{ "episodeId": "SLP183", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "dennis_wohlfarth_clinton_donnelly": { "name": "Dennis Wohlfarth & Clinton Donnelly", "role": "guest", "tag": "DENNIS" }, "guest_2": { "name": "Guest 2", "role": "guest", "tag": "GUEST" } }, "segments": [ { "speaker": "stephan", "time": "00:09", "start": 8.63, "text": "Hi and welcome to the Stephan Livera podcast, a show about Bitcoin and Austrian economics. Today my guests are Dennis Wohlfarth from Accounting and Clinton Donnelly of Donnelly Tax Law. Today we're talking about strategies around legally minimizing tax. If you're in the US, you should absolutely get your order stacking on with Swan. The process is so simple, even a no coin Could do it. 1. Autofund USD from your bank account. 2. Auto-stack your Bitcoin. 3. Auto-withdraw your Bitcoin to your cold storage. Swan doesn't charge withdrawal fees, they want you to follow Bitcoin best practices and hold your own keys. Swan crushes Coinbase's fees for recurring buys by up to eighty percent and beats Cash App's fees by up to fifty-seven percent. Set and forget, enjoy your life, just Swan and chill. Go to swanbitcoin dot com slash livera to start auto-stacking. With Swan today. Be sure to use my ref link swanbitcoin dot com slash livera to get ten dollars worth of BTC dropped into your account when you start stacking with Swan. This episode also brought to you by Unchained Capital, a Bitcoin financial services company empowering customers with financial freedom and control using multi-signature. They've got the vaults product, they've got the loans product, and now they've also got the new trial for those in Texas and California to buy Bitcoin directly into a multi-signature vault. So if you're looking for ways to secure Store your Bitcoin. Check out Unchained's two of three multisig vault. You hold two keys, Unchained holds the other key. It's really easy to set up, you can set it up on the web interface, and doing this helps you geographically separate your keys, and so this can provide you some additional security to your Bitcoin stash. If you need US dollar liquidity, don't forget Unchained offer loans, so you can put up some Bitcoin and get USD liquidity, and in that scenario, you can still hold one of three keys and it's never rehypothecated. If Questions, go to the website and book in a consultation with the Vault Concierge team or the loan specialist at Unchained. Go to unchained dash capital dot com. So in this interview, we talk a little bit about the current tax treatment of Bitcoin around the world in various different countries, the application of capital gains tax, the record keeping required, tax minimization strategies available locally as well as for those willing to go overseas, and also the international competitive dynamic also. Here's the interview Interview. Clinton and Dennis, welcome guys." }, { "speaker": "dennis_wohlfarth_clinton_donnelly", "time": "02:33", "start": 153.02, "text": "Hey, Evan. It's a pleasure having us here." }, { "speaker": "stephan", "time": "02:37", "start": 156.54, "text": "Yeah, so thank you guys for joining me. I, I think, you know, obviously, attacks isn't something people wanna talk about, but I think at the same time, it's one of those things where I have probably a lot of listeners who would be interested to understand how to think about some of these different issues and what are some strategies that they could, employ. So look, first off, maybe if you guys wanna just start off and tell us a little bit about" }, { "speaker": "stephan", "time": "03:00", "start": 180.06, "text": "And someone that you need to, make?" }, { "speaker": "guest_2", "time": "03:04", "start": 183.96, "text": "Yeah. So my name is Dennis. I co-founded Acointing, officially in two thousand and eighteen. We had a system running before that because, we're like a group of investors and we're in the market since, since many years, and we basically at some point faced the problem of, keeping track of all our investments and, especially back in the days of ICOs and all the things that were happening back then. And so we decided to Basically build, a tracking tool for ourselves, just backend tool, and in two thousand and eighteen, we went public with it to support like the crypto market a little bit in, in terms of keeping track of everything, creating tax reports for different countries, and we're now at the point where we support the US, Aust-- Aust-Austria, Switzerland, UK, and Germany for specific tax reports and, other countries with, with Of, specific, like with, general output format. So that's, that's kind of a quick introduction." }, { "speaker": "stephan", "time": "04:07", "start": 247.12, "text": "Sure. And Clinton?" }, { "speaker": "dennis_wohlfarth_clinton_donnelly", "time": "04:09", "start": 249.21, "text": "yes, my name is Clinton Donnelly, and I'm with Donnelly Tax Law. We do tax preparation and defend, people with tax audits of their cryptos. I do tax preparation in the United States, but I have, a very international experience. I have a, A advanced law degree in international financial regulation, including taxation, got it from University of Liverpool, in the UK, and then also I have, clients in forty-eight different countries, you know, m-mainly Americans, in forty-eight countries who are basically exploring, you know, the tax implications of either doing business in US or being Americans living outside the US. I have a significant practice with cryptocurrencies, cryptocurrency return preparation, tax amnesty related to those things. So I have four books out on cryptocurrency and- And, I do a lot of, speaking about it. That's" }, { "speaker": "stephan", "time": "04:59", "start": 298.76, "text": "fantastic. So look, yeah, let's, let's get started. I think, you know, the naive person first thinking about Bitcoin Depending on, you know, how they've acquired that Bitcoin, they might think, \"Oh, yeah, I'm super private and so on.\" What's the reality in terms of Bitcoin taxes and what are some of the typical things that people need to be thinking about in the world of Bitcoin taxation?" }, { "speaker": "dennis_wohlfarth_clinton_donnelly", "time": "05:22", "start": 321.66, "text": "Well, let me make a comment on that. The international community has decided that Bitcoin would, is considered a virtual asset, property, it's not, it's not currency, it's not a, it's not a cryptocurrency, from a, from an international point of view. So as such, taxation occurs when you, sell or exchange that Bitcoin. So merely buying a Bitcoin isn't gonna be a taxable event. If you're hodling that Bitcoin, for a couple years, there's no taxes involved. It's only when I sell it or exchange it that I'm I'm gonna incur taxes, so on the gain. Now, you know, with, if Bitcoin hits the moon this year, you know, what sort of thinking would your listeners wanna have in terms of taxes? Because, the one thing about taxes, it's usually a percentage of your income. Now, on one hand, I'd say I'd wish all your, your listeners to have incredible tax bills, 'cause that means they made incredible amounts of money, alright? But that being said, how do we minimize what we do have to pay and not give the government or any government more than they need get, you know, legally. So, you know, that-- I think that's really the thing, and ta-- when you think about taxes, it's gonna-- they're gonna take, depending upon what jurisdiction you're in, twenty-five to fifty percent of your money that you've, you've worked so hard in, in investing. So a tax strategy is just as important as an investment strategy." }, { "speaker": "stephan", "time": "06:46", "start": 405.55, "text": "Right, and so, I think the important thing there really is, it's almost like the tax, tax agents and the tax law of the land is, is encouraging people to huddle, right? Like that's, that's kind of the encouraged position, because, it's only when you actually sell or spend that Bitcoin that you actually have to even think about these taxes, right? That's" }, { "speaker": "dennis_wohlfarth_clinton_donnelly", "time": "07:04", "start": 423.84, "text": "exactly right. You know, most countries in the world, the governments want to encourage investment. Now, there's, investing can happen where you buy it and you hold it for a long Or that investing can happen when you just, you're like a day trader, you're in and out, in and out. Well, corporations can't really grow a business if they're on day traders, okay? Investing in their company, they want somebody who's gonna invest and they're gonna leave that money there for a year, two years, whatever, and that way the corporation knows that they can bank on that investment. So governments incent that by having maybe one or having extra tax tiers for capital gains, capital gains is what you call selling property. So usually there's a-- most countries have a, a long term capital gains incentive. I know in the US, it's, it's, your tax rate goes down to fifteen percent. In certain countries, it goes down to zero or some very small amount, or after so many years it's zero. So this is an incentive, and that is a significant reward, for the hodler to really be aware, you know, have I hit that long term capital gains mark? 'Cause for-- in most countries, that's the easiest, most legal, you know? Thing to do is to go for the long-term capital gains incentive on your taproot. Right. And," }, { "speaker": "stephan", "time": "08:20", "start": 499.53, "text": "and, my understanding as well, and perhaps this obviously varies internationally, but my understanding at least from the Australian, position of it is that it, it matters whether your income is being treated as your business is one of trading or your business is one of you are investing and speculating, and that's where-- So if you're in the trading world, it's seen as like, \"Well, your trading income, you earned a hundred thousand dollars, that's your In the, for most people, it's, it's in the capital gains kind of world of, it's an asset, and when you made a gain, you're taxed on the gain. That's, is that, essentially a fair way to think about it?" }, { "speaker": "guest_2", "time": "08:58", "start": 537.98, "text": "Yeah, it definitely is. So like, like Clinton already said, it's, it's a little bit different in all the, in, in every country. And for example, in Germany, you have, after holding it for one year, you have, zero, taxable gains, or like you, you don't have to pay taxes on it because it just becomes long term. Obviously, there's, you need to be careful there if you are trading a lot of like margin trading, derivatives of these kinds of, of trading activities, you need to be careful get treated as, as a company, as an investment company where, because it basically changes the rules a little bit and you have to, open a business for that. But most investors, and I'm really talking about investors that maybe trade a few times per month, they, they usually don't have a problem with that. And, so based on, on that holding period, there's also a few good parts that you can use there. So obviously if you buy Bitcoin or any other crypto- Crypto asset at a high price and the price drops, you can use that and, and tax-loss harvesting basically sell this loss and use it as, a loss for the coming years when you maybe have, when you create some gains. So it really depends on, on how, on when you invested in crypto. And so that's one big part, I guess, that we also offer for our clients, of accounting, because we basically allow everyone to import all the transac- Actions, all the trades for free, and we have different tools to, monitor and to display the holding periods of our assets, because matching a trade in different exchanges, you hold it in different Bitcoin wallets, you never know where, what Bitcoin is actually long term, so that means has a lower tax rate, and what Bitcoin is, in the short term gains, so you need to be careful there, and we have a way of, displaying that. there's also A little bit more for the optimization part, you can obviously go really deep into that. So there's different ways of tracking, you can keep track of your investments in one single depot. That means you buy Bitcoin and then you use, in most countries they use a first in first out method to calculate which Bitcoin or cost basis you actually have to use when you sell something. So there's, a single depot version where you put everything in one Excel file and you use the oldest one, like the oldest Bitcoin And cost basis that you have and sell that, but in most cases, that's not what you want to do, especially if you do more day trading. So, a good way of optimizing a little bit more in the micro, in the micro field here is to, keep track of everything with a multiple depot tracking. That means if you buy something in one exchange, you send it to your wallet, this cost basis gets transferred to the wallet, and when you buy something else on, on another exchange when you day trade there with Bitcoin, you, you just- Just sell the Bitcoin that are really on this exchange and you don't touch your long term investments. And so with that strategy, you obviously can, trade a few percentages of your portfolio and the rest you can keep separate and, and, go for the long term gains. So it really depends because obviously if in two thousand and seventeen you would have like an investment of, I don't know, maybe ten Bitcoin and they're just six months old and you don't sell them and afterwards the Bitcoin price crashes, there's There's a trade-off of would it be better to sell, at that high prices or is it better to hold? So it really depends on, on what you expect the market to do in the future. So it's obviously good to optimize for taxes, but not all the time when you trade. So that's really the trade-off that you have to, that you have to use there. and yeah. I mean, in, for example, there's like countries like Switzerland where you don't pay any gains on your crypto trades, it's just wealth tax at the end of the year. So, obviously if you're lucky and you live in this country and you want to do J trading, it's a little bit easier, but you can really make that happen everywhere in the world." }, { "speaker": "stephan", "time": "13:09", "start": 789.23, "text": "Yeah. And so the first point you mentioned there was around tax loss harvesting. So, I guess just kind of replaying my understanding of that is you, you purchased at a certain price, and now the price has fallen, and now you basically what people do is they sell and rebuy, To kind of lower their cost basis so that they're now, i-in future tax pa-tax, the future they'll have a loss that they will be able to use against their gains in the future. Is" }, { "speaker": "guest_2", "time": "13:40", "start": 820.21, "text": "that," }, { "speaker": "stephan", "time": "13:41", "start": 820.8, "text": "is that" }, { "speaker": "guest_2", "time": "13:41", "start": 821.24, "text": "right? Exactly, that's, that's correct. So, and, and if you do that, you, you basically, want to use the, like, al-- they always want to sell that before it's older than a year, because you can actually use more losses to, for, for future gains, because the tax rate is higher. In Germany, for example, if you sell after the year, because the tax rate for long-term holdings is zero, you don't have any losses that you can, subtract from your future gains because it's just not taxable anymore. Yeah." }, { "speaker": "stephan", "time": "14:18", "start": 858.4, "text": "Right. Yeah. And, yeah. So then the other point was just around what you might consider segregation. So for those people who are traders, they might have a holding amount that's treated like a long-term, that's their long-term holding that's gonna be test-taxed as an asset at a CGT sort of style, whereas if they're trading, that's like a separate portion, of the- Their, you know, bitcoins, let's say, and then if they are a trader, then that is what gets assessed on a different basis because that's more like standard income, right? Yep," }, { "speaker": "guest_2", "time": "14:53", "start": 893.12, "text": "exactly. So you don't want to mix those two deposits up. So obviously you can use, different strategies there. You can just, once you, if you buy Bitcoin every month, for example, you can just use different addresses and put these Bitcoin in there, from the beginning. If you mix them up and if you- traded over the last years, and you now want to actually use that method, you can, use, like, like I said, this, this, displaying tool that we offer and we basically tell you in which, depot you have long-term holdings and short-term holdings and what's the trade-off between them. So it's kind of like you can basically go deep into that and analyze and then use the correct Bitcoin maybe from your wallet number ten, to sell now because this would actually create a loss. And, on the other hand, the Bitcoin that you have-- hold on Coinbase would create a gain, right? So in the end, you sell one Bitcoin, but you can sell the correct one, in order to create a loss with that trade." }, { "speaker": "stephan", "time": "15:54", "start": 953.76, "text": "Yeah. And, I'm also curious how people typically deal with it when they've got multiple wallets or multiple exchange accounts. What's the typical way that, you and your, your customers normally deal with that?" }, { "speaker": "guest_2", "time": "16:07", "start": 967.37, "text": "Yeah. So we, we just allow, our customers to connect Act, their exchanges directly either with an API or direct connection if the exchange offers that, for Bitcoin and for other blockchains, we have an import of like all the historical data through an xPub, yPub or just normal, Bitcoin addresses. You can then combine that all in, in one, in one portfolio, and we keep track of all the things that, like, of entire money flow in your, in your system. So that means if you send something from, like, from your first exchange to your- Bitcoin wallet, we have, that connection through the transaction ID, and we create so-called internal transactions, and these internal transactions aren't a taxable event, like they even create a fee because it's like the transfer fee that you can use later as a cost that you, that you actually spend for, transferring those Bitcoin, and we use that internal transaction to you, to transfer the cost basis from this first wallet to your second wallet And we always keep it with, with that Bitcoin. And so that's really nice because you can, with that, actually go back and really deep dive into that money flow and you have everything completely tracked. It's obviously not, not a Not all, like it's, it's, it's really nice to have that not, not only for tax purposes, but also, to prove to your bank where you got the funds from. I mean, a lot of banks, especially if you, if you trade with higher amounts, they want to know where you, where you got the investment from, right? Because it could be a money laundering activity if you can't track the entire history, that makes that easier." }, { "speaker": "stephan", "time": "17:50", "start": 1070.37, "text": "I see, yeah. And so that's one way where you sort of aggregate across all of your wallets, all of your exchanges, into one thing. And I guess the other part is You, I guess, if-- because when you sell, that's a capital gains, event, typically, and so it's kind of just you wanna sort of have the record there to say, \"This wasn't a sale, this wasn't me spending, this was me self-spending, right? And so that's not treated as a capital gain, et cetera, and therefore not taxed on that.\"" }, { "speaker": "guest_2", "time": "18:22", "start": 1102.43, "text": "Exactly. Or you even use it as, like, you, you send a gift or you, you did some other activity with it, right? So you can just prove where, where it went. And, in some countries, like, for example, in Germany, we currently, sue the government or we are in court against the government there because we don't agree with the tax regulations. So we kind of say that a payment shouldn't be a taxable event, and we also say that people that actually report their taxes in, in Germany- Germany is especially, they aren't not like they're the truthful people, right? They, they report, hey, I made some gains there, I, I, in theory, I have to pay taxes, but it's not fair because the government actually can't prove that other people that don't report taxes, like, To tax fraud, because they just don't have a way to go into the blockchain at this point or into the different exchanges because they're somewhere all over the world, right? So they can't prove that you traded, but, they want truthful people to pay taxes, and that's not legal in Germany, so that's why we're currently suing, suing the German government there or like their tax regulation and try to make it clear to them that it's either they can't do that for everyone, which I doubt they can, or they, they aren't allowed to. To file taxes, on crypto investments or on crypto trading. So that's kind of like one part that we try to, to do for, for the German community at least, And Clinton knows more about the US part, and there's obviously also like some really exciting things happening in the future. I mean, there's, a few discussions, right, where they, they try to not treat payments as a taxable event, which would be obviously really nice. But I mean, considering all the things that are happening in the market with Lightning, with, all the DeFi that is coming into the market, I, I don't know how they want to do it. Like" }, { "speaker": "stephan", "time": "20:20", "start": 1219.78, "text": "Right. Yeah. So let's talk a little bit about that. So this idea Of payments, and the taxation that occurs on them, like theoretically from the capital gains tax point of view. So I guess what you're getting at here is, for example's sake, let's say you buy a hundred dollars worth of Bitcoin and then later it's two hundred dollars worth of Bitcoin, and then if you now spent- You know, a portion of that, then, like, I guess the point you're getting at there is theoretically there is a capital gain on which, you know, like, it, it, it, government, want their pound of flesh on that. And so What, what are some of the different ways that it's treated from a, you know, taxation law perspective?" }, { "speaker": "dennis_wohlfarth_clinton_donnelly", "time": "21:00", "start": 1259.84, "text": "Well, you got the challenge. I mean, if I sell Bitcoin and buy, a car. You know, so I have capital gains when I dispose of that Bitcoin. I bought it at a lower price, I'm selling it at some higher price that's equivalent to what I'm paying for the car, that's capital gains. And so we see countries like, Portugal who are saying, \"Well, if you pay for Bitcoin, we're not gonna have VAT tax involved,\" which you can start to see, \"Well, hey, that's kind of a duplicate tax here of VAT on, on top of, of, capital gains.\" So, you know, and then, In the US, they-- it's just a sales tax, the tax is on what is sold, not the means by which you paid for it, so it's a little bit different structure. But, you know, really cryptocurrencies Are just turning the, the tax, regimes upside down, because we see here with, with the blockchain technology, DeFi, and smart contracts, and all these really exciting innovations are just transforming the financial industry and turning upside down our whole notion of currency and property, and, especially from a tax and accounting point of view. you know, a-and as, Dennis was mentioning, his own company was how, how do we- Do accounting when we're no longer trading in, in fiat currency, we're trading in, in a, in a, a Bitcoin, you know, and it's, it's an asset that's constantly changing value relative to the fiats in which we have to report our, our, our, business results into the tax authority. So it's, it's, it's everything's getting very complicated, and what we're finding, the tax authorities are finding is that defining cryptocurrencies merely as an asset, merely as property, is really not adequate, because it's changing so fast, it's becoming far more than mere property. Nor is it adequate to call it currency because it's not embraced by one government, a-and all, all that's involved in that. So I think what we're seeing, tax authorities are really kind of, they're They're holding back in coming forward with new taxation regimes targeted at cryptocurrencies because they just don't know where it's going, and they don't want to hamper, progress by having, tax rules which are make no sense as, as the technology progresses. So I think, I think we're gonna see taxation rules that are much like property continue at least for the next, five years until, until there's a real settling down of this, this mass of evolution in finance. that's frustrating to some people, but, you know, I think there will be something newer and better coming out of it." }, { "speaker": "stephan", "time": "23:47", "start": 1426.76, "text": "Right, yeah, so I guess for most people who are just holding, it's, it's gonna be treated as property, and it'll just be the CGT. So then I suppose for most people, they're just looking at what are ways to legally minimize my taxes on that. And so I guess one of them is tax-loss harvesting, one of them might be, you know, if, if you can move to a better jurisdiction, things like that. Are they, are they typical strategies that people are, are employing, or even like that co-- the whole collateralized loan idea as well In Bitcoin, getting USD so that you're not incurring a, a capital gains event, I suppose these are some of the strategies that people typically employ. Are they what you see in your experience? Are there any other ones that people are employing?" }, { "speaker": "dennis_wohlfarth_clinton_donnelly", "time": "24:29", "start": 1468.96, "text": "Well, yes, I mean, there's lots of those. People are putting in trusts and then getting payments from the trust. I mean, these are sort of all variations. You're just kind of, there's a little bit of a shell game here. You're moving the tax to different places, the tax eventually gets paid, you know, you're, That's a great strategy if you want to use the value of a short term asset until it's been collateralized long enough that you can characterize it as a long term asset and then sell it, at the long term capital gains rates. That's, you know, that makes sense. These are just small micro strategies. If you really are someone who w- if you're, let's say you're a whale, you have massive positions in Bitcoin, you know, and you see yourself liquidating a lot of this, then, you know, the- One strategy, if you really wanna, you know, let's say improve on the long-term capital gains rate, would be to relocate. So, you know, let's, let's put a framework in place to how will we make that decision. So if I were to relocate somewhere, you know, I have, You know, first of all, I'm selling where I'm at, I'm moving somewhere else, I'm incurring new expenses. What's the cost of living there? What's the quality of living? Will I find myself so bored I'm flying back to, you know, I could be living in an island in the South Pacific and being so bored I'm flying back to Sydney every month to go to, you know, an opera show, you know? So there's, there's some quality of life things. You also have issues relative to access to banking, Clearly, with liquidating some Bitcoin, you wanna be able to put that into a bank and get access to it. Well, what bank, you know, can you open up a bank in that foreign jurisdiction? People may ask, \"Why are you coming to, Bali to open up a bank account? Why are you coming to British Virgin Islands to open up a bank account if you live in Europe, if you live in Australia?\" So those, these are valid, know your client type of, you know, due diligence questions that are maybe difficult for you to open up a bank if you don Bank, then moving is gonna be a, a foolish thing to do. so, so we-- and then you let's think about the cost of that. So let's say all you have, if your upside is that you have a hundred thousand dollars worth of Bitcoin, long-term capital gains rates, let's just use the US one, is a fifteen percent. That means your tax is fifteen thousand dollars. What can you do that's gonna reduce fifteen thousand dollars? Well, if you move somewhere, you might end up spending-- it might be zero tax rate there, but you might Costing more than the fifteen thousand to have moved, right? Now, if you had, a hundred thousand Bitcoin, all right, so we're talking about a lot of money, now we're thinking, you know, I might be slowly liquidating my positions over multiple years, how much am I gonna liquidate on a yearly basis? Will I be liquidating a hundred thousand? Well, that means I'd be generating normally a fifteen thousand dollar tax, will I do better living somewhere else? Well, possibly. You know, if, on an ongoing basis, you're doing that" }, { "speaker": "dennis_wohlfarth_clinton_donnelly", "time": "27:26", "start": 1645.81, "text": "Interesting tax regime with zero tax. It's a nice cultural area, it's Europe, that's very good. BVI, a lot of people, I mean, that's one of the topics, look, any of the Caribbean countries, the Seychelles, they all have a very, interesting tax regime. The problem with these banks is if you have a, if you're doing something with a Seychelles bank, a BVI bank, any other bank in the world is gonna raise a red flag on that. So, it's very, very difficult" }, { "speaker": "dennis_wohlfarth_clinton_donnelly", "time": "27:54", "start": 1674.31, "text": "Gray bank, gray countries that are in the gray area when it comes to anti-money laundering laws. the US, would be in Puerto Rico are, are two really exciting options, both for Europeans and non-Europeans. Or you, Americans. So I'd be happy to dig into those some more if you'd like." }, { "speaker": "stephan", "time": "28:12", "start": 1692.21, "text": "Sure, yeah. I think, let's, let's talk a little bit about some of the, some of the, you know, good places around the world. As you mentioned, I know Portugal has no capital gains tax, I know Singapore has no capital gains tax, I know, Switzerland has none, and then, so Germany, as you mentioned, Dennis, I think if you hold for more than one year, there's no capital gains tax. So I think but what are, what are the ways that people would explore if they were to, like, let's say they had enough that it was worthwhile for them to consider moving, what are the ways that they would explore that?" }, { "speaker": "dennis_wohlfarth_clinton_donnelly", "time": "28:48", "start": 1728.5, "text": "But let's take the situation of someone who's not an American. I, I'd propose to you that the best place for your money, your, to invest is the United States. It is the largest tax haven in the world, and it is, 'cause the financial industry is a very important part of the US economy, and they've created very strong incentives to attract foreign money, particularly, there's zero capital gains if you're a foreigner, on your assets, on crypto assets in the US. you're very likely to get, if you go to like Bank of America, Citibank, Wells Fargo, You as a foreigner can easily open up a bank account, you'll have to go there physically and open one up, but they're not gonna-- it's not gonna be a question as to why is somebody from Australia, somebody from Switzerland coming to the US to open up a bank account, because the US is-- wants to be the marketplace for the world. So that's not a problem. And you want these major banks because they're accustomed to international wire transfers. If you have an account at a US bank, nobody's gonna question that from an anti-money laundering perspective. Perspective if I'm trying to transfer money back to Australia or other things, you know, it's widely respected as opposed to like a BVI bank or credit card. and the other thing the US does that, is the information sharing between countries about how much money, citizens have in foreign bank accounts. the US has one called the FATCA law, all the banks in the world have to tell the US IRS twice a year about American bank accounts in foreign countries. in response to that, the OECD countries created the common- Common reporting standard, CRS, which at this point I think about a hundred countries have signed up to, where once a year they will report back to the citizens' home country the total amount of your bank account. So, the US didn't sign that. The US didn't sign the common reporting standards. The US, you have a bank account in the US, the US doesn't tell any other country about it. So, you know, it's kind of, ironic. I, I guess that's maybe like the bully. You know, they demand that everybody give my information to them, but they won't share anyone else. But this is a-- This is because they're the biggest financial part-player out there, they can actually have this, whereas, it is considered a bit of a tax, haven, low tax jurisdiction. But for everybody who's not a United States citizen, this is a great place to put your money 'cause it's a rich investment area. You can move your money out of cryptos when you want to put it West is some of the best real estate in the country, Wall Street, I mean, there's a lot of, it's a rich financial area, and the very, and strong incentives. And you just got a, a US credit card, a, you know, like a Bank of America credit card, use that the rest of your life, buying things all over the world, and your local jurisdiction would have no visibility, to it unless you disclosed it to them. So that's a very attractive, one to do without having to, you know, change residence." }, { "speaker": "stephan", "time": "31:42", "start": 1902.37, "text": "Right, I see. So that would be the model that would be one idea if you don't even want to actually become like a US citizen and all of that, you're just, opening an account in the US. and so I guess then there's the other options as well of actually like moving or actually, let's say, getting residents in, say, BVI or multiple places. I, I presume that's also an option that some of your, clients Clients might explore as well, for some of them, it might be worthwhile for them to consider that." }, { "speaker": "dennis_wohlfarth_clinton_donnelly", "time": "32:10", "start": 1929.69, "text": "I do a lot of consulting in this area, for virtually every, for virtually every country, the principle of taxation is that if you're in the country more than six months, then you're subject to taxation in that country. Typically, you're subject to taxation on your worldwide income, in that jurisdiction where you've been living for six months. Now, the US, has a different tax law. They tax their citizens on- On their worldwide income, regardless of where they live in the world. So that is a little different wrinkle for Americans. But, a common underlying theme in international taxation is it's based on residency. Residency is typically defined as six months or one hundred and eighty-five, one hundred and eighty-three days, it varies, how you define it, but roughly this, the six-month thing. So this creates a massive international tax loophole, which I would call a three-country shuffle. Where if you're, if you're never more than six months in one country in a, the given time period, then you can just keep moving around. It's kind of like the digital nomad strategy. You keep moving around, nobody's-- you're not gonna have to report taxes to anyone. So, That's presuming you're not a US citizen, right? Presuming you're not a US citizen. now, US citizens have a different, problem. US citizens are taxed on their income worldwide. However, there are two massive tax breaks that are given to them. One is, For every dollar they pay in taxes to a foreign country, they get like a dollar to dollar, dollar for dollar credit back on their own tax bill, okay? That's nice. relatively speaking, the US taxes are lower than most other countries, developed countries. So if I were a citizen, I have clients living in Germany, and their German tax bill is greater than their US tax bill, so we still do a US tax return, they take the German credit and they don't have, they don't owe anything back to the US. however If that's, if you're an American citizen, you're living in a low jurisdic-- low tax jurisdiction, you're still gonna have to report back to the US and probably end up paying taxes back to the US. Now, for American citizens, there is a fantastic, loophole called Puerto Rico. Now, Puerto Rico is, a little country south of Florida, next to Cuba, in this area. it's a possession of the United States, it's not a state, although there's always talk about statehood, it's a possession. Now, in the U.S. tax law, if you're a possession, you're treated, kind of like as though you're living in a foreign country. And Puerto Rico, of all the U.S. possessions, negotiated the right to tax their own citizens. So you're not-- if you're a Puerto Rican citizen and all your income comes from being in Puerto Rico, you don't file a U.S. tax return. Puerto Rico pays its share to the U.S. government, on your behalf. So this creates an interesting loophole. in now Puerto Rico, Caribbean country, not a lot of indigenous resources, they've been crushed by earthquakes, tsunamis, hurricanes, I mean, it's-- the country's bankrupt, however, they've created a incentive that they call-- it's now called Act sixty, formerly Act twenty-two, where it's a zero percent tax on your capital gains. So if you move-- so if you're an American, and you're a whale and you wanna do this, you can move to Puerto Rico, and it's really- Gains move. It's not like go visit for a day and then go back to California. No, you really are moving to Puerto Rico for at least six months of the year, in which case, zero percent tax on your capital gains when, on this cri- the Bitcoin that you sell when you're in Puerto Rico, and, and this is, that's a fantastic thing. Now, there are some costs. You have to make a ten thousand dollar donation to Puerto Rican charities. There's a five thousand dollar annual fee you pay, and you gotta buy a house or apartment in Puerto So there's some serious out-of-pocket costs, but, it's probably worth it for that extra fifteen percent savings if you're, a whale Bitcoin holder in the US, that'd be the movement for you." }, { "speaker": "stephan", "time": "36:17", "start": 2177.25, "text": "Fantastic, yeah. So that's, very, very nice breakdown there. So I guess break-breaking that down, so if you're a non-US, person, then it might make sense for you to do this whole three different countries, different residences, et cetera, but if you're in the US, potentially one idea is moving to Puerto Rico one other idea I was interested to discuss, or related to what we were just saying, is what it takes to break your nexus with your home country, right? So as I understand, it's kind of like you have to sort of break that, a-as you said, it's mostly about the six months or a hundred and eighty days aspect. Are there any other things there that people have to think about in terms of, breaking that connection so that they, can be, can access the, you know, lower tax rate? Now," }, { "speaker": "dennis_wohlfarth_clinton_donnelly", "time": "37:04", "start": 2224.09, "text": "usually getting a divorce" }, { "speaker": "stephan", "time": "37:05", "start": 2224.89, "text": "helps." }, { "speaker": "dennis_wohlfarth_clinton_donnelly", "time": "37:10", "start": 2230.13, "text": "I'm just silly. but yeah, I mean, usually it's like, \"Oh, I want to go back to his mother,\" and that sort of thing, you know? You're-- There is a bit of travel to it. I mean, you're basically, if you take that strategy, you're at least saying, \"I'm gonna be outside,\" depending on which country you're from, \"outside of that my home country for, you know, nine to eleven months of the year, at least.\" So, And I would say, a couple things to think about. There are, you know, think of cost of living, think of, creating for your family, you know, awareness of other cultures, okay? Speaking other languages. And, you know, there are websites, I think, if you search for expat cost living in different cities, there's a couple websites like, Ex, Like the, I don't know, Expedia" }, { "speaker": "stephan", "time": "37:58", "start": 2277.61, "text": "or something like that, I can't remember now. There's" }, { "speaker": "dennis_wohlfarth_clinton_donnelly", "time": "37:59", "start": 2279.13, "text": "several websites where you plug in, you know, two cities and they'll tell you the comparative cost of living. And I'll tell you, it, it's The cost of living changes a lot, between different countries, and, I think it's also, you know, I just think it's a great thing to do. Once you start traveling, you get the bug. Now, what I find is, I've, I've worked with, you know, digital nomads, is they travel a little bit, and then they decide to have a home base, and they stay there, you know, five months of the year, and then they move around or they, you know, different, that sort of thing. But, If you are not a US citizen, if you're willing to do a, a three country shuffle, put your investments in US crypto exchanges, have crypto, well done, you know, or at least in wallets, and then use US banks, you can really move towards a pretty close to zero tax situation and see the world at the same time." }, { "speaker": "stephan", "time": "38:54", "start": 2334.13, "text": "That's very impressive, I think. so, I guess, I, I think another area that you were touching on as well, Clinton, was just around the dynamic between the- different countries of the world, right? So as you were saying, some of the-- it's almost like there are certain pressures where some countries try to push onto each other of reporting, taxation levels, and so on. But then there's also this dynamic where you were saying that it's almost like the richer countries allow certain nations to keep lower taxes and to have kind of relatively less, kind of rules around that. Could you explain that dynamic a little bit for us?" }, { "speaker": "dennis_wohlfarth_clinton_donnelly", "time": "39:35", "start": 2374.74, "text": "There was a real concern as right before globalization in the '80s, starting in the '80s, is that we had issues with, international drug trafficking. We had, people like Ferdinand Marcos in the Philippines who pretty much, looted his own country and took the proceeds and took them to Swiss and Liechtenstein banks and trusts. And so the international community got together and said, \"We have to stop this.\" And they created anti-money laundering laws, which are coordinated through the Financial Action Task Force, the IMF. And the OECD is the Organization of Developed Countries, about thirty four countries, and they didn't like tax havens either. Tax havens, you know, like Seychelles, BVI, Belize, these little countries that were basically siphoning off a lot of money, and bringing no value, you know, to their area. So they clamped down on those using the same anti-money laundering laws. and what that ended up doing was it forced People back to the OECD countries. It basically made it a club of the haves, right? so, you know, the OECD countries treat themselves as, A, you know, A-plus countries for putting your money in, everybody else is, dodgy and gray and don't wanna trust them. So, that really crushed the small island, tax haven network, But at the same time, like in Europe, they realize in Europe we have rich countries, Germany, France, but we also have very small countries, Luxembourg, Netherlands, who have very small revenue streams, and they need to allow them to have, more latitude to have incentives or lower tax options to bring business there. So, well, EU is very good about that, but, other countries in the world have to fend for themselves. this is- It's a massive issue, by which countries compete with each other. There's a massive competition. I, I mean, US used to have some of the highest corporate tax rates. It was at thirty-five percent, I, I think, in France was higher, but then, The UK and Ireland slashed their corporate tax rates significantly. UK slashed it down to, twenty percent on a phased method. The Ireland brought it down for foreign countries working in Ireland down to twelve and a half percent corporate tax. This is, this is a very big incentive. This is part of the reason why Google, Facebook, Apple all moved their call centers to Ireland, and a couple other reasons too, but, you know, so what the US did in order to change its international competitiveness is that- They slashed their corporate tax rates down to twenty-one percent, which makes it exceptionally aggressive and the-- it's designed to bring big companies who might have been in other countries, bring them back home to the US. So there is a real war, going on for the tax revenues of multinational corporations, by countries that are, lowering their tax rates to bring them in. So this is only gonna get more, competitive and it's- It's gonna be, as people, countries start to do that, they're gonna have to fund it by putting more of the tax burden back on, the individual. I know, like in the US, I was looking at a pie chart and, individuals pay roughly eighty percent of all the taxes in the US to the, to the IRS, the rest of it's corporate taxes. Now the argument would be, if I put a tax on- companies that make shirts, and you go and buy a shirt in Australia, Stephan, then your shirt is gonna be more expensive because you're paying the company's tax, alright? So company taxes are indirectly a tax back on the individual. Now, we as individuals can vote with our feet, just as I talked about a three country shuffle and, you know, keep your assets in the US. You know, they're-- we're seeing the exact same struggle in the US. We have some really high tax states like California, New York, and because of, remote offices and, and this sort of thing, people are starting to flee out of the big states, out of New York and out of California. They're not willing to pay high property taxes, high sales taxes, high income taxes anymore. So, we're in a period of, of transition where we as individuals have a lot of power to change the tax dimension of our life and to make sure we're getting as much value as, as we can out of the money we're having to pay." }, { "speaker": "stephan", "time": "44:04", "start": 2643.75, "text": "Oh, that was an, that was, yeah, that was an incredible breakdown. Actually, we saw a really cool comment, Stefan, this is awesome information, man. That was great, great, information there, Clinton. I think one of the really interesting things there is that dynamic that you were teasing out there, that there's this kind of competition between different countries, and for some of the smaller ones, like, say, the BVI or Vanuatu and some of these other small countries, part of their competitive way they, the way they compete is by having" }, { "speaker": "stephan", "time": "44:34", "start": 2673.63, "text": "I guess the offshore investment or the citizenship by investment programs that they offer are part of, a good part of their taxation, the part of their revenue, that's part of their kind of way how they kind of make" }, { "speaker": "dennis_wohlfarth_clinton_donnelly", "time": "44:45", "start": 2684.6, "text": "money," }, { "speaker": "stephan", "time": "44:45", "start": 2684.82, "text": "I guess." }, { "speaker": "dennis_wohlfarth_clinton_donnelly", "time": "44:46", "start": 2685.78, "text": "Interesting country, in South America is a country called Panama, and, Panama is, very interesting, it's kind of, it's its own country, but everybody knows if, if anything gets unstable there, the US will invade it in a heartbeat because of the Panama Canal. Now, what happened is- Because Panama has, a tax regime where if you draw-- if a company or an individual derives their income from outside of Panama, then it's not taxed Taxed in Panama, okay? So it's a real territorial system, a true territorial system. So what's happened is that multinationals who want to do business all over Latin America set up their headquarters in Panama, and they, they make all their money in Latin America back in Panama. Panama doesn't tax it because it's derived from outside of Panama, alright? so this is just a phenomenal arrangement that has enabled Panama to attract incredible amounts of business because almost all the Latin American countries are Unstable, Argentina, Brazil, Colombia, Venezuela, I mean, it's a, it's a very unstable mess there. But Panama has the strongest banking system in all of Latin America. Problem is, it has a little bit of a shady tax haven, was blacklisted once, and, you know, it's got a lot of issues. It's moving to progress and improve things, but, I would keep an eye on it. also, so if you're an individual, living in Panama, you're not an American citizen, so any other country, they're not gonna Because you're getting your income from outside of Panama, and it's a nice tropical country. They speak Spanish, a little bit of English. you know, great airport." }, { "speaker": "stephan", "time": "46:25", "start": 2784.73, "text": "Right. And so, I guess the, the other thing there is, the question of getting like residency, citizenship, and so on. I mean, you might not necessarily need citizenship, but you just might need the rights to live there and work there, that kind" }, { "speaker": "dennis_wohlfarth_clinton_donnelly", "time": "46:36", "start": 2796.46, "text": "of thing. It's easy. Go to Panama, you put down, you open up a bank account, you put twenty thousand dollars in the bank About three thousand dollars, they can get you what's called a friendly nations visa. This would be forty five countries that, Panama likes. Australia's one of 'em. You know, all of Europe pretty much. you get a friendly nations visa, and you now are a permanent resident of Panama. You need to go visit two weeks every two years. but otherwise, you have, you can set up bank accounts, and you'll have residency there, and you can travel all over the world, still say you're a Panama citizen, keep your bank op-- your So you're not gonna be taxed because the income's from outside of Panama. Very unique regime." }, { "speaker": "stephan", "time": "47:20", "start": 2840.45, "text": "Yeah, it's, it's interesting because I'm thinking back through kind of Bitcoin, Bitcoin people or people who've, famously attacked Bitcoin, people like Peter Schiff, he talks about, well, he's in, Puerto Rico, as I understand, and I know, I think even like Eric Voorhees" }, { "speaker": "stephan", "time": "47:36", "start": 2855.5, "text": "has, talked, went to, I think he, I'm not sure, correct me if I'm wrong, but everyone's got their own different view on, you know, the justice of taxation and AML laws. Obviously, you might be against them, but I think one factor that is potentially playing in the favor of the individual is that, well, I think a common book that a lot of people read is the sovereign individual, and part of that is like this idea of going to better countries or going to better jurisdictions for better tax laws or, or other laws as well. And so I think perhaps it's like most people grow up and they have this inertia, okay, I grew- Grew up here, so I'm gonna live here and I'm gonna die here kind of thing. But perhaps we're moving more into a world where people can work remotely and then they can start accessing some of these overseas tax, planning and overseas tax structuring that may improve the level of competition between the different countries and ideally keep it a bit lower for the individual. But what do you guys, what do you guys think?" }, { "speaker": "guest_2", "time": "48:40", "start": 2919.59, "text": "Yeah, I mean, yeah, I think that's, I guess it's really one big part, I guess what Clinton also said is just you have to think about where you want to spend also like the next years, right? I mean, as m- out of my personal experience, I moved to Switzerland to Zürich, like to the Crypto Valley, or that's at least what they call it, because, we also started our company there. It's obviously, a tax haven for people from Europe because you can easily move there. It's just you have to think about all the consequences, right? You, for example, you're not allowed to keep a key to your parents' home when they live in Germany because you're just not allowed to have a residence in another country then, otherwise this other country would tax you on your crypto income. So it's kind of like- And also the one hundred and eighty-five days, you have to be there, you have to be in this other country, so you need to be aware of the cultural differences. You need to be aware, obviously, if you, if you speak a different language, you need to be aware of that. You want to, like, you really need to think about cost of living, especially in Switzerland, and, and Switzerland, for example, it's completely different from area to area. So it's not just I, I move to the border of Switzerland, like to the, if you come from France" }, { "speaker": "guest_2", "time": "49:58", "start": 2997.52, "text": "Areas and they're small like Zug or Zurich, which have a really good taxation law on crypto, because you don't pay any, crypto taxes, you just pay wealth tax at the end of the year. but still, it's, it would be easy for a European citizen to move there, you just have to keep in mind that you kind of give up your, your, your home or your, like, where you, where you grew up, right? Obviously, you can move back in the future, but, it really depends on your personal situation if you have a- Family, it's maybe even harder to move there. So, yeah, I guess like the future of all these taxation laws and especially for crypto, I guess like Clinton said before, that's gonna be another five or ten years until they, they figure out the correct, regulations there. me personally and like our, our team, we are encouraging everyone to accept these regulations because it also brings crypto to the next stage, right? It's not just It's not just a bad thing if, if there's new regulations coming in, it's also you have a better guideline, you know exactly how to behave, and with that guidelines, you can actually find loopholes to go around these taxes. If you don't have any guidelines, it's really hard to decide what to do because it's just not defined yet by the governments, right? So that's, that's also a big, big part, I guess, in, in the far future." }, { "speaker": "stephan", "time": "51:23", "start": 3083.23, "text": "Yeah. Clinton, anything to add?" }, { "speaker": "dennis_wohlfarth_clinton_donnelly", "time": "51:28", "start": 3088.07, "text": "I was talking to a client, he was from Serbia, and, he said he had lived through the time when Yugoslavia had broken up and, it became very lawless and there was no real central government and, you know, the, the criminal element kind of dominated the, the, the law and order and stuff, and so there was a real breakdown. And When I was talking to him, he said, \"I want to pay taxes. I've lived in a country where we didn't pay taxes, and it was chaos. I want to pay taxes. I want a stable government.\" I thought, \"Wow, it was really refreshing, because so many people think that even paying a dime to a government is some sort of crime.\" But, there really is a value that governments give to you, and I think, as you were saying, Stephan, that there's, you know, We should become shoppers to a certain extent, and we can make choices about the tax impacts on our lives. What the government-- governments generally like you to do is to stay put in one spot and never move, so everybody who has a, a hand on you can tax you there. They don't like you moving around because it's tougher for them, basically changing your residency. So I, I think, this is- How can I describe this? I mean, tax burdens are outrageous worldwide, okay? And it has to do with the amount of services we expect governments to give us. We want the governments to give us a social insurance that if we get old, they're taking care of us. We want the roads to have no potholes. We think that the government ought to do stuff if they're, you know, to make things better and regulate and define what it means for things to be organic and all these sorts of things. Does this have the government do it? Well, every time you say the government ought to, you gotta rephrase it and in, \"I would like to pay more taxes so that the government ought to,\" you know? And, governments never shrink themselves. So, the only way that you can vote sometimes is just with your feet and go move somewhere else. the grass isn't always greener on the other side, in- You know, if you have very strong family ties and you love going visit, you know, the big family on Sunday and having a pasta dinner, you know, you're gonna miss that if you take off and go live somewhere else. I mean, but you might replace it with something more exciting and adventurous in your life. So, there's a big, you have to look at the whole picture, it's not just the tax issue." }, { "speaker": "stephan", "time": "53:54", "start": 3233.71, "text": "Of course, of course. I think, those are worthwhile points. I think it just kinda depends where, on your view of how things play out. Like maybe you believe there would be, you know, private provision of these other things, and, you know, less taxation to the government and more just kind of, you just pay privately and hopefully that those private services might do a better job and maybe that's the way you would think about it, but obviously you've got to, I think the, the key point here is kind of h-assess holistically, and I think talking about and understanding how the taxes work is one, obviously one important part of that picture, so, I guess, if you- You guys have got any kind of, closing thoughts for the listeners, and also where can, my listeners find you online?" }, { "speaker": "guest_2", "time": "54:38", "start": 3278.18, "text": "Yeah. So, I mean, one more thing, especially because there's no, like, no final regulation, in most of the countries, you can use that in, in order to argue a little bit, right? I mean, it's not that you-- I mean, you can save taxes in every country, even if they have a fifty percent, tax rate like in, in Germany for the short term taxes, like that would be the max Maximum, but you can still argue, about some, forms of income in crypto because there's no final regulation, right? So you can kind of try to, to shape that a little bit moving into the future. And there's, obviously no guarantee that this works out and this, that, that you, that they accept this, but you can at least try And we in accounting, we, we work together with, with German, CPAs with like in all the other countries that we cover as well, and especially also with Clinton, where we basically advise our, our users if they have some questions there and if they want to have a special regulation, especially if you have a little bit more in crypto and you have like where it would be worth to deep dive into, we, we always advise them to talk to, to Clinton or to some of our, our, our Other partners in other countries and other, restrictions, they, they, they, it, it sometimes helps. There's always a little bit of, movement that, that you can do and there's always a little bit of money that you can save. So, I guess that's, that's one important thing to, to think about. And like you said, us, we, you can find us on, www.cointing.com. So not accounting, but it's like just the, the U, the I instead of the U. dot com and, there's also a link to, to Clinton's website and, yeah, if there's any questions, just reach out to us and we hopefully can help." }, { "speaker": "dennis_wohlfarth_clinton_donnelly", "time": "56:35", "start": 3394.87, "text": "First of all, it's a pleasure, Stephan, to be on your show and to talk about these really interesting things. people can reach me at, donnellytaxlaw dot com. Donnelly is two Ns and two Ls. and, you can schedule a consultation with me. We, we do full service tax preparation for US citizens. We also do just, you wanna, you know, have a half hour tax planning consultation, you know, we could do it there. You can schedule a time, pay for it up front, and at, at the time Like I said, we have clients all over the world, so you can find a time slot that works for you. We also specialize in doing tax defense in audits, people who are being audited by the IRS. We actually are, we're one of the first companies to actually do a crypto audit, for American citizens, so we have significant insight there. We have a company of about nine people right now, and it's growing very fast. So I look forward to, talking to people about their tax needs, and, I wish everybody to find, to pay a lot" }, { "speaker": "dennis_wohlfarth_clinton_donnelly", "time": "57:36", "start": 3455.67, "text": "That means you're making a lot of money." }, { "speaker": "stephan", "time": "57:40", "start": 3459.97, "text": "Well, yeah, look, thank you very much. I mean, I obviously, I'm not, no one's a fan of taxes, but, it's worthwhile thinking about strategies around taxation, and I've, very much enjoyed chatting with you, Dennis and Clinton. Thank you for joining me. Thank you for" }, { "speaker": "dennis_wohlfarth_clinton_donnelly", "time": "57:54", "start": 3474.3, "text": "having me." }, { "speaker": "stephan", "time": "57:55", "start": 3475.32, "text": "So get the show notes at stephanlivera.com/183, subscribe to the show on your podcast app or on YouTube, and I'll see you guys in the citadels." } ] }