In this article, we will go over the most important cryptocurrency basics and some general warnings about how to handle your cryptocurrency dealings based on personal and client experiences.
Here at Nomad Capitalist, we have followed Bitcoin and other cryptocurrencies for years. We’ve also received many clients who run crypto-based businesses. Helping these individuals create the perfect offshore plan has proven to be a challenge. There are ways to make it work, but they often require a bit more work (than traditional businesses and assets) and planning on both ends.
When it comes to crypto, the offshore plan has to be highly customized according to the client’s personal crypto strategy – and that’s what we excel in.
At Nomad Capitalist, we’ve helped over 1,500 clients go where they’re treated best. We can do the same for you. All you need to do is reach out to us, and we’ll handle the rest.
Cryptocurrency 101
In its most basic form, cryptocurrency is a decentralized digital currency.
If you want a slightly more complicated explanation, it is a peer-to-peer exchange of digital information through blockchain technology that allows for the purchase and sale of goods and services.
The first cryptocurrency — Bitcoin — emerged in 2008 in the wake of the financial crisis and Occupy Wall Street protests when faith in big banks was at its lowest. Bitcoin conveniently eliminated the middleman, stamped out interest fees, and made transactions transparent.
What was never clear was the exact identity of Bitcoin’s creator, who has only ever been known by the pseudonym Satoshi Nakamoto. Nakamoto published a proof of concept in October of 2008 that provided the necessary mathematics to make Bitcoin possible and even “mined” the first 50 units of the currency on January 3, 2009, before he left the Bitcoin project in 2010 and disappeared, leaving other developers to continue the work.
The beauty of Bitcoin and cryptocurrency, in general, is that there is no need for someone to be in charge. That’s why Nakamoto’s departure did not negatively affect the growth of the digital currency. Even today, you do not have to receive anyone’s permission to use cryptocurrency. You simply download the software for free and begin receiving and sending Bitcoins or other cryptocurrencies.
Over the past decade since Bitcoin’s inception, the currency’s value has risen to incredible levels.
You can use Bitcoin to buy products from over 100,000 merchants, including companies like Overstock.com, REEDS Jewelers, Dell, Expedia, PayPal, Microsoft, and even a private hospital in Poland. You can accept Bitcoin Payments for your store with a Bitcoin POS system, and you can even get paid in Bitcoin by certain websites for completing tasks. You can also always buy or exchange Bitcoins from individuals.
Best of all, Bitcoin is an international currency, which means that you do not need to deal with exchange rates and extra charges. And, while governments are now trying to regulate the disclosure and use of cryptocurrencies, they do not control them as they control fiat currencies.
Potential Obstacles for Crypto-Based Businesses
Still, cryptocurrencies are not without their challenges.
The high price volatility, the susceptibility to hackers, and the transaction delays form part of the overall challenges. However, there are additional challenges for Nomad Capitalists who want to set up a crypto-based business that is conducive to low-tax, offshore strategies. The following are some of the most important ones you should take into account.
Liquidity
One of the first things you should consider if you hold most of your assets in cryptocurrencies is how you are going to convert those assets into cash.
You may be able to use Bitcoin with over 100,000 merchants, but chances are you will still need to make some purchases in regular fiat money.
So far, our clients have not had any issues converting their Bitcoin into cash. This is thanks, in large part, to J.Rotbart & Co., a precious metals company that allows individuals to purchase precious metals with cryptocurrency.
In the case of one of our clients, he was able to buy gold at J.Rotbart & Co. with Bitcoin and then sell his gold for cash and place it in his bank account.It is also possible to use modern multiple-currency accounts and cards like Revolut to transfer your cryptocurrencies into different fiat currency accounts.
Structure
In regards to your overall offshore structure, setting up a cryptocurrency company in and of itself is not the issue. There are jurisdictions like Hong Kong, BVI, Bulgaria, and Estonia where it is quite simple to set up a company that uses cryptocurrencies.
The real challenge is finding a bank that will allow you to tie an account to a company that is involved with cryptocurrencies.
The simplest solution is – rather than convincing your current bank to let you participate in crypto activities – to find banks that already engage with companies involved in cryptocurrencies.
Through experience, we have found that Singapore, in general, is not crypto-friendly, and no reputable Singapore bank will take on crypto-based companies. So far, we have found good banks in the BVI, Hong Kong, and a few other countries that are involved with crypto businesses.
Institutions
Nomad Capitalists regularly have to interact with institutions like embassies, whether they are working to obtain a second passport or stopping in to pick up a visa to their next destination. And embassies like to see that you have a normal bank account with steady cash flow.
If you are involved in cryptocurrencies, you will need to ensure that you do not keep all of your assets in crypto. You will need at least some fiat money in your bank account. We had a client who basically had no money in the bank. Needless to say, this made our entire process far more complicated.
Consider making regular monthly payments to your bank account so you can show paychecks, or at least steady cash flow, whenever an institution makes such a request.
Employees
You will need to be careful how you represent your crypto business to any potential employees. You will need to be prepared to pay them in fiat currency instead of crypto, as not everyone will be as willing as you to jump on the crypto train.
That said, it will be helpful to find a candidate who is of a certain mindset who is open to cryptocurrencies. If you are looking for an employee in a more conservative environment, you may run into problems.
Not only will you have issues finding someone willing to come on board, but you may meet some resistance from the individual or their families if they are unfamiliar or uncomfortable with such a forward-thinking approach to currency and payment for their services.
Tax & Increasing Regulations
There is still quite a bit of confusion in many countries regarding how cryptocurrency should be categorized and taxed.
If it were up to most folks involved in cryptocurrency, Bitcoin and other crypto ownership would remain anonymous.
The way Bitcoin and other cryptocurrencies are designed, there are no account numbers, names, social security numbers, or any identifying features connected to your account. However, this has not stopped governments from insisting that you tell them about your crypto-holdings
In the United States, there are several laws coming down the pipe that could affect anyone holding cryptocurrencies. In fact, for folks with quite a bit of wealth stored in Bitcoin, being a US citizen could be a very costly situation.
We worked with a couple of guys who are big into cryptocurrency, and while their offshore plans were simple in many ways, the big elephant in the room was that they were US citizens.
It was an obstacle that kept us from making substantial progress because new laws in the US will force US persons to disclose their Bitcoin holdings just as FATCA forces the disclosure of foreign bank accounts.
And this does not only apply to individuals. The IRS has prevailed against CoinBase in a ruling that stated that the company has to report anyone who has an account with them worth $20,000 or more. There are, no doubt, many people who hold their money in CoinBase who have millions of dollars in Bitcoin, and the IRS wants to know so that they can impose substantial capital gains or ordinary income tax on their Bitcoin holdings.
The challenge that makes Bitcoin so difficult is that it can be targeted by so many different types of tax. It could qualify for capital gains taxes, but it could also qualify for ordinary income if you are trading it, and if you run a business that involves Bitcoin, it could potentially qualify for business income tax as well.
Now, like with many things, what you have already done in the past may not be fixable. If you’ve incurred a lot of capital gains that you have not paid, there’s probably not a lot you can do to go back and fix that. But, going forward, having a second passport is going to be very important for Bitcoin owners and investors — really, of any citizenship, but especially US citizens – who want to get out from under the tax burden their government imposes.
There are many ways that you can get a second passport in a short amount of time, and if you are successful with your Bitcoin investments, even the $1 million price tag for European citizenship by investment may not be a problem for you.
Get A Plan B Now
Every seven and eight-figure entrepreneur should have a Plan B. If you’re a crypto investor or entrepreneur, you need it more than regular business people. Why? Because of the acute volatility associated with the kind of assets you deal with.
You never know when a government is going to ban crypto or levy heavy taxes on it. If you’re a US citizen, you must have a backup passport on which you can rely if things were ever to get tricky in the US. You must also seriously consider renunciation if you plan to escape high US taxes.
If you’re not a US citizen, you should look into establishing residency in a crypto-friendly jurisdiction that adds value to your personal and professional portfolio.
Whatever way you want to go, you must act now. Because the world of crypto and immigration programs is highly fast-paced.
Act now so you don’t have to regret it later. Set up a call with us today to discuss your holistic offshore strategy.
