You may well be reading this blog after having read my previous two blogs on Satoshi Island. If so, I am going to make the giant leap in logic that you have concluded that the SI-NFT is not going to meet your needs and expectations. This blog, therefore, looks at some of the real-world solutions for the Crypto Community.
Failure to Plan…is Planning to Fail
There is no lack of promoters in the crypto sphere who are promoting alternative residences and citizenships. They provide a means for crypto enthusiasts to meet their combined goals of reduced tax burden whilst living an enjoyable lifestyle within a community of like-minded people.
Some make trite statements like “Go where you are treated best“. This is obvious but not terribly helpful in practice. Others put the cart before the horse with statements like “First, you need to choose which jurisdiction is the best for you”. These promoters are clearly trying to have you focus on the jurisdiction they are selling. Meanwhile, they overlook the issues of how you get from where you are now without financially crippling yourself.
Listening to these promoters is like first talking to a brick salesperson at a DIY store when logically the initial step in building your new life is to work with a qualified and experienced architect. The purpose of this blog is to provide a step-by-step roadmap for members of the crypto community. Crypto miners or exchanges may have specific other needs such as access to energy and stable regulatory regimes. Therefore, I will limit my discussion to those crypto enthusiasts who are actual investors or traders.
Step One: Understand where you currently stand and what is needed to move
There is no point in planning to reach a destination without first recognizing where you are starting your journey. In short, this requires you to fully understand the current national tax regime (and sometimes state or provincial) to which you are subject. Once you know where you are, you can then determine what would be involved to move yourself to a lower tax state/province or even country.
The US, Canada, UK, South Africa, Australia, etc. each have their own rules on what steps are required to leave that particular tax regime. Some jurisdictions such as the US require you to renounce citizenship in order to leave. Other jurisdictions require you to sever ties such as homes, etc. and acquire them in another jurisdiction. Some require the new jurisdiction to be one that has a tax treaty with the current jurisdiction. Finally, others simply require you to limit the number of future days in that jurisdiction.
Knowing what is necessary to leave and stay departed is essential for you to determine if this is acceptable to you and any accompanying family members.
Step Two: Understand what happens if you leave, and plan to minimize the pain
Once you understand what is involved in leaving your current tax jurisdiction, you then need to fully understand the financial impact of departing. Is there an Exit Tax that is triggered? Can you avoid the triggering of an Exit Tax? Can you keep a home etc. in that jurisdiction?
What strategies are available such as gifting, trusts, and tax treaty relief to reduce the financial impact of departure?
As you can quickly appreciate, properly dealing with these two steps requires experienced and qualified professional advice. The “cost of failure” of relying on “internet research” or “salespeople” makes the cost of professional advice look like a rounding error. Along with avoiding unnecessary tax liability, professional advice in developing your “Fire Escape Plan” also provides peace of mind and a smooth departure. This will prove invaluable in any potential future audit.
Step Three: Understand you and your accompanying family’s needs, preferences and desires
Many promoters tout the fact that the passport or residence permit is in a jurisdiction that “does not tax crypto”. That fact is irrelevant if the jurisdiction is not one that meets your needs. It is worth remembering that lonely Pitcairn Island has absolutely no taxes. However, only 67 people on earth chose to live there. Many of the passport jurisdictions which are being heavily promoted are undoubtedly fine for a short vacation. However, they may be inadequate or even unbearable on a full-time basis.
It is absolutely essential that you and your family undertake a deep and truthful self-examination of your business and lifestyle needs. You should then research the short-list of jurisdictions that you feel will meet those needs. Remember that if there are accompanying spouses and children, this list must be one that everyone agrees on. In developing this shortlist, look at the community, accessibility, liveability, lack of unwanted restrictions, and budget.
Of course, each client’s situation and goals are unique. However, some of the most popular destinations where we have been moving crypto enthusiasts include Miami, the Bahamas, Puerto Rico, El Salvador, Portugal (especially) Madeira, Berlin, Zug Crypto Valley, Singapore, and Dubai. Depending on the current tax jurisdiction it may be necessary to secure a second citizenship through lineage, naturalization or investment. In other cases, it is necessary to choose a jurisdiction that has a tax treaty with the home jurisdiction.
Step Four: Determine cost and tax-efficient ways of entering your chosen jurisdiction
Having gone through the effort of leaving your prior jurisdiction’s tax pot, you want to avoid jumping into another jurisdiction’s tax fire. You also want to acquire the right to live in the new jurisdiction in the most cost-efficient manner possible.
Once you have your shortlist of jurisdictions, you then need to work with professionals who can advise on the way to minimize your future taxation. This may be a result of being a zero income tax regime; exclusion of crypto earnings from taxable income; specific tax sheltering regimes or pre-immigration tax planning. In addition, it is critical that one receive professional NON-CONFLICTED advice on the most cost-efficient method of securing the necessary immigration/citizenship status required both to depart your current jurisdiction and to live in your new tax home. Your advisor’s compensation should be unbiased. That is to say, it needs to be based on acting in your best interest, not in recommending a solution that pays them a commission.
The possible residence pathways can result from one of your current or future lineage citizenships (e.g. EU country nationals can live in 27 different countries); pensionado; digital nomad; start-up visa; skilled worker; or finally Golden Visa (i.e. residence or citizenship by investment) options. Too often, promoters only discuss expensive Golden Visa options. This is because they receive a high commission from this pathway.
Step Five: Put together and execute an end-to-end plan that maps out all the costs, steps, and timing involved in executing your family’s strategy.
This is equivalent to mapping out a path through a minefield that you want to cross to safer ground. Success depends on designing and executing such a plan.
In closing, remember that a properly designed and executed plan will have an absolutely profound impact on the life of yourself, your family, and your future descendants. In short, your future happiness depends on doing this right.