0% tax when cashing out crypto

[kassad1]

I have been thinking about the following tax solution for cashing out bitcoins:

By cashing out I mean, you receive bitcoins to your address at a crypto exchange then transfering USD/EUR/whatever to your bank account in your name.

What determines the tax obligation here has nothing to do with the crypto itself, it is what the source of your income (the crypto payment) is. Under all OECD Double tax treaties there are types of income that are taxed in your country of residence (this is the majority) and types of income that are only taxed at the source country (this is the minority). So if you can find a country that imposes 0% tax on such an income you don't have to pay any taxes if you can prove you received the payment for that type of activity (The country has to have a double tax treaty with your country of residence, and the type of income has to be taxed at the source country according to the double tax treaty).

Now the only country I know of that has a lot of OECD double tax treaties and generally imposes 0% income tax is the United Arab Emirates. See list of 115 treaties here: https://www.mof.gov.ae/en/StrategicPartnerships/DoubleTaxtionAgreements/Pages/DoubleTaxtion.aspx
This covers most OECD countries, the entire EU, the US, Canada, a lot of asian countries etc.

According to all these treaties the only types of income that are only taxed in the UAE (at 0%) no matter that you live in the other country are:

- income from a 'permanent establishment/immovable property' in the UAE (for example you have a house/office/storage room there and you rent it out as a landlord). This is both logical to be so if you think about it and pretty straightforward.

- income that is defined as 'directors fees' from a company in the UAE. This one is a bit (potentially a lot) more complicated. Incorporating a company for this single purpose is very expensive in the UAE (everything is very expensive in the UAE) plus, your home country can always deem the company subject to local tax if the only director is a resident of your home country because of the 'effective place of management and control' rules in all DTAs. Plus if you are also the owner of the company, that is even worse as it can be classified as CFC. So this can get both complicated to implement and expensive if you don't already have a company there.

- income of 'sportsmen and artistes' performing in the UAE (for which you have to be able to show that you travelled to the UAE and show that you received payment from someone for performing as a sportsman or artist there). This one seems tough to pull off unless you are a well known sportsman or actor...

So I did some research on how the first type of income from renting out 'permanent establishment/immovable property' in the UAE would work:
- you would need to find something that is a permanent establishment/immovable property located in the UAE that you can rent for cheap from a UAE company with a contract that allows you to sublease it for profit. Pay for it with a bank transfer to be able to show the tax man as proof.
- if asked by the tax man or your bank when receiving the fiat currency payment to your bank account for source of funds you declare that you rented out/subleased the place in the UAE for profit.
- DONE. That profit is only taxable in the UAE. Where it is taxed at 0% income tax and is free of the 5% UAE VAT if the amount is below 375,000AED/year (which is roughly €90k/$100k). If that is not enough you can repeat the same thing for family members each year.

I have talked to an accountant in my country who has experience with international tax and she says that I am readig the double tax treaties right, renting out property in the UAE is only subject to tax in the UAE.

Any third opinions on this are welcome!

[Theb]

I have to hand it to you, you gave an effort on doing this on giving a solution for not paying income taxes for your crypto earnings but you are forgetting that double taxation avoidance on the word itself just removes the chances of a person on paying the same kind of tax by different countries. So even if you won't be having taxes in UAE you still have to pay taxes on the country you are originating from as a resident citizen and that's including the 115 countries they have with agreement with. Your solution doesn't really solve a thing plus it is not affordable for a lot of people.

[kassad1]

Hi,

What you are describing is the 'credit method' of eliminating double taxation. Which in layman terms allows you to deduct taxes paid in the other country from the taxes you have to pay in your own country. So example if you would pay 15% in your own country but you were taxed at 5% in the other country, makes you pay only 15-5=10% in your own country. If the 'credit method' were to be used in the above UAE example, what you said were true, you had to pay 15% in your home country, because 15-0=15.

However in the situation I described in the opening post the method used by the OECD model conventions is the 'exemption method'. Which means you only have to pay in the other country, whatever the percentage in that country is, and you are exempted entirely in your own country. So you are paying 0% in the UAE because they have no income tax on this, and you pay 0% in your home country, because the OECD convention uses the 'exemption method' in this case.

This is not a simple subject, but you can read more about it here: https://www.oecd.org/tax/treaties/1914467.pdf
Chapter V discusses methods of exemptions (these two).

About how affordable it is: Well the cheapest option I could find is renting a storage room and subletting it. I am told that costs around €1k/year with a provider that allows you to rent it out for profit.

It is a lot cheaper than renting the smallest condo in the cheapest area, those were around €1k/month and I haven't found one that is coming with a contract that allows subletting...

So for €1k you get to not pay any taxes on €90k worth of income. That sounds like a pretty good deal to me. You can also repeat the thing for family members so €90k/person/year for the cost of €1k/person/year. So you have about 1.1% cost. It is obviously worse if you only have for example €30k worth of crypto, but then you could team up with someone who is also willing to do the same thing...

[Kemarit]

I have to hand it to you, you gave an effort on doing this on giving a solution for not paying income taxes for your crypto earnings but you are forgetting that double taxation avoidance on the word itself just removes the chances of a person on paying the same kind of tax by different countries. So even if you won't be having taxes in UAE you still have to pay taxes on the country you are originating from as a resident citizen and that's including the 115 countries they have with agreement with. Your solution doesn't really solve a thing plus it is not affordable for a lot of people.

Oh yeah, the length of things people will do to avoid taxes, I know some hated to pay their crypto taxes but this method complicates thing specially for a casual or noob investors or traders so it doesn't makes sense at all. And sooner or later if your government finds out, might be a double whammy to the OP. But @kassad1 put a better explanation but the end result is still the same, too complicated.

[kassad1]

Oh yeah, the length of things people will do to avoid taxes, I know some hated to pay their crypto taxes but this method complicates thing specially for a casual or noob investors or traders so it doesn't makes sense at all. And sooner or later if your government finds out, might be a double whammy to the OP. But @kassad1 put a better explanation but the end result is still the same, too complicated.

Interesting, I actually like this solution because I find it very simple to implement:

1. find the storage room in the UAE you want to rent
2. pay for it
3. cash out crypto as you normally would
4. IF asked for source of funds by your bank/taxman, declare it is income from renting out the storage room
5. Done.

Figuring it out was in fact complicated. Describing how it works in detail based on the international tax agreement is complicated.
Implementing it can't really be any more simple.
People are suggesting moving your residence to a new country, or establishing company structures (or doing both at the same time) to achieve the same thing. Compared to all of that, here we are talking about renting a storage room...
It is as complicated as renting yourself an apartment. I actually think making your first crypto purchase had to be a lot more complicated (it was for me at least) then renting a room.

[gentlemand]

4. IF asked for source of funds by your bank/taxman, declare it is income from renting out the storage room

That's defrauding the tax man.

There's legitimate tax avoidance. That isn't it. You're lying about the source of your funds.

The tax man has seen it all and nailed it all. I expect anything relating to the UAE will be looked at extremely closely.

You may well be fine. I wouldn't bother myself for the sake of a quiet life. 

[kassad1]

The tax man has seen it all and nailed it all. I expect anything relating to the UAE will be looked at extremely closely.

You may well be fine. I wouldn't bother myself for the sake of a quiet life. 

I do understand that some people like to be afraid of the tax authorities, because "they have the bigger stick". But in reality they operate within the rules that have been set for them, and are pretty far from being the allpowerfull know-it-alls some (and sometimes they themselves) would like you to believe them to be.

Let's put us in their prospective, and let's look at something as straightforward as a rent extremely closely. What can you check?
1. Can the examined person prove he really rented a storage room? - Yes, he can show a wire transfer from his/her own bank account to the storage room providers account as proof that you can check.
2. Could the person sublet the storage room for profit? - Yes, if the storage room provider doesn't forbid subletting. If you as the taxman are being  extremely thorough you contact the storage room provider and ask if subletting is allowed, and to further back nr.1 if they can confirm that they have the examined person as a client. The answer is yes for both.
3. Can you as the taxman find anything that would indicate that the income that was declared to be received as rent was in fact received for something else in reality? - No you can't, as you can't trace where bitcoin or crypto transfers originate from. Plus everything else that needs to be in place for the declaration to be true is in place (the storage room is really rented by the examined person and it is possible to sublet for profit).

There isn't anything for you as the tax man to further investigate or documents you can request when we are talking about a private person being examined.

[kassad1]

Just a quick update:

I have finally managed to get ahold of a friend for a lenghty conversation who moved to the UAE two years ago. I asked him to help me find the cheapest option for rentable property that one could sublet. He actually had a great idea!

While first moving there he used a storage service provider that specializes in servicing expats. See when you are moving to the UAE in the begining it's hard to get a local postal address that you can have your stuff, personal packages and deliveries shipped to (when you don't have either a permanent residential address yet). For this purpose a lot of expats use a storage service. They rent a storage room that has it's own postal address, receive their deliveries there and pick them up in the next 15 days. Basically you can think of it as a PO box that is (instead of the size of drawer or closet) is the size of an entire room. The service provider he used quoted me AED4100 ($1150/€1000) for a year for their smallest package and they asured me that they do allow subletting for profit. They also seemed really flexible too (they're used to special needs of the expats) as they have bank accounts in both the US and Europe that you can send their fees to (to minimize your transaction costs).

So this confirms that the preliminary numbers I have posted above are in fact the reality: 'So for €1k you get to not pay any taxes on €90k worth of income. That sounds like a pretty good deal to me. You can also repeat the thing for family members so €90k/person/year for the cost of €1k/person/year. So you have about 1.1% cost.' (that's $1150 cost for every $102k if you are in usd)

[HeRetiK]

Just a quick update:

I have finally managed to get ahold of a friend for a lenghty conversation who moved to the UAE two years ago. I asked him to help me find the cheapest option for rentable property that one could sublet. He actually had a great idea!

While first moving there he used a storage service provider that specializes in servicing expats. See when you are moving to the UAE in the begining it's hard to get a local postal address that you can have your stuff, personal packages and deliveries shipped to (when you don't have either a permanent residential address yet). For this purpose a lot of expats use a storage service. They rent a storage room that has it's own postal address, receive their deliveries there and pick them up in the next 15 days. Basically you can think of it as a PO box that is (instead of the size of drawer or closet) is the size of an entire room. The service provider he used quoted me AED4100 ($1150/€1000) for a year for their smallest package and they asured me that they do allow subletting for profit. They also seemed really flexible too (they're used to special needs of the expats) as they have bank accounts in both the US and Europe that you can send their fees to (to minimize your transaction costs).

So this confirms that the preliminary numbers I have posted above are in fact the reality: 'So for €1k you get to not pay any taxes on €90k worth of income. That sounds like a pretty good deal to me. You can also repeat the thing for family members so €90k/person/year for the cost of €1k/person/year. So you have about 1.1% cost.' (that's $1150 cost for every $102k if you are in usd)

That's smart. It's still tax evasion (+ money laundering) though since while you now have a plausible source of income, it also is not the actual source of income.

Whether you'd be caught is a different question of course, but receiving EUR 90k,- worth of income from the UAE for a property that is worth EUR 1k,- in rent may raise some eyebrows and trigger some deeper investigations.

[kassad1]

Money laundering is covering up illegal profits. Income from trading crypto or crypto capital gains are not illegal.

https://en.wikipedia.org/wiki/Money_laundering

So this is not money laundering.
You probably could use the proposed solution to do money laundering if you were receving profits from something illegal and needed to show legal profits instead. But this is not the case discussed here.

'but receiving EUR 90k,- worth of income from the UAE for a property that is worth EUR 1k,- in rent may raise some eyebrows and trigger some deeper investigations.'

I know a person who sells a product to his clients that he actually receives for free. It's not a sin to sell something with a high markup.

Also from the perspective of your tax authority the rent received is taxable in the other country (UAE). So it is not looked at as being 'taxfree so it has to be suspicious'  but as simply 'not their business'.

[HeRetiK]

Money laundering is covering up illegal profits. Income from trading crypto or crypto capital gains are not illegal.

I'm neither a legal nor a tax expert, but I'm pretty sure that faking income from one source to cover up income from another source as to avoid taxes counts as money laundering in most legislations, including the US and the EU.

Do what you will though, I'm just some random guy on the internet Should you be audited by your local authorities (which hopefully won't happen) it's not me you'd need to convince that neither tax evasion nor money laundering is at play. If you haven't already I'd still advise on getting a tax expert aboard though, if only to avoid any slip ups.

[Kemarit]

Just a quick update:

~ snip ~

Ok, good for you, I guess you can update us if anything go on your way (or not). But still, I will not go on that route just to be "tax-free" (or evade taxes). Yes, you can out-smart the tax-man, however, I have a feeling that sooner or later they already know this process so just be careful.

This is like a person I know back then who doesn't want to pay his due to the government, so he lives like 10 years without paying anything but the government caught up on him and know he has to suffer the consequences. So Goodluck to you.

[kassad1]

I'm neither a legal nor a tax expert, but I'm pretty sure that faking income from one source to cover up income from another source as to avoid taxes counts as money laundering in most legislations, including the US and the EU.

Nope you are mixing things up. Money laundering is when you are 'faking income from one source to cover up income from another source' only if your 'another source' is an illegal activity, and you want to hide that you are doing the illegal activity. So it is not to avoid taxes. It is to avoid being connected with illegal activity. Let's say you sell drugs. That is illegal. You profit from it well. Now you want to buy a house. You need to cover where your money is from so you set up a hotdog shop. From now on you're going to claim enough revenue from selling hotdogs to cover your expenses. While in reality the hotdog shop doesn't sell as many hot dogs. You still have to pay taxes on the revenue from the hotdogs you claimed to sell. That is money laundering. It has nothing to do with avoiding taxes. In fact you will actually be working toward being able to pay taxes when money laundering.

I hope you understand it know and we can let it go . As this thread is not about money laundering.

[kassad1]

This is like a person I know back then who doesn't want to pay his due to the government, so he lives like 10 years without paying anything but the government caught up on him and know he has to suffer the consequences. So Goodluck to you.

Thanks for the good wishes. What I'd like to point out that I intended this thread to be about how to minimize tax on profits involving crypto without having to move your tax residence to any exotic country people always talk about. Not to start a discussion about whether one should work on minimizing their taxes or not in general. So if someone generally disagrees with the concept of not 'always telling only the truth and the entire truth' to the taxman, then he/she disagrees with the entire concept and I get it. So I am sorry if some of you misunderstood this but this discussion is intended to be about HOW to implement it in a smart, prepared, thought out and cheap way.

[erikoy]

It will not be possible for every government in different countries who are adapting bitcoin are already eyeing on how to tax crypto. Other countries that regulated cryptocurrency has used the local exchanges where transaction fee is higher than other exchanges. It is because tax is already on it as an addition to the transaction fee being deducted every trade you made.

[freigeist]

I think you can't avoid tax unless you change residence to another country because
your tax authority may request you to present them your sublet contract!
Then what?

You mentioned you have to rent space from legal entity A for 1000€ / year. right?
Then you let this space to legal entity B for 90K € / year .
What if tax authority in your country ask you to show also the contract that you have with legal entity B?

In your case who will be the legal entity B in the contract
that will pay you 90K € on your bank account?

Can you explain more in details please?


For common "small" people is difficult to escape the parasitic systems
that are feeding on the working class and  which  you may know are designed
for the rich to become richer.

Only the rich have totally legal means to "lower" their taxes legally.

[kassad1]

I think you can't avoid tax unless you change residence to another country because
your tax authority may request you to present them your sublet contract!
Then what?

Nothing. There is no need for either a written contract or an invoice between a private person and a non VAT subject partner. It doesn't matter if the other party is a company or a private person, until he/she/it is not subject to VAT.

You mentioned you have to rent space from legal entity A for 1000€ / year. right?
Then you let this space to legal entity B for 90K € / year .
What if tax authority in your country ask you to show also the contract that you have with legal entity B?

The non-written 'verbal' agreement is sufficient and legal in the above described cases. So you can legally only be asked to 'declare' the source of income.

In your case who will be the legal entity B in the contract
that will pay you 90K € on your bank account?

Can you explain more in details please?

The payment arriving to your BTC address at your chosen bitcoin exchange is your income that you declare to have received as rent. The €90k to your bank account arrives from the crypto exchange you have chosen to exchange the crypto to eur.

For common "small" people is difficult to escape the parasitic systems
that are feeding on the working class and  which  you may know are designed
for the rich to become richer.

Only the rich have totally legal means to "lower" their taxes legally.

I agree. That is why I came up with this. To help the little guy (myself included).

[milewilda]

I'm neither a legal nor a tax expert, but I'm pretty sure that faking income from one source to cover up income from another source as to avoid taxes counts as money laundering in most legislations, including the US and the EU.

Nope you are mixing things up. Money laundering is when you are 'faking income from one source to cover up income from another source' only if your 'another source' is an illegal activity, and you want to hide that you are doing the illegal activity. So it is not to avoid taxes. It is to avoid being connected with illegal activity. Let's say you sell drugs. That is illegal. You profit from it well. Now you want to buy a house. You need to cover where your money is from so you set up a hotdog shop. From now on you're going to claim enough revenue from selling hotdogs to cover your expenses. While in reality the hotdog shop doesn't sell as many hot dogs. You still have to pay taxes on the revenue from the hotdogs you claimed to sell. That is money laundering. It has nothing to do with avoiding taxes. In fact you will actually be working toward being able to pay taxes when money laundering.

I hope you understand it know and we can let it go . As this thread is not about money laundering.

If you do try to read up https://www.quora.com/Are-tax-evasion-schemes-considered-money-laundering-Any-examples

A tax evasion scheme, as its name suggests, is any strategy designed to evade taxes. You could even make the argument that not all tax evasion schemes are illegal. It really depends on your understanding and definition of “scheme.” In the United States, “scheme” has a strongly negative connotation. In some other countries, it has a neutral connotation, similar to “strategy.”

HeRetiK point is valid one.

[olubams]

Double taxatiok relief is not a form of tax avoidance rather its a way of not punishing an individual from paying tax twice which means if you pay in country A where the income is generated, you don't have to be in country B where you are located or where you want to bring in the income. It then means that there is nothing like zero percentage of tax because for you to enjoy the double taxation relief, you must show evidence that you had initially paid.

Another thing worthy of note is that double taxation relief is usually on the basis of reciprocity I.e there is hardly a way one country would declare a particular income free and another country would tax that. Its usually a well thought out process by representatives of both countries. A further thought process needs to put in place to decide if this is an avenue worthy of exploit.

[kassad1]

Double taxatiok relief is not a form of tax avoidance rather its a way of not punishing an individual from paying tax twice which means if you pay in country A where the income is generated, you don't have to be in country B where you are located or where you want to bring in the income. It then means that there is nothing like zero percentage of tax because for you to enjoy the double taxation relief, you must show evidence that you had initially paid.

Another thing worthy of note is that double taxation relief is usually on the basis of reciprocity I.e there is hardly a way one country would declare a particular income free and another country would tax that. Its usually a well thought out process by representatives of both countries. A further thought process needs to put in place to decide if this is an avenue worthy of exploit.

1. There is no income tax in the UAE.
2. According to the OECD Model Tax Agrrement which all Double Tax Treaties are based on: income generated in connection with real estate/permanent establishments are always taxed where the real estate/permanent establishment is located - this case in the UAE.

This means renting property that is located in the UAE can only be taxed in the UAE, but the UAE doesn't impose an income tax currently. Thatswhy 0% tax on this type of income.