Should Bitcoin Holders Move to El Salvador to Pay “No Tax” on Gains?

Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website guidelines before making any financial decisions.

Last week, El Salvador became the first country in the world to officially introduce Bitcoin as legal tender. Despite being a small country, the effects of El Salvador’s relocation are having an impact on other countries, particularly the US due to the high immigration of El Salvadorans.

With numerous states supporting crypto and DeFi innovations, the US was seen as on the right track to become the global cryptocurrency hub. However, given the recent regulatory review of crypto firms, especially following the SEC warning to Coinbase, skepticism about the US’s crypto-friendly stance is growing.

In this time of uncertainty for the US crypto future, El Salvador has announced that it will exempt foreign investors from tax on their Bitcoin profits. The question, therefore, is whether this is a good idea for US taxpayers

Chivo Wallet Beset by Technical Glitches

Given recent regulatory pressures from US authorities, the El Salvador announcement couldn’t have come at a better time to spark new buzz about Bitcoin. Even so, trying to attract foreign investors may have been a little premature due to several issues and bumps along the way to adopting Bitcoin as legal tender.

For one, the country’s official wallet, Chivo, is plagued by innumerable flaws. El Salvador previously announced that any citizen who registers for the country’s official wallet will be entitled to $ 30 worth of BTC. Although everyone received the bounty, few were able to use it.

A user from El Salvador explained the problems with the wallet:

“The Chivo app (official wallet) still has a lot of problems, not from servers but from the app itself. People report many kinds of bugs and its functionality is almost 0. It seems that the app wasn’t ready yet, to be published. You are logged out when you open or use the app, sometimes it works, sometimes it doesn’t. “

Another user, Melvin Vasquez, a 30-year-old tattoo artist, said he couldn’t even log into the app. “I want to see if I can buy something, but it won’t even let me in. You should have prepared better … It’s not that convenient, ”said Vasquez.

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El Salvador waives taxes on Bitcoin profits for foreign investors

Following El Salvador’s move to adopt Bitcoin as legal tender, a government official said the country also intends to exclude foreign investors from taxes on Bitcoin profits. Javier Argueta, Legal Adviser to President Nayib Bukele, said:

“If a person has assets in Bitcoin and is making large profits, no tax is levied. Obviously, this (is being done) to encourage foreign investment. There are no taxes to be paid on either the capital increase or the income. “

The main incentive here is to attract foreign investors. Apart from that, very little information is available.

Moving to another country to be tax exempt is a pretty tough decision. Instead, some might consider starting a legal entity with BTC on their balance sheet to get the benefits of tax exemption without having to move overseas. However, there is currently insufficient information to clarify such scenarios.

Nonetheless, we can speculate that the tax-free profit could largely be borne by private investors alone and not by companies and corporations.

Are you considering moving? Here’s what to watch out for

Moving to a country with no corporate income tax may seem like a breeze at first. However, there are a few things that should be considered before taking any action.

The first thing to consider is the cost of living: “If people are not careful, the high cost of living in these places can wipe out any tax savings from moving abroad,” said Kieran McDonnell, UK tax advisor.

In El Salvador, the monthly cost of living for a family of four excluding rent is between $ 1,000 and $ 2,000. Of course, these prices will fluctuate based on how much a person or family is spending, but this serves as a rough guide.

However, compared to the United States, El Salvador is generally around 34% cheaper. In terms of housing, El Salvador is over 55% cheaper than the US, while it is 2.5% more expensive in transportation.

In addition, it should be noted that tax laws and all laws in general are subject to change in the future. Before migrating, it is very important to understand how a country’s tax rules work and how often they are revised.

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All in all, depending on a number of factors such as personal preferences, individual living conditions, inclination to change, knowledge of Spanish, family ties and more, you can decide for yourself whether a move to El Salvador is worthwhile.

Still, for those considering migrating, it would be wise to visit the country first, speak to some local lawyers, and seek advice as much as possible.

Are you a Bitcoin holder considering moving to El Salvador? Let us know in the comments below.

About the author

Tim Fries is the co-founder of The Tokenist. He holds a B.Sc. in Mechanical Engineering from the University of Michigan and an MBA from the University of Chicago Booth School of Business. Tim was a senior associate on the investment team in the US Private Equity Division of RW Baird and is also a co-founder of Protective Technologies Capital, an investment firm specializing in sensor, protection and control solutions.