When cryptocurrencies were first introduced, governments were sceptical about accepting them as legal tender or "real money".
But as time passed, governments started recognising their potential and accepting them. They have even made rules and guidelines to encourage crypto innovation and blockchain development.
In this article, we will highlight the top ten countries that support cryptocurrencies and provide insights into the taxation rates associated with crypto in some of these nations.
Top 10 Crypto-Friendly Countries In 2023
Cryptocurrency has evolved from being regarded as "internet money" to a recognised financial force to be reckoned with. The global cryptocurrency market cap today is $1.13 Trillion, and there are over 420 million crypto users worldwide.
Here are the top 10 Crypto-Friendly Countries in 2023:
- El Salvador
1. El Salvador
In June 2021, El Salvador made history as the first country to declare Bitcoin as a legal tender and allow it to be used for payment within the country. It did this by passing a Bitcoin Law, which states that "the purpose of this law is to regulate bitcoin as unrestricted legal tender with liberating power, unlimited in any transaction, and to any title that public or private natural or legal persons require carrying out".
In simple terms, this law makes Bitcoin legally acceptable for any kind of transaction, whether by individuals or businesses. It gives Bitcoin the same legal status as the country's regular currency and allows people or organisations to use it for any purpose they need, without any limitations.
Essentially, this law aims to give Bitcoin the same power and flexibility as traditional money in all kinds of transactions, whether they are done privately or publicly.
Since the law was passed, the country has continued to support cryptocurrency and blockchain technology through various developments, such as the "Bitcoin City" project, which is meant to serve as a centre for cryptocurrency and blockchain-related businesses and entrepreneurs in El Salvador.
Estonia is located in North Eastern Europe. In addition to being one of the richest countries in the world, it is also among the most digitally forward and innovative.
Regarding cryptocurrency and blockchain, Estonia has a forward-thinking approach. The country regards these technologies as valuable tools that can improve their government services and initiatives related to electronic residency (e-residency).
In Estonia, there are clear and favourable rules and regulations in place for businesses and investors dealing with cryptocurrencies.
One such regulation is taxation. Individuals generally don't have to pay taxes on the income or gains they earn from cryptocurrencies as long as they're not engaged in regular trading or doing it as a business. In other words, if someone buys cryptocurrencies as an investment and later sells them for a profit, they typically don't owe taxes on that gain.
However, when it comes to crypto companies, the rules are different. Estonia imposes a corporate income tax of 20% on the profits distributed by these companies. This means that when a crypto company pays out dividends to its shareholders, it must pay taxes on those distributed profits.
The good news is that the Estonian government has plans to reduce this corporate income tax rate by 2023. By lowering the tax rate, it aims to make crypto businesses more competitive and potentially more profitable, which can encourage further growth and innovation in the sector.
Estonia also provides low-cost licenses to crypto companies, making it more affordable for them to establish and operate their businesses, e-residency, which allows entrepreneurs to manage their businesses remotely, access various services online, and tap into the European market.
Furthermore, Estonia has implemented mechanisms, such as the Money Laundering and Terrorist Financing Prevention Act, to ensure that crypto activities are regulated and to prevent any involvement in illegal or illicit activities. Under this Act, the government has issued over 1,000 licenses to crypto companies.
In 2013, the German Ministry of Finance issued a statement recognising Bitcoin as a "unit of account" that can be used for tax and trading purposes. This recognition helped establish the legal status of Bitcoin and other cryptocurrencies in the country.
Germany has continued to be enthusiastic about cryptocurrency, and in terms of taxation, Germany has relatively lenient rules. For individuals, if you hold crypto for more than a year, you generally won't be taxed on any profit you make from it. If your overall earnings from crypto trading are below 600 Euros, you won't be taxed.
Additionally, cryptocurrencies are also exempt from value-added tax (VAT). However, tax laws for businesses can be more restrictive, as they often make larger investments and profits.
In addition to the 2013 Ministry of Finance statement, Germany has implemented various laws and regulations to ensure the legal and ethical use of cryptocurrencies. For instance, cryptocurrency exchanges are required to register with the Federal Financial Supervisory Authority (BaFin) and comply with measures to prevent money laundering and financing of terrorism, as mandated by the German Banking Act.
Japan is well-known for being a leader in technology and innovation, and this extends to cryptocurrencies and blockchain.
Back in 2017, Japan became the first country to legalise Bitcoin as a form of payment. This move played a significant role in boosting the popularity and acceptance of cryptocurrencies among consumers and businesses.
When it comes to taxing cryptocurrencies, Japan has specific guidelines. The country doesn't tax individuals for income or capital gains from cryptocurrencies unless they are obtained through a trade or business. However, there is a consumption tax of 10% that applies when buying or selling cryptocurrencies. This means that extra fees are added when buying or selling cryptos.
The Japanese government plans to revise this tax policy this year to make cryptocurrencies more affordable and appealing to users.
Japan is also home to crypto exchanges like BitFlyer, Coincheck, and Liquid. These exchanges have obtained licenses from the Financial Services Agency (FSA) under the Payment Services Act, which helps regulate crypto activities, safeguard consumers' interests, and oversees compliance with anti-money laundering and counter-terrorism financing rules.
Luxembourg is located in Northwestern Europe and was among the earliest adopters of Bitcoin for payments.
One of the striking aspects of Luxembourg's crypto-friendly environment is that the government does not have specific regulations on Bitcoin as a legitimate currency. This puts Luxembourg among the top crypto-friendly countries by default. You can freely invest in and trade cryptocurrencies without any restrictions.
The Commission de Surveillance du Secteur Financier (CSSF) is the regulatory body responsible for overseeing crypto exchanges in Luxembourg. Remarkably, the rules and regulations for crypto exchanges are the same as those applied to any other financial institution. This consistent and transparent approach ensures a level playing field and reinforces trust within the crypto industry.
Malta is an Island country located in Southern Europe. Malta has been a top choice for crypto companies for quite some time now. In fact, Binance, one of the largest cryptocurrency exchanges, moved to Malta after facing regulatory challenges in Japan.
In March 2019, former Maltese Prime Minister Joseph Muscat announced regulations and laws that provide a safe and welcoming environment for individuals and businesses to engage in crypto-trading.
While Malta does not exempt cryptocurrencies from taxes, the tax rates are quite fair. People who earn income or capital profit from cryptocurrencies can pay up to 35% income tax. However, it's interesting to note that non-residents of Malta can enjoy a lower tax rate of 5%. This could be seen as an incentive for individuals outside of Malta to engage in crypto trading and investing.
Moreover, crypto companies that establish themselves in Malta can benefit from various incentives, including lowered corporate tax rates and even refunds on dividends.
Portugal is known for being the birthplace of Cristiano Ronaldo, one of the best footballers in the world, as well as being one of the most crypto-friendly countries.
One of the standout advantages in Portugal is that income and capital gains from Bitcoin are not taxed.
In terms of regulations, the Portuguese authorities view cryptocurrencies like Bitcoin as movable property rather than legal tender. This means that while cryptocurrencies are not considered official currency, they are exempt from Value Added Tax (VAT). This exemption helps reduce the financial burden for crypto traders and users.
Portugal's supportive environment extends to crypto businesses and investors as well. The country has implemented a regulatory sandbox, which acts as a testing ground for crypto startups and their innovative products and services. This means startups can experiment and develop their ideas without facing unnecessary regulatory barriers.
Regarding cryptocurrencies and blockchain, Singapore has a positive outlook, recognising their potential as drivers of economic growth and development.
Singapore has a favourable approach towards taxing crypto. Income and capital gains from cryptocurrencies are generally not taxed unless they are derived from a trade or business. This means that if you're an individual buying or investing in cryptocurrencies for personal purposes, you won't face income or capital gains tax.
However, a 7% Goods and Services Tax (GST) is imposed on the supply of cryptocurrencies. This means that when buying or selling cryptocurrencies, users have to pay this GST fee. We should mention here that the Singapore government has announced its plans to exempt cryptocurrencies from the GST by the end of 2023.
Singapore is home to several major crypto companies and exchanges, including Huobi, Bitstamp and Gemini.
To ensure consumer protection and regulatory compliance, the Monetary Authority of Singapore (MAS) has issued licenses to some of these exchanges under the Payment Services Act. This helps regulate crypto activities and safeguard consumers' interests. It's also worth noting that these crypto companies are taxed under capital gains tax as per Singapore's income tax laws, ensuring they fulfil their tax obligations.
The roots of Slovenia's crypto interest can be traced back to its history of economic instability. In the early 1990s, the country faced hyperinflation and was on the brink of bankruptcy. Fast forward to today, Bitcoin offers Slovenians an opportunity to escape from the uncertainties of the traditional monetary system.
Currently, there are no income or capital gains taxes on Bitcoin in the country. This means that individuals earning income or capital gains from Bitcoin aren't subject to specific taxes.
Additionally, the Slovenian authorities have demonstrated their support for cryptocurrency-related technologies from an early stage. They have implemented blockchain technology in various public services, including digital identity registration and online voting.
However, it's important to note that Slovenia has recently proposed a flat 10% tax on crypto transactions. This tax would apply to every fiat-crypto conversion and payment made with cryptocurrencies. There would be a yearly threshold for tax liability set at 15,000 euros ($17,387). Investors who remain within this threshold would be exempt from crypto taxes.
Switzerland has taken a supportive and practical approach to regulating crypto businesses and investors, aiming to balance the drive for innovation with the need for risk management.
Generally, individuals in Switzerland are not taxed on income or capital gains from cryptocurrencies unless they are considered professional traders. However, individuals holding cryptocurrencies at the end of the year are subject to wealth tax.
The exact rate of this tax varies depending on the specific canton (state) and the municipality in which the individual resides. It's important to note that taxation can vary between different regions within Switzerland.
A significant highlight of Switzerland's crypto ecosystem is the renowned "Crypto Valley." Nestled in the canton of Zug, Crypto Valley is home to a cluster of crypto companies and organisations. This vibrant ecosystem houses some of the biggest names in the industry, including Ethereum, Tezos and Cardano.
Crypto Valley goes beyond just providing a space for these companies. It offers various services and facilities to support crypto entrepreneurs, such as incubators, accelerators, coworking spaces, and events.
The growth of cryptocurrency is greatly influenced by the rules and regulations across the globe. These ten countries have made significant strides in embracing cryptocurrency and creating a welcoming environment for blockchain technology.
From El Salvador to Estonia, Germany to Japan, Luxembourg to Malta, Portugal to Singapore, and Slovenia to Switzerland, each of these nations has demonstrated a commitment to fostering innovation and supporting crypto investors, entrepreneurs, enthusiasts and businesses.
What makes these countries particularly appealing for crypto enthusiasts is the fact that they offer favourable tax laws and government support.
By providing these essential resources, they are paving the way for cryptocurrencies and blockchain technology to thrive. It's highly likely that countries successfully embracing and regulating cryptocurrencies will emerge as global leaders in this groundbreaking industry, especially as the crypto landscape continues to evolve.
Disclaimer: This article was written by the writer to provide guidance and understanding of cryptocurrency trading. It is not an exhaustive article and should not be taken as financial advice. Obiex will not be held liable for your investment decisions.