How to Move Your Crypto Offshore
With the price so high, Bitcoin is back in the news in a big way. But it’s a topic we’ve dealt with a lot over the last eight years. The first time was when a client wanted to move his crypto offshore.
That was June 2016 and the price of Bitcoin was sitting around $700. He was a very early investor in the cryptocurrency and, at the time, had 20,000 Bitcoins (that’s not a typo).
As with many new crypto millionaires, he was concerned about how to protect it.
In this article, we’ll talk about the planning we did for him… and for quite a few other crypto investors since then.
No matter whether their gain was in the six-, seven-, eight-, or even nine-figures.
The Benefits of Moving Your Crypto Offshore
#1) Enhanced Privacy
You may have heard that cryptocurrencies — Bitcoin in particular — are anonymous. But that’s not quite true. They are “pseudo-anonymous”; individual transactions are not necessarily directly tied to you. However, with enough data, clever algorithms can look at the blockchain (the public record of all transactions that have ever occurred), and trace it back to you.
Also, under current rules, when you convert your crypto to currency, there’s a record of the transaction tied to your name.
Offshore entities can offer a higher level of privacy. This is because the assets are not held directly in your name. And offshore jurisdictions are much more private than almost anything in the US.
#2) Asset Protection and Diversification
Crypto is like any asset. If you have enough, it makes sense to move it out of harm’s way by moving it into an offshore structure like a trust or LLC.
Setting up an offshore entity separates you from your assets. Even if you’re threatened with legal action, your assets remain secure.
#3) A Better Tax Situation
The US government taxes its citizens on their global income. But, you can lower taxes by structuring your holdings in certain ways. If done right, your heirs may gain tax benefits. And if you’re willing to move, you might be able to book your profits at a lower tax rate.
Could you qualify for a 5% tax rate on your crypto gains?
Although not easy, it’s possible. The Legislative Assembly of Puerto Rico first introduced certain tax incentives in 2012. These incentives include big benefits for new residents on dividends, interest payments, and capital gains.
The reforms were part of a broader package. It was designed to attract people and businesses to the territory and spur economic growth.
The incentives are structured to provide 100% tax exemption on Puerto Rican dividends and interest payments. This exemption also applies to short- and long-term capital gains earned after becoming a resident. For capital gains accrued before becoming a resident, a 5% tax rate applies after ten years of legal residency. That includes crypto profits.
#3) Crypto-Friendly Places
A “crypto-friendly jurisdiction” refers to a region or country with favorable legal frameworks, regulations, and tax policies. They are for the use, trading, holding, and development of cryptocurrencies and digital assets. In this supportive environment, innovation and investment in crypto are encouraged. It provides clear guidelines and reduces legal uncertainties for people and businesses in crypto.
In a crypto-friendly jurisdiction, you might find:
- Clear Regulatory Framework: Laws and regulations are clear. This makes it easier for crypto businesses to operate without fear of accidental legal violations. This clarity extends to defining the legal classification of cryptocurrencies, whether they are considered as currencies, commodities, or securities.
- Favorable Tax Policies: These jurisdictions might offer tax incentives, reasonable tax rates, or specific guidance on how various crypto transactions (like trading, staking, or mining) are taxed. This helps individuals and businesses to comply with tax obligations more easily.
- Support for Innovation: Support mechanisms, like incubators, accelerators, and grants, may be in place. They are specifically for blockchain and cryptocurrency projects.
- Banking and Financial Services: Crypto-friendly jurisdictions often have banks and financial institutions that are open to working with crypto businesses, providing them with necessary banking services. Crypto businesses in less friendly crypto environments might face denial of these services.
- Legal Support for Digital Assets: This includes recognizing digital contracts. It also includes using digital assets as collateral. And it includes clear rules on issuing and trading digital securities.
How Crypto-Friendly is the US?
In the United States, the rules and taxes for cryptocurrencies vary greatly by state. Some states have taken more proactive steps. They have created a welcoming environment for crypto businesses by passing friendly laws and guidelines.
Important Consideration Before You Move Your Crypto Offshore
The Cost of Setting Up Can be High
An offshore trust in a good jurisdiction can cost anywhere from $15,000 to $20,000 for simple cases. An offshore business (LLC or Corporation) will cost a few thousand or more to set up. Both tools will have ongoing yearly maintenance fees too.
It’s important to balance the value of the assets held inside with the cost of keeping them there.
Reporting Requirements Back Home
Holding crypto in your own name offshore is not reportable to the US authorities. You can do this by storing it on a flash drive in, for example, an international bank vault.
But if you create an offshore LLC or offshore trust to hold your crypto, you need to file a reporting form with the IRS telling them about the structure. The reporting form will include a financial statement that in some cases will need to mention that the structure holds crypto.
If you aren’t interested in telling the government about your crypto, get expert advice before you create an offshore structure, or keep it in your own name. Or don’t move it offshore at all.
Tax Concerns
Depending on how you own it, different tax rules will apply. In some cases, they might be higher if you move your crypto offshore versus keeping it here in the US. It’s very important to consult with someone who can figure out the best option for you. (That’s something we can address in our premier planning service, Private Wealth.)
How to Move Your Crypto Offshore
If you’ve decided to move your crypto offshore, here’s how we recommend you do it.
#1: Research Offshore Jurisdictions
Begin by researching offshore jurisdictions that offer favorable conditions for managing crypto assets. Look for countries with stable political climates, strong regulatory structures, and a track record of prioritizing financial privacy and security. Consider factors such as taxation, compliance regulations, and the availability of crypto-friendly banking services.
At the moment, here are some of the friendliest crypto places:
- Switzerland is known for its financial privacy and stability. It has established a “Crypto Valley” in Zug. The area offers a supportive ecosystem for crypto startups, clear rules, and low taxes.
- Singapore has positioned itself as a global crypto hub. It has clear and friendly rules for crypto businesses. The country also has a progressive tax system and a strong push towards innovation and fintech.
- Malta is often called “Blockchain Island.” It has adopted a progressive approach to regulating cryptocurrency and blockchain. It aims to attract crypto businesses with legal certainty and a good environment for growth.
- Estonia is known for its e-residency program and digital government initiatives. It offers a clear legal framework for cryptocurrency companies. This includes licenses for exchanges and wallet services.
- Portugal has gained attention for its tax policies on cryptocurrencies. Personal gains are not taxed under certain conditions. This makes Portugal an attractive spot for individual investors.
- Germany recognizes Bitcoin as a form of private money. It provides a tax exemption for long-term capital gains on Bitcoin held for over a year. The country also has supportive rules for crypto businesses.
- Cayman Islands: The Cayman Islands are known for being crypto-friendly. They focus on attracting blockchain and crypto businesses through favorable regulations and no direct taxes on cryptocurrencies.
#2: Consult with Legal and Financial Experts
Seek advice from legal and financial experts who specialize in offshore asset protection and cryptocurrency. They can help you understand the legal and tax effects of moving your crypto offshore. And guide you through the process of setting up offshore structures such as companies or trusts.
You will need at least three experts:
- a corporate lawyer,
- a tax accountant for international filings and
- an estate planner, who can make sure your international efforts fit properly into the rest of your wealth protection planning.
Ready to get started?
If you’re thinking about moving your crypto offshore, or just wondering the best way to hold it, sell it, or pass it on to your heirs, feel free to book a call with one of our Associates. They’ll explain how our planning works, see if it’s right for you, and answer your questions.
#3: Build the Plan
Consider the different offshore structures available for holding crypto assets. This includes offshore LLCs, trusts, or foundations.
Consider the pros and cons of each structure. Base your choice on your needs, risk tolerance, and long-term goals.
And keep an eye on how any structure will affect the rest of your wealth protection planning.
#4: Set up the Structure(s)
Once you’ve chosen a jurisdiction and picked the best offshore structure, work with legal and financial pros. They will help you create the needed entities and accounts.
#5: Formally Transfer the Crypto Assets
Transfer your crypto assets to the offshore entities or accounts you’ve established. Be sure to follow proper procedures for transferring and recording the assets. This will ensure compliance with regulatory requirements and tax laws. It will also establish asset protection — one of the main reasons people do this in the first place.
#6: Don’t Forget About Security
Implement strong security. This will safeguard your offshore crypto assets from cyber threats and unauthorized access. This may include using secure hardware wallets, encryption techniques, and multi-factor authentication.
Thieves don’t care who owns the crypto, or whether it’s offshore or not. If they can get it, they will take it.
#7: Monitor, Manage, and Keep on Top of Filings
Regularly monitor and manage your offshore crypto assets to ensure their security and stability. Stay vigilant for any signs of potential risks or vulnerabilities. Be prepared to take appropriate action if necessary.
Important Questions to Ask Yourself BEFORE You Take Action
Any wealth protection planning effort is only as good as the strategy behind it.
Here are some questions to help you decide if moving your crypto offshore is the right move for you or not:
- Why do I want to do this? Am I at risk of being sued? Am I concerned about privacy? Is this for estate planning purposes?
- Does this fit with my long-term goals?
- Am I comfortable with the idea of moving my assets internationally?
- Who can I trust to make the best recommendations for my situation?
Before you move crypto offshore, do this first.
Other than losing your password and seed phrase, perhaps the most common way to lose access to your crypto is through theft from an exchange.
So before you start planning, we recommend moving most of your coins into cold storage and off the exchange.
Too many clients haven’t taken our advice and left their bitcoins on a crypto exchange. When the exchange got hacked, they lost anywhere from a few to a few dozen Bitcoins.
Before he started working with us, one client lost nearly 10,000 Bitcoins. This happened when an early crypto exchange, Mt. Gox, was broken into.
Other clients have been exposed to phishing attacks. In these attacks, a hacker made a very close copy of the crypto exchange login page. They tricked the victim into giving up their login. The hackers then cleaned out the clients’ account.
In one case, a client from a western state was personally targeted with a virus. It logged his keystrokes and sent that information to the hacker. The hacker used it to login to the client’s crypto account. They cleaned out a good chunk of Bitcoins and Ethereum.
If you’re thinking about moving your crypto offshore as a way to protect yourself, start with this first if you haven’t already. Then we can get into the planning side of thing.
FAQ
Why should I consider moving my crypto offshore?
Moving crypto into an offshore structure can offer various benefits. These include more privacy, less regulation, access to crypto-friendly policies, enhanced security, and potential tax advantages. Offshore jurisdictions may also provide greater asset protection and diversification opportunities.
What are the potential risks of moving crypto offshore?
There can be risks associated with moving crypto offshore. These include uncertain regulations, geopolitical instability, counterparty risks, and potential tax implications. It is crucial to carefully assess these risks and consider them in your decision-making process.
How do I choose the right offshore jurisdiction?
Choosing the right offshore jurisdiction involves various factors. These include regulatory stability, investor protections, tax implications, political stability, and reputation. But a good place to start is the list provided in this article. That includes Switzerland, Singapore, Malta, Estonia, Portugal, Germany, and the Cayman Islands.
Need Help?
If you’re thinking about moving your crypto offshore, or just wondering the best way to hold it, sell it, or pass it on to your heirs, feel free to book a call with one of our Associates. They’ll explain how our planning works, see if it’s right for you, and answer your questions.
What are the tax implications of moving crypto offshore?
This depends on where you go and how you choose to set up your structure. As an American citizen, you still must follow US tax laws.
What offshore structures are available for holding crypto?
Offshore structures for holding crypto assets may include offshore companies, trusts, foundations, or partnerships. Each structure offers different benefits and considerations in terms of privacy, asset protection, taxation, and regulatory compliance.
For most Americans in most cases, a foreign LLC or foreign trust is best. But you need to be very careful on how you set this up, because it can have unforeseen tax consequences if you don’t know what you’re doing.
Do I need to disclose my offshore crypto assets to tax authorities?
If you hold the assets “personally” and just store crypto offshore in, say, a foreign safety deposit box on a flash drive, there is no need to file anything with the IRS until you’ve sold and made a profit.
If you hold it within any international structure and/or with any international exchange, then there will be reporting requirements for the structure itself and possibly for the assets that it holds, including crypto.
How much does it cost to set up and move crypto offshore?
Costs associated with moving crypto offshore may include setup fees for offshore structures, legal and professional fees, ongoing maintenance costs, and potential transaction fees. Consider these costs in your decision-making process and budget accordingly.
Where can I find more information and professional advice on moving crypto offshore?
As mentioned at the beginning of this article, we worked with our first “bitcoin millionaire” in 2016. Since then, we’ve helped plenty more.
If you’re thinking about moving your crypto offshore, or just wondering the best way to hold it, sell it, or pass it on to your heirs, feel free to book a call with one of our Associates. They’ll explain how our planning works, see if it’s right for you, and answer your questions.
