With the development of blockchain technology and the emergence of cryptocurrencies, governments of many countries have commenced imposing new tax enforcement and regulations. That is why many investors have started to look for offshore options to secure their assets and diversify a wealth portfolio. This is especially due to wealthy crypto-holders.
According to the Immigrant Invest company, it is not possible to buy citizenship directly by investing in cryptos, and coins should be sold, and money transferred to a bank should be provided by the proves of the legality of funds. The issue arises because many countries do not recognize cryptos as currencies, and they are considering them as commodities. Banks in many countries accept only fiat money. Origins of funds are crucial, as they are always under supervision.
While applying for a second citizenship or a passport, the primary concern is to pass due diligence. Every citizenship or residency by investment program requires passing a background check and vetting process. In many cases, it is hard to document earnings in the cryptos. Enrolling in the program may require providing certain evidence of funds, and especially if they are accumulated through a crypto market. Selling bitcoin for cash needs to provide a selling contract if participating in any citizenship or residency by investment program.
In some countries, it is possible to trade in cryptos on regulated marketplaces like stock exchanges, but customers have to go through Know Your Client (KYC)/Anti Money Laundry (AML) procedures, which confirm the identity and legality of money. Requirements vary in each citizenship or residency by investment program.
Many firms advertise the services of buying citizenship for cryptos; they offer crypto-rich clients a path to a second passport, mostly from tropical, tax-haven states, all of which are exempt from capital gains taxes on crypto holdings. But in reality, they act.
These firms act as intermediaries, helping to convert cryptos into U.S. dollars or Euros and then assist in applying for any kind of citizenship or residency by investment program. This conversion can be easily done by the holders themselves and only afterward, select the appropriate agents for a citizenship by investment program, think the specialists in Moscow’s office of Immigrant Invest.
Actually, there were two countries officially announcing accepting cryptos in their citizenship by investment programs. First rumors about Vanuatu’s readiness to accept cryptos as payment methods for the citizenship by investment program appeared back in the Autumn, 2017, but a week later, it was officially denied by the department dealing with the citizenship claiming that all payments are performed in dollars.
Antigua & Barbuda’s prime minister Browne stated that his country is “is providing the capacity for payment in Euros, but we are also providing for payments using bitcoin and other cryptocurrencies”. He stated that it was quintessential to have a payment mechanism that could facilitate payments in cryptocurrencies.
Browne also stressed the importance of minimizing exposure to volatile crypto markets and suggested converting funds received in the crypto-form into U.S. dollars on a daily basis. He announced that several crypto-wealthy people would like to obtain the citizenship of Antigua & Barbuda, and not letting them do so means losing opportunities on the market, he said while persuading the parliament to pass the needed bill.
According to the Investment Migration Insider (IMI) there is a difference in citizenship by investment programs of Antigua & Barbuda and Vanuatu in regard to accepting cryptocurrencies. In Antigua, the government itself will accept crypto-assets, while in Vanuatu, the “master agents” are allowed to take their profits in crypto, but it needs to be converted into dollars before paying to the government. In Vanuatu, the “master agent” acts as the escrow executor; applicants must pay the agents the full amount up from in Vanuatu rather than waiting for their approval in principle, as the case in most of the citizenship by investment programs, wrote the editor and founder of IMI Christian Henrik Nesheim back in July 2018. The media edition supposed that cryptocurrency payments can be a solution for the Caribbean corresponding banking problem.
In October 2017, the Fortune valued price of the citizenship by investment program in Vanuatu to 44 Bitcoins. Now it costs just around 2.3 Bitcoins, as the price of this crypto has jumped from around USD 5,000 to USD 45,000 in just 4 years. To qualify for Vanuatu’s citizenship, a minimum investment of USD 130,000 is required.
In 2020 Antigua & Barbuda adopted the Digital Assets Business Bill, practically announcing cryptocurrency acceptance in the country and regulating and protecting rights of persons carrying on digital asset business. To participate in Antigua & Barbuda’s citizenship by investment program, a minimum contribution of at least USD 100,000 (for a single applicant) to the National Development Fund is required. For the real estate option, the threshold stands at USD 200,000, but investment should be made into one of the government-approved projects.
In Europe, regulators are trying to fit cryptos into the existing financial system. The European Commission published a draft of the E.U.’s unified cryptocurrency legislation in September 2020, which stated that the issuance of a single license for crypto companies, stricter requirements for them, and need to publish reports and undergo audits.
According to Investopedia despite its use for buying goods and services, there are still no uniform international laws that regulate bitcoin, although many major and developed countries allow the use of Bitcoin, such as the U.S., Canada, and the U.K.
Some cryptos are recognized in some countries, while others are not. Countries even started to invent their own digital currencies, but others are cracking down on them. In China, financial and payment institutions are banned from running a business in crypto. Another theory is that Beijing is clearing the runway for its very own digital yuan, a central bank digital currency that’s been in development since 2014.
The Eastern Caribbean Bank announced the first blockchain-based currency, DCash, in April 2021, claiming that it will help speed transactions and serve people without bank accounts. It will be a pilot program with a duration of one year in four island nations: St. Lucia, Grenada, Antigua & Barbuda, and St. Kitts & Nevis. Unlike cryptocurrencies, it is issued by an official central bank and has a fixed value, tied to the existing Eastern Caribbean dollar used across much of the region.
As of April 2020, 5392 cryptocurrencies have been traded with a total market capitalization of USD 201 billion, and USD 128 billion takes Bitcoin (BTC), followed by Ethereum (ETH) USD 19.4 billion, Ripple (XRP) USD 8.22 billion, and Tether (USDT) $6.4bn.
Andrew Henderson, the founder of tax and immigration consultancy the Nomad Capitalist gives the top five reasons why each earnest crypto investor needs an alternative residency or passport:
1. An Opportunity Cost
It largely applies to U.S. citizens, although it can be pertained to other nationalities as well, as authorities across the world step up enforcement and regulation on things like ICOs (Initial Coin Offerings) that use cryptocurrencies to raise funds for other endeavors, notes Henderson and underlines that institutions like Securities and Exchange Commission are making more and more complicated to invest in ICOs. That is why many American investors are trying to circumvent the rules in order to be able to invest in ICOs; otherwise, they simply pose too much of a risk when it comes to compliance with tax laws and other regulations.
2. Tax Exposure
The Internal Revenue Service (IRS) will definitely enforce new rules and regulations in the near future, and that could cost crypto investors a lot of money, thinks Henderson and stresses that all U.S. crypto investors will experience tax exposure. Actually, all U.S. citizens, whether residing on U.S. soil or anywhere in the world, are subject to U.S. tax laws, and they have to pay taxes from any kind of profits. The only way to avoid the tax burden for U.S. citizens is to relinquish their citizenship. That is what Henderson has done – he renounced his U.S. passport and obtained a second passport through citizenship by investment program. Now he holds passports and residency rights in multiple countries and recommends his rich clients to gain residency and citizenship rights in as many countries as possible.
The cryptocurrency is a new phenomenon and, though it is hard to trace, governments all around the world are trying somehow to regulate it and monitor the coin inflows and outflows. Henderson thinks that the uncertainty of the regulations that will be imposed is daunting. It’s hard to predict future moves of government or institutions, like the Securities and Exchange Commission (SEC) in the U.S. Thus, assets become vulnerable due to banking system failures and inabilities to transform crypto assets into other commodities. In some ways, obtaining a second citizenship or residency is the best solution; it is like a “back pocket,” notes Henderson, “If you have a backup plan, you have the option to break free of one country if they start to make your life too difficult with excessive regulation,” he notes
The banking system always matters, and alternative residency or access to more diversified banking options is always helpful. It is just a simple question of liquidity. In this regard, alternative citizenship and residency options can be decisive.
5. Running As An Active Business
There were many cases taxing U.S. citizens who generated profits from the crypto market outside the U.S. As Henderson notes, giving up citizenship and gaining a second passport can be a good start to set up a proper offshore strategy and save potential millions down the road. “Having a solid exit strategy should always be on your mind, whether you’re in cryptocurrency or not. Obtaining a second passport is a foolproof plan to do just that.” People are attracted by flexible tax systems. In anyways, crypto millionaires need second citizenship and residency as a good backup strategy, with opportunities for Return on Investment (ROI)