Crypto (DeFi) tax setup - possibly with offshore company

[z00m]

My wife and I are over Germany. We both want to leave. Our main source of income will be from Liquidity Mining, which in Germany is still a grey area and my tax advisor tries to label it as capital gains. But I read in many countries it is considered as normal income tax.

So we'd like to relocate to a country where we either pay a lot less tax on income (if Liquidity Mining is considered as such) or found a company somewhere crypto friendly and live in a country where foreign dividends are tax exempt.

Our challenge kind of is, that we can't / don't want to just move anywhere. Germany needs to have a double taxation agreeement with that country, we prefer warm countries and my wife really doesn't want to live in the UAE or most eastern European countries.

I looked into the Cyprus Ltd, which seems okay. I would pay 12.5% corporate tax + 2.65% on payed out dividends for a Mediterranean island. But maybe there are better setups.
What about the Portuguese NHR program paired with an offshore company? Maybe Thailand or Philippines with its territorial tax system? Any suggestions?
Also I read about the Malta Ltd, that you first have to pay the 35% tax and than you get 30% back. Which for me wouldn't work, since I would have to exchange Crypto to Fiat first to have enough Fiat money to even pay the taxes. At least that is how I understood it.

Thanks

 

[CyprusLaw]

My wife and I are over Germany. We both want to leave. Our main source of income will be from Liquidity Mining, which in Germany is still a grey area and my tax advisor tries to label it as capital gains. But I read in many countries it is considered as normal income tax.

So we'd like to relocate to a country where we either pay a lot less tax on income (if Liquidity Mining is considered as such) or found a company somewhere crypto friendly and live in a country where foreign dividends are tax exempt.

Our challenge kind of is, that we can't / don't want to just move anywhere. Germany needs to have a double taxation agreeement with that country, we prefer warm countries and my wife really doesn't want to live in the UAE or most eastern European countries.

I looked into the Cyprus Ltd, which seems okay. I would pay 12.5% corporate tax + 2.65% on payed out dividends for a Mediterranean island. But maybe there are better setups.
What about the Portuguese NHR program paired with an offshore company? Maybe Thailand or Philippines with its territorial tax system? Any suggestions?
Also I read about the Malta Ltd, that you first have to pay the 35% tax and than you get 30% back. Which for me wouldn't work, since I would have to exchange Crypto to Fiat first to have enough Fiat money to even pay the taxes. At least that is how I understood it.

Thanks

Trying not to be biased but Cyprus is one of your best options, if not the best. It combines an excellent set-up together with a nice place to live in. We have a lot of people from Germany relocating to Cyprus, so the German community is quite large, and most are in crypto-related business. I would be happy to discuss this more via PM.

 

[Mr Gus]

If you setup a a Maltese holding above your Maltese trading you can create a fiscal unit which gets rid of having to pay the 35% first and requesting a refund and that way you can pay the 5% directly, however it would require a third company with the additional cost it involves, so it could be a good option if you have high profits.

However if you were to remit that profit to Malta you will still have to pay the regular income tax rates on it, or you have to wait 1 or 2 years, then it will be seen as capital gains and those can be remitted tax free to Malta, so if you where trying to live of it Malta would not be ideal.

 

[z00m]

@WIE7 Thx, good to know. How about instead of operating a third company to live somewhere where payed out dividends from that holding to me is tax exempt?

 

[Mr Gus]

@WIE7 Thx, good to know. How about instead of operating a third company to live somewhere where payed out dividends from that holding to me is tax exempt?

What did you have in mind?

 

[z00m]

I read about the Portuguese NHR status:

"According to the rules of non-habitual resident NHR status in Portugal, most foreign source income is exempt from Portuguese income tax for ten consecutive years, as well as income taxable in another country."

 

[JackAlabama]

My wife and I are over Germany. We both want to leave. Our main source of income will be from Liquidity Mining, which in Germany is still a grey area and my tax advisor tries to label it as capital gains. But I read in many countries it is considered as normal income tax.

So we'd like to relocate to a country where we either pay a lot less tax on income (if Liquidity Mining is considered as such) or found a company somewhere crypto friendly and live in a country where foreign dividends are tax exempt.

Our challenge kind of is, that we can't / don't want to just move anywhere. Germany needs to have a double taxation agreeement with that country, we prefer warm countries and my wife really doesn't want to live in the UAE or most eastern European countries.

I looked into the Cyprus Ltd, which seems okay. I would pay 12.5% corporate tax + 2.65% on payed out dividends for a Mediterranean island. But maybe there are better setups.
What about the Portuguese NHR program paired with an offshore company? Maybe Thailand or Philippines with its territorial tax system? Any suggestions?
Also I read about the Malta Ltd, that you first have to pay the 35% tax and than you get 30% back. Which for me wouldn't work, since I would have to exchange Crypto to Fiat first to have enough Fiat money to even pay the taxes. At least that is how I understood it.

Thanks

There is strong evidence liquidity mining is self-employment income and thus invokes normal income taxes plus social security.
Best to put that whole thing in a company and take it from there.

 

[z00m]

There is strong evidence liquidity mining is self-employment income and thus invokes normal income taxes plus social security.
Best to put that whole thing in a company and take it from there.

True. Unless you're somewhere without income tax (UAE).

But what about territorial tax systems. Let's say I use a platform of a company based in Singapore that does the Liquidity Mining for me. So the source of income is clearly outside the country where I would live. That shouldn't trigger any income tax inside the country, right?

 

[backpacker]

True. Unless you're somewhere without income tax (UAE).

But what about territorial tax systems. Let's say I use a platform of a company based in Singapore that does the Liquidity Mining for me. So the source of income is clearly outside the country where I would live. That shouldn't trigger any income tax inside the country, right?

It depends how you set it up and it depends on the specific definitions of the countries' territorial tax system.
Case studies:

• In Georgia your example would work if it it is not considered to be a "business" (-> i.e. you should be able to cover your living expenses from other sources of income such as local bank interest in order to avoid any discussions).
• In Thailand it will definitely not work (-> simply because of the crypto part).
• In the Philippines it will work if you are not related to the foreign company (-> i.e. you do everything as a private individual).

It really comes down to the fine print.

Maybe Thailand or Philippines with its territorial tax system? Any suggestions?

If you are interested in the Philippines: I wrote about it here -> https://www.offshorecorptalk.com/threads/singapore-options.34770/#post-185372 (starting with post #8 )
and here -> https://www.offshorecorptalk.com/th...r-digital-nomad-post-covid.34741/#post-184992 (you have to read the entire thread to make sense out of it in context with the Philippines).

 

[JackAlabama]

True. Unless you're somewhere without income tax (UAE).

But what about territorial tax systems. Let's say I use a platform of a company based in Singapore that does the Liquidity Mining for me. So the source of income is clearly outside the country where I would live. That shouldn't trigger any income tax inside the country, right?

UAE... Which is the first country you quote right away despite your wife not wanna live there

If you use a platform e.g. the one in Singapore you mentioned (which has a part of its name of something you can eat) or any other lending/staking (whatnot) platform. It is still you who performs these tasks and it is different than having a company with management in a different place than you.
Thailand just claims anything crypto is automatically with you due its nature of nowhere/everywhere at the same point. So this largely depends on how the country in question sees it.
Panama & Paraguay would be ok with such an arrangement as a few others.

 

[z00m]

If you are interested in the Philippines: I wrote about it here -> https://www.offshorecorptalk.com/threads/singapore-options.34770/#post-185372 (starting with post #8 )
and here -> https://www.offshorecorptalk.com/th...r-digital-nomad-post-covid.34741/#post-184992 (you have to read the entire thread to make sense out of it in context with the Philippines).

Interesting. Besides getting into the country right now seems quite difficult.

UAE... Which is the first country you quote right away despite your wife not wanna live there

Got me there

If you use a platform e.g. the one in Singapore you mentioned (which has a part of its name of something you can eat) or any other lending/staking (whatnot) platform.

Great catch. Yes it is

Panama & Paraguay would be ok with such an arrangement as a few others

I will have a look into those. But from what I read, people go to Panama to save on tax but don't really stay there for long and look for other options.

So in the end it will most likely come down to a company with a good tax setup.

 

[Mr Gus]

I read about the Portuguese NHR status:

"According to the rules of non-habitual resident NHR status in Portugal, most foreign source income is exempt from Portuguese income tax for ten consecutive years, as well as income taxable in another country."

The thing with the NHR is that a lot of people don't actually follow the actual rules and so far the Portuguese tax authorities have left everyone making use of the NHR alone. Reason being they don't want to scare people away from using the NHR program because it attracts foreign investment and talent. However that is something that could change in the future so I would personally make sure that you structure yourself properly with help of a local tax advisor that can confirm on paper that your income will not be taxed under the NHR.

So in your case the question is what type of income is liquidity mining? Portugal sees crypto currencies as actual currencies like the USD and EUR. So It could either qualify as interest or dividend income, I would personally think as interest income because it is income derived from holding a currency, and dividend income would mean you would have paid tax on it before, which isn't the case.

However it still has to be foreign sourced which would involve quite a lot of planning and would increase your cost by a lot, setting up a foreign company, creating substance in that foreign country by setting up office hiring foreign directors, doing meetings there etc. So unless you are making 100's of thousands a year from liquidity mining it would probably not make it very profitable and also a very big hassle.

But like I said just get in touch with a local tax advisor they might tell you something different..

 

[backpacker]

Interesting. Besides getting into the country right now seems quite difficult.

To this regard the Philippines is about the same like most other SE-Asian countries. Many of them using the current "pandemic" for their own political advantage. Banning foreigners is one of these advantages.
However, with regards to the Philippines it will change within the next three months. Upcoming elections and the majority of the population being fed up with a cure (loss of income, starvation) that is much worse than the disease (COVID) will open the country again. Specifically Mr. Marcos, most likely the next president, is not exactly a fan of a closed country (that distinguishes him significantly from the incumbent president).
If you are interested in the country and settling there, look into SRRV (Special Retirees Resident Visa, available for >50 years) or SIRV (Special Investor's Resident Visa, min. investment USD 75'000.- in the local economy).

 

[Mr Gus]

This may sound weird however since you are from Germany, the Netherlands might be interesting as well, it isn't a warm country at all like Germany however there is no capital gains tax in the Netherlands only a wealth tax, if you get high returns on your money you could pay a very low amount of taxes effectively.

For example if you have 500K you would pay 4596 wealth tax on that, now lets assume you are yielding 10% so 50K that would come down to a tax rate of a little les then 10%. Now the higher your yield the lower amount of effective tax, I have to add that if you make negative returns or low returns it is far from interesting because you will pay a very high effective tax, you will even pay tax if you make negative or no returns.

 

[JimBeam]

Liquidity Mining

Oh wow... Out of curiosity what is the amount of funds you're using for this liq. mining operation?

my wife really doesn't want to live in the UAE

Take her for a 10 day vacation/trial trip in March or April and she might like it

This may sound weird however since you are from Germany, the Netherlands might be interesting as well, it isn't a warm country at all like Germany however there is no capital gains tax in the Netherlands only a wealth tax, if you get high returns on your money you could pay a very low amount of taxes effectively.

For example if you have 500K you would pay 4596 wealth tax on that, now lets assume you are yielding 10% so 50K that would come down to a tax rate of a little les then 10%. Now the higher your yield the lower amount of effective tax, I have to add that if you make negative returns or low returns it is far from interesting because you will pay a very high effective tax, you will even pay tax if you make negative or no returns.

This is great thing, honestly...
Especially, if you're from west Germany (Nordrhein-Westfalen or Lower Saxony) it will be close to your family and friends and also will be easy (or easier) for you to adapt.
https://taxsavers.nl/no-capital-gains-tax-in-the-netherlands/