A large number of crypto trading platforms have been registered in the island called “Puerto Rico” which falls within the US jurisdiction. This is so because of an obvious reason i.e. cheap taxes which benefit both, the crypto trading platforms as well as crypto owners.
It was in the year 2012 when two crypto-specific tax laws were introduced in Puerto Rico which brought down tax rates significantly. Since then, the famous billionaires, who also happen highly valued crypto holdings, have been settling their permanent residences on the island. The first notable billionaire to move there was Brock Pierce who is amongst the inventors of Tether – a cryptocurrency.
However, the tax rate on crypto, which is collected under the tax head “capital gains” is relatively on the higher side i.e. 37%. But crypto owners, residents of the Caribbean island, are exempted from crypto tax, if they are keeping digital assets for a long-term basis. However, for a short-term basis, they too are liable to pay taxes on crypto, but the rate is relatively very low as compared to other US states.
Similarly, the crypto tax rate is also on the higher side in the UK as well. Consequently, it has been seen that many of the British crypto owners too have left their motherland and settled in crypto tax-friendly states.
Chris Etherington, who is a British chartered accountant, working with an accountancy firm called “RSM”, said that he knew many UK-based crypto owners. However, they have now moved into other states because they felt that capital gain tax on crypto in the UK, is exorbitant. So they left the UK and established their residences in countries where crypto tax was cheaper such as UAE etc. Etherington also warns that increasing crypto tax further would not be in the best interest of UK. He argues that more tax would lead the taxpayers in leaving the countries. Resultantly, a revenue loss will be caused upon the national exchequer, said Etherington.
On the other hand, UK’s HM Revenue & Customs (HMRC) has declared crypto assets to mean “property”. Under the UK law, crypto is now regarded as a “property” similar to that of shares, stocks, gold etc. The purpose of declaring crypto as “property” is obvious i.e. bringing crypto into the tax net under the heading “capital gains”. The situation with the Internal Revenue Service (IRS) of the US is also no different. IRS is also the national tax collector of the US like HMRC. Under the US tax laws, crypto has been defined to mean “property” and therefore liable to be taxed.
Nowadays, worldwide tax collectors are trying to tighten their grasp on crypto because they want to collect taxes. They know that if they will start collecting tax against crypto holdings then it will significantly increase the revenue collection.