How to avoid & reduce crypto taxes using offshore company

[cryptovkng]

Hi all!

After researching and reading this forum for weeks I have finally come up with a plan that I think MIGHT work to reduce taxes from crypto as much as possible.

(Sorry for the long post but it was a lot to explain..! )

Strategy:
- I am currently tax resident in a high tax country in Europe which tax "professional" crypto investing and trading as personal income tax (up to 50%)
- I will move to and become tax resident in another country that benefits my crypto investments and trading, and Bulgaria is my top candidate. I will need to rent an apartment all year so I can actually prove to my goverment that I am permanently living somewhere else and also to get temporary residence in Bulgaria and become tax resident.
- Bulgaria has 10% flat tax rate on income and capital gains, which is not a lot, but I hope to reduce this (for parts of my investment / trading)
- Create a 0% tax offshore IBC that I will use to trade/invest from.

Example execution:
- My personal account has 10 BTC and 100k USDT.
- Issue a loan of 100k USDT to the IBC which I transfer to another crypto exchange account registered under the offshore IBC company.
- I will buy BTC spot with USDT received as a loan and use the BTC funds to trade on different exchanges, both spot and derivatives such as Binance, Bitfinex, Bybit, FTX etc.
- When I have made profits from investing / trading I will pay the 100k USDT loan back to my personal account.
- The remaining funds are now 100% profits owned by the IBC company which is taxed 0%
- I can either pay myself a salary (10% Bulgarian income tax), dividends (5% tax), spend the funds directly, or just keep them in the company to invest / trade in the future (no taxes as long as funds are owned by the company)

Benefits:
- I can pay myself dividends and pay 5% tax instead of 10% capital gains tax
- I can spend funds directly (0% tax)

Questions I have:
- Are there any legal issues with issuing this loan by sending USDT or BTC to another account registered under the IBC? Is it enough to set up a written contract with the amount, date & time, names and signature?
- How should I report the 100k USDT as long as it's issued as loan? Do I need to report it as part of my holdings, even though I don't actually control the funds?
- How are the rules for spending funds on things not related to the business activity? Can I use profits from trading/investing to pay for rent, meals, travels without concern if I have an IBC that don't require accounting and auditing (such as Seychelles)? Can tax authorities in Bulgaria, or where I live now, create any sort of problems if I do this?
- In the example I issued roughly 50% of my holdings as loan. Is there any reason I should not issue 100% of my holdings as loan to the IBC to avoid taxes completely before I either pay salary or dividends?


Does anyone here know if this set up will work and if it's actually 100% legal? I want to do everything by the law, and also report everything I'm required to

Thanks for all the help!

 

[cryptovkng]

... I should note that I am aware of CFC rules and how they could impact, but it seems to not be an issue with Bulgaria according to this article: Bulgaria introduces new interest limitation and CFC regimes

"Separately, a last-minute amendment in the rules introduced an exemption from the CFC regime that may render the regime futile with respect to certain offshore jurisdictions, which are traditionally in the focus of CFC systems. In particular, it was added that CFCs which are not subject to corporate taxation on their profits in the foreign jurisdiction, will not be taxed in Bulgaria."

 

[Martin Everson]

lol...why don't you simply move to Bulgaria and pay the 10% tax full stop?

Your really thinking about ALL this instead of willingly pay 10% tax so the government can run public services and provide an ambulance when you call for one? Damn your hardcore cold with the tax optimization for real.

 

[cryptovkng]

lol...why don't you simply move to Bulgaria and pay the 10% tax full stop?

Your really thinking about ALL this instead of willingly pay 10% tax so the government can run public services and provide an ambulance when you call for one? Damn your hardcore cold with the tax optimization for real.

Okay, first of all the main trouble with all this is the relocation and becoming tax resident in a new country, and that I have to do ANYWAY. Paying 50% is just not an option (I did do that last year).

If you refer to "ALL this" as opening an IBC company and trade using that company, I strongly disagree with you. From what I know it's good practice to invest or trade through a company instead of directly with private funds, ESPECIALLY if trading activity and/or value is high. One reason for this is reporting and tax calculation. I spent 12 hours every day for 4 weeks last year to calculate my taxes from 2017 (it was a nightmare), so if I can separate my long term investments (which I don't mind having as personal assets) and active trading that would make tax reporting MUCH easier and less work. Also, this way I avoid having the tax authority audit my active trading which makes life easier for both them and myself.

This is the main motivation to register the IBC as explained. Setting up the IBC is easy and doesn't cost much, and I don't even need a bank account tied to it. If I can save taxes that's just an extra bonus. But I want to know if this is legal, or if it can create any other issue I haven't thought about.

Thanks

 

[Artemis Eleutheria]

So ... you told the taxman you have bitcoins ... and looking for a way to "untell" it?

 

[Martin Everson]

I am talking about just moving and paying 10% taxes? A long winded explanation to justify yourself is not needed cyrptovkng to be honest.

 

[OTR365]

Bulgaria is my top candidate.

I lived one year in Sofia, but I must ask this: Why Bulgaria + IBC structure, when you could live in a country that does not tax personal crypto profits at all? Slovenia, my friend, Slovenia. Also bureaucracy-wise Slovenia (or some other country that does not tax personal crypto profits) could be the easiest route.

I hope this 10 BTC + 100K USDT was "a sample only", not your real situation. For growing capital & general well-being, it is better if your living expenses are only a tiny slice of your trading profits.

 

[cryptovkng]

So ... you told the taxman you have bitcoins ... and looking for a way to "untell" it?

Not sure what you mean, but I don't want to hide anything. I will report everything I own and all my profits/loss according to tax rules.

I am talking about just moving and paying 10% taxes? A long winded explanation to justify yourself is not needed cyrptovkng to be honest.

I don't really understand what you mean by that, but to conclude I do happily pay 10% tax for all my profits, the main questions I had was regarding IBC and how to trade through that company to avoid complicated tax reporting when trading derivates, futures etc on different exchanges. My bad for not being very clear about that in the OP, so now let's focus on the topic instead

I lived one year in Sofia, but I must ask this: Why Bulgaria + IBC structure, when you could live in a country that does not tax personal crypto profits at all? Slovenia, my friend, Slovenia. Also bureaucracy-wise Slovenia (or some other country that does not tax personal crypto profits) could be the easiest route.

I hope this 10 BTC + 100K USDT was "a sample only", not your real situation. For growing capital & general well-being, it is better if your living expenses are only a tiny slice of your trading profits.

I know about Slovenia. I even went there and talked to different lawyers and the tax office. First of all Slovenia has proper CFC rules in place, so if I trade through an IBC I will pay Slovenia corporate tax +income tax. Not an option. Secondly, Slovenia will tax all capital gains profits as income tax if the person is considered to be trading or investing actively / professionally, which means progressive tax rates up to 50%. This is the same rules as quite many other countries have, but it's very difficult to know if and when you quality as being "professional". Because of this Slovenia is unfortunately not an option anymore.

 

[OTR365]

...so if I trade through an IBC I will pay Slovenia corporate tax +income tax.

Obviously trading cryptos via a company in Slovenia would be a bad idea.

Slovenia will tax all capital gains profits as income tax if the person is considered to be trading or investing actively / professionally, which means progressive tax rates up to 50%.

Did you ask lawyer/tax office specifically about crypto profits, not just capital gains in general? So many sources tell crypto gains are not counted as capital gains in Slovenia. But I can't argue if they told these non-taxable items become taxable for active traders.

 

[Spinat]

Obviously trading cryptos via a company in Slovenia would be a bad idea.

Why do you say so? curious to know??

I had was regarding IBC and how to trade through that company to avoid complicated tax reporting when trading derivates,

It's not going to work that way, only if you move there (as Martin Ever.. already said) you can avoid to pay tax from that part of money locally. It's where the company is controlled that maters.

 

[cryptovkng]

Did you ask lawyer/tax office specifically about crypto profits, not just capital gains in general? So many sources tell crypto gains are not counted as capital gains in Slovenia. But I can't argue if they told these non-taxable items become taxable for active traders.

I did ask the layer office and they confirmed it is 0% tax on crypto profits in Slovenia (she was not a lawyer herself though). There are also public documents from the government / tax office confirming this. And yes, it's very clear that active traders will be taxed as income even though it's up to the tax authority to decide each specific case.

Why do you say so? curious to know??

Because Slovenia has CFC rules which means they will tax the business as if it was a local business in Slovenia. You will not benefit from the 0% tax with the IBC.

It's not going to work that way, only if you move there (as Martin Ever.. already said) you can avoid to pay tax from that part of money locally. It's where the company is controlled that maters.

I know this, and as I stated in the second post Bulgaria has CFC rules as of 2019 BUT they seem to exclude IBC's from 0% tax offshore jurisdictions. I repeat:

"Separately, a last-minute amendment in the rules introduced an exemption from the CFC regime that may render the regime futile with respect to certain offshore jurisdictions, which are traditionally in the focus of CFC systems. In particular, it was added that CFCs which are not subject to corporate taxation on their profits in the foreign jurisdiction, will not be taxed in Bulgaria."

https://transferpricingnews.com/bulgaria-introduces-new-interest-limitation-and-cfc-regimes/
So if this is actually true that means it should be possible to set up an IBC, make a personal loan to the IBC and use those funds to trade with, and pay back the loan at a later time. The trading activity done with the IBC account should not require accounting and tax calculation (?), but you will of course pay income / dividend tax when cashing out. This is exactly what I want to achieve.

 

[Spinat]

Because Slovenia has CFC rules which means they will tax the business as if it was a local business in Slovenia. You will not benefit from the 0% tax with the IBC.

But it is the same as in any other country / jurisdiction! As long as the management and control isn't in the country where the company is you won't get any tax benefits unless you go the underworld way

 

[cryptovkng]

But it is the same as in any other country / jurisdiction! As long as the management and control isn't in the country where the company is you won't get any tax benefits unless you go the underworld way

No, only if the country has CFC rules which states that. Many countries do not have that which means they will NOT tax the company as if it was local even if it's an offshore IBC as described. At least this is what I have understood from everything I've read, if that's in fact wrong then please correct me

 

[cryptovkng]

Read this article for example:
https://tax-free.today/blog/cfc-rules/
.. We are getting a bit off topic now. Anyone here that can comment on my questions in OP? I would really like to have some feedback to those questions, thanks!

 

[Spinat]

Many countries do not have that which means they will NOT tax the company as if it was local even if it's an offshore IBC as described.

That is true, but you will still have obligations to pay taxes in the country where you live.

 

[cryptovkng]

That is true, but you will still have obligations to pay taxes in the country where you live.

No corporate tax, but income tax and dividend tax, yes. No issues with paying that.

 

[Spinat]

Are you 100% sure about that. If the tax office comes after you and find out you have a company somewhere else I'm 99% sure they will take the entire income from that company that belongs to you and tax you personally. The only exception would be that you can make use of double tax treaties which may or may not reply in this case.

I just saying but if someone can tell me I'm wrong I'm fine with that.

 

[cryptovkng]

Are you 100% sure about that. If the tax office comes after you and find out you have a company somewhere else I'm 99% sure they will take the entire income from that company that belongs to you and tax you personally. The only exception would be that you can make use of double tax treaties which may or may not reply in this case.

I just saying but if someone can tell me I'm wrong I'm fine with that.

I feel you are asking the same question for the third time now, I think the article I linked to should clarify.

 

[Soulec]

Okay, first of all the main trouble with all this is the relocation and becoming tax resident in a new country, and that I have to do ANYWAY. Paying 50% is just not an option (I did do that last year).

If you refer to "ALL this" as opening an IBC company and trade using that company, I strongly disagree with you. From what I know it's good practice to invest or trade through a company instead of directly with private funds, ESPECIALLY if trading activity and/or value is high. One reason for this is reporting and tax calculation. I spent 12 hours every day for 4 weeks last year to calculate my taxes from 2017 (it was a nightmare), so if I can separate my long term investments (which I don't mind having as personal assets) and active trading that would make tax reporting MUCH easier and less work. Also, this way I avoid having the tax authority audit my active trading which makes life easier for both them and myself.

This is the main motivation to register the IBC as explained. Setting up the IBC is easy and doesn't cost much, and I don't even need a bank account tied to it. If I can save taxes that's just an extra bonus. But I want to know if this is legal, or if it can create any other issue I haven't thought about.

Thanks

Did you find the final solution for implement your idea?

As you I am lookinf for a solution for avoiding taxes in crypto.
Someone said to me constituting a company abroad being in Georgia, would be possible a avoid taxes and the expenses for doing that are not high. Georgia gives a 365 visa for practically everybody. Telling the truth, I don`t know why the need of having a company abroad and why not trading incomes are not considered profits obtained in the abroad and not taxable.

Por tugal was a good solution apart of a low cost of living, weather, security and other reasons for living there, but it seems that going deeper, if you are doing crypto daytrades and apart of this, trading is your unique source of income, autorities can be consider you professional trader, even doing that individually and with your own capital and tax. This happens to in other supossed crypto friendly countries as Malta and others.

Apart this possible choice of Georgia -maybe someone can confirm this- or the 10% flat rate in Bulgaria. I have not seen any other option. Belarus is another choice and no doubt there you will not have any problem with crypto taxes until 2023, but get the TRP (Temporary Residence Permit) is really difficult as happens with Malaysia.

 

[Tax Cow]

Belgium - a no-brainer for EU citizens.

Get a ~700 eur/quarter (2.8k a year) medical insurance from there, and register with Brussels city council as "economically self-sufficient" permanent resident.

No capital gains tax on crypto sales. Feel free to leave after you've cashed in. I give no guarantees on what your home country will think of this.