, that’s why I offer a no-obligation assessment of what options you could use. Our team has experience in cryptocurrencies as well as being knowledgeable in international tax laws for several tax havens like Panama or Seychelles. Talk to us today to learn how to keep more of your bitcoin dollars.