Should Bitcoin Holders Move to El Salvador to Pay “No Tax” on Gains?
Last week, El Salvador officially adopted Bitcoin as legal tender, becoming the first country in the world to do so. Despite being a small country, the impacts of El Salvador’s move on other countries, particularly in the US due to the high levels of immigration of El Salvadorans there.
With numerous states supporting crypto and DeFi innovation, the US was deemed to be on the right track to becoming the global cryptocurrency hub. However, with recent regulatory scrutiny around crypto firms, especially after the SEC’s warning to Coinbase, there is growing skepticism of the US’ crypto-friendly stance.
At this time of uncertainty for crypto future in the US, El Salvador has announced that will exempt foreign investors from tax on their Bitcoin gains. The question is, therefore, whether this is a good idea for US taxpayers
Chivo Wallet Beset by Technical Glitches
Considering all the recent regulatory pressure by the US bodies, El Salvador’s announcement couldn’t have come at a better time for generating renewed enthusiasm for Bitcoin. Despite this, the attempt to lure foreign investors may have been a little premature due to several issues and bumps on the road for Bitcoin’s rollout as legal tender.
For one, the country’s official wallet, Chivo, is plagued with countless bugs. El Salvador had previously announced that every citizen who registers for the country’s official wallet would be entitled to $30 worth of BTC. While everyone has received the bounty, few have been able to use it.
A user from El Salvador explained the problems with the wallet, saying:
“Chivo app (official wallet) have still many issues, not from servers but the app itself, people are reporting many types of bugs and its funcionality is almost 0. It seems the app wasn´t ready to be released. You’re logged out when you open or use the app, sometimes it works, sometimes not.”
Another user, Melvin Vasquez, a 30-year-old tattoo artist, said he can’t even log into the app. “I want to see if I can buy something, but it won’t even let me enter. They should have prepared more… It is not so convenient,” Vasquez said.
El Salvador to Waive Tax on Bitcoin Gains for Foreign Investors
Following El Salvador’s move to adopt Bitcoin as legal tender, a government official said the country also aims to exclude foreign investors from taxes on Bitcoin gains. Javier Argueta, legal adviser to President Nayib Bukele, said:
“If a person has assets in bitcoin and makes high profits, there will be no tax. This (is done) obviously to encourage foreign investment. There will be no taxes to pay on either the capital increase or the income.”
The primary incentive here is to attract foreign investors. But apart from that, very little information is available.
Moving to another country to become tax-exempt is quite a tough decision. Instead, some might consider creating a legal entity with BTC on its balance sheet to receive the benefit of no-tax without the need for moving abroad. However, currently, there is not sufficient information to clarify such scenarios.
Nevertheless, we can speculate that the no-tax profit might largely be subject to individual investors alone, not companies and businesses.
Consider Moving? Here is What to Keep in Mind
Moving to a country with zero tax on profits may initially seem like a no-brainer. However, there are certain things that should be taken into consideration before taking any action.
First of all, the costs of living should be looked at: “If people are not careful, the high costs of living in these places can eat away at any tax saving achieved by moving abroad,” says Kieran McDonnell, a tax advisor from the UK.
For El Salvador, the cost of living a month for a family of four, without rent, ranges from $1,000 to $2,000. Of course, these prices fluctuate based on how much a person or a family spends, but this acts as a rough guide.
However, compared to the United States, El Salvador is around 34% cheaper in general. In terms of housing, El Salvador is over 55% cheaper than the US, while it is 2.5% more expensive when it comes to transportation.
Moreover, it is worth noting 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.
All in all, depending on a number of factors, including personal preferences, individual circumstances, a tendency for change, knowledge of Spanish, family ties, and more, a person can decide for himself whether it would be worthwhile to move to El Salvador.
Nevertheless, for those who consider migrating, it would be wise to first visit the country, speak with some local lawyers, and get as much advice as possible.
Are you a Bitcoin holder who is considering moving to El Salvador? Let us know in the comments below.