Before investing in cryptocurrency, you need to decide whether to do so as an individual or as a company (legal entity). This is the question we are going to explore in this blog post and this is an area that we can support you with.
Investing as an individual
If investing personally, conduct thorough research to protect yourself against the speculative and risky nature of crypto. How much would you be willing to lose if you were risking your money on red or black in a Las Vegas Casino? How confident would you be that you have made the right decision? Investing in cryptocurrency really can be like rolling dice so it is essential that you ensure you are as informed as you possibly can be before parting with your money.
That isn’t to say it isn’t worth the risk, because as we mentioned before, investing in cryptocurrency may be a high risk but there can also be high rewards. The good news is that investing personally is more straightforward than you might think. You can join a Bitcoin exchange and start investing quite easily, providing you get through the checks.
The not-so-good news is that cryptocurrency exchanges are vulnerable and have been known to be targeted by cybercriminals. You will therefore need to give consideration if investing as an individual, to the associated risks presented to your personal information and data. Is the risk worth it?
Depending on your investment style – are you a holder or a trader and your country of residence the tax burden can become significantly higher compared to investing in crypto with an Estonian company.
For example, if you are an Estonian resident and selling your personally held cryptocurrency with the profit you´d need to pay income tax on it, whilst investing through an Estonian limited liability company you can reinvest the profits without taxes.
Plus, if you sell with a loss, you are personally liable, aka you pay for the loss personally not the legal body. As an individual the loss is not allowed to be taken into account, you will not have to declare it either.
In order to declare the profits, you need to convert cryptocurrency into regular fiat currency based on the current market exchange rate, the profit needs to be calculated and tax paid.
Although some countries do not make cryptocurrency taxable on a personal level, Estonia does with income tax, so you will need to declare income from trading as well as the income from the conversion of cryptocurrency into regular currency. More information on this can be found here.
Already have crypto assets as an individual and wish to find out how to transfer crypto assets to your Estonian company? Take a look at our previous blog where we reveal how you can do this: How to transfer crypto assets to your Estonian company – Silva Hunt
Investing as a company
If you choose to invest as a company, there are clear rules in place;
“A resident company pays income tax on the distribution of profits, i.e. on the payment of a dividend at the rate of 20/80. Benefits granted by the employer (fringe benefits) to employees are subject to income tax at the rate of 20/80 and social tax at the rate of 33%. Expenses or payments made by a resident company, which are not related to the company’s business, are subject to income tax at the rate of 20/80” – source, Emta.ee
Therefore, on the taxing side holding your crypto assets in the company is no different from holding investments in stocks or bonds. There is no special tax for crypto assets in Estonia.
The benefits are clear:
+ No taxes when reinvesting profits inside of the company
+ In the case of Estonian residents: Don´t have to declare and pay income tax each time you sell
+ No yearly corporate tax – only pay taxes when distributing dividends to shareholders
+ Not personally liable and more
+ More convenient to organise investment finances in a separate legal entity
So in conculsion…
Because of the potentially higher tax rate ( depending on your country of resitence) and personal risk in investing as an individual, it makes a lot of sense to invest as a company instead. Think of this like you would with a regular bank account; having a business bank account for your company offers you additional protection and easier means of managing your outgoings, incoming and tax, and it is no different when it comes to crypto.
Additionally, as with a regular bank account, a business account can offer you additional benefits and reward; often this will mean higher purchasing limits and a much higher level of customer service and guidance available to you.
It also means you are free to invest multiple times and you will not carry personal risk.
Whilst investing as an individual remains an option, the best option for e-residents is to invest into crypto as a company. Come and talk to us at Silva Hunt and we will help set you up onto the path for success. Get in touch with us today: email@example.com.