Transcription
More crypto confiscations and crypto taxation, and specifically AI-powered crypto taxation, coming to a country near you. This is Rafael from Wealthy Expat. We help you obtain a second residency or second citizenship to protect yourself, your family, and your wealth.
South Korea has recently announced an AI system to track crypto transactions and catch tax evasion ahead of a new capital gains tax regime. Essentially, the National Tax Service of South Korea is developing an AI-based virtual asset analysis system to flag suspicious crypto transaction patterns. The tool is meant to support a 22% tax on crypto above $1,800 from 2027. So, they're adding a new tax as well as a new system to track the profits that they're then going to be taxed under that new system.
Officials in South Korea describe it as a virtual asset analysis platform. They will collect data from exchanges and other intermediaries and essentially do blockchain analysis on your potential wallet and then cross-check that against tax filings in your name or in your company. Moving from reactive investigations of "we think this guy might might be doing something wrong" to proactive surveillance. And this is coming to a country near you. Countries all over the world like the United States, the UK, Germany, Canada, Australia are moving towards a proactive surveillance system specifically for taxation.
Also, one thing to keep in mind is that authorities can efficiently track flows of cryptocurrency specifically towards local platforms and local exchanges and major exchanges. Currently, it's much harder to track offshore exchanges. Specifically, if the person, for example, has residency in the UAE or in another country, is still living in South Korea as a tax resident but is using another type of identity in order to KYC on a platform. This new AI system is explicitly designed to cover those outside platforms. Essentially to close the gap specifically when it comes to cross-border transfers, offshore transactions, crypto sold offshore or to cash for example in places like Dubai or Turkey or Panama, and also fewer loopholes for underreporting gains specifically on crypto and higher compliance expectations for both exchanges and individual traders because obviously exchanges will also need to report absolutely everything.
This particular system will be tested for several months with completion targeted before the 2027 tax rules actually start. So they will launch a new capital gains tax with a new system to track your crypto and to track your offshore gains.
What can be done about this? The realistic solution because now governments are getting more proactive. They know that it's possible to get residency, to get easy tax residency in places like Paraguay, to get a second passport which I think it's also an amazing way to protect yourself against this because now you have another nationality that you can potentially use, but having another nationality, having another residency does not remove the tax implications. If you live in South Korea in this case, or in Germany or in France, or any country. France is actually one of the worst ones because you might be targeted by a kidnapping or an attack, a wrench attack. Tax authorities, specific corrupt individuals inside of the tax authority have been working with gangs in order to target crypto millionaires in their home and potentially hurt them and steal their crypto. That is why if you're a crypto millionaire, if you're a crypto entrepreneur, if you have crypto holdings, the best way to do this is to actually move yourself over to a jurisdiction with lower capital gains taxes, with more tax-friendly environment that respects your wealth.
There are countries that want to confiscate your crypto, confiscate your wealth, that want to surveil you more and more, mainly high tax Western countries. And there are countries that don't want to surveil you. There are countries that don't want to take your crypto. That list is getting smaller and smaller over time. Actually, I was talking to my UAE accountant this morning and she was saying how in the UAE they're transitioning to an accounting model similar to the European model. Every transaction needs an invoice. Everything is checked in detail. Make sure that the revenue matches the invoice, the expense matches the invoice, not just randomly creating expenses, not just buying cars and houses to deduct from the revenue. Now they're checking proactively. So there's really no country to run to.
What we need to do is we need to optimize based on the laws of every single country. For example, flat tax programs, long-term low tax programs like Uruguay for example. You can have up to 11 years of no foreign source income tax. Turkey now launching a 20-year tax deal. UAE, obviously you have the war, but UAE has no capital gains tax, no crypto tax as well. Panama doesn't have crypto tax. Costa Rica potentially also might work. Or countries where yes, there's capital gains taxes, but the enforcement is not as strong.
And what I recommend to crypto entrepreneurs, to crypto investors, get a second residency somewhere as a plan B. The best way to do this is to actually move somewhere else, move your tax residency officially. You have to be careful how you do that because if you're a Canadian, for example, and you have large crypto holdings, you might need to pay a deemed disposition tax to Canada. If you're a US citizen, you get taxed no matter where you go on your crypto unless you move to Puerto Rico or renounce your US citizenship, so that's not going to save you. And if you are, for example, a German, you might have to move to certain countries or if you're Norwegian, they have a list of countries where you can potentially move to. If not, you're going to continue paying taxes to Norway. So, this has to be done very carefully. I'm not a tax expert, accountant, anything like that. Make sure you get a local one.
Countries like, for example, Montenegro, Serbia that have lower capital gains taxes. None of this AI surveillance, checking on every single crypto transaction that you made. As I mentioned, special tax programs, zero tax on crypto programs like El Salvador, for example, you can get citizenship through crypto, 1 million USDT or 1 million US dollars in Bitcoin, and they have no crypto taxes. No capital gains taxes, no foreign sourced income tax. Countries like St. Kitts and Nevis or Antigua and Barbuda, although they are only tax-free if you live there most of the time, they are tax-free, so you have that option in case you want to move somewhere, and you can show source of funds from cryptocurrency, and they are crypto-friendly countries. It's not as straightforward as El Salvador where you just pay and boom, you get the passport through crypto, but you could potentially use source of funds from your crypto investments to get a second passport to at least have a second option to protect yourself.
What I want you to avoid is to, for example, if you're living in France, you go to Paraguay, you get a temporary residency, you fly back to France, continue living in France, you KYC on your Paraguay details, although it does provide you some privacy from these wrench attacks that are happening in France. So, that's actually a good thing to do in general, but it doesn't remove the reporting requirements, the tax requirements, and the surveillance that is going to come potentially to your country. So, it's great to have a second residence. It's great to have a second citizenship to protect yourself, to have another nationality, to have other documents that you can KYC on, to have another country you can live in.
But, the bulletproof scenario is to properly exit the tax system, move somewhere else that has a better tax structure or potential flat tax, like Italy, Greece. They have flat tax programs, so you could potentially use. Or, countries like Singapore, Switzerland, territories like Cayman Islands that have no capital gains tax on individuals specifically. And also, some countries like Germany, for example, have special tax deals if you hold the crypto for more than 12 months. Countries like Malta also have these special deals where if you hold it long-term, then you won't have to pay capital gains tax on that specific amount that you held for over a year.
Using hardware wallets or offline wallets also helps to not be surveilled, not be tracked, but when it comes to blockchain analysis, governments are smarter than that. They know how to keep track of those transactions, so you don't want to rely on that while doing everything else wrong and thinking that they're not going to catch you. It's not really a long-term sustainable strategy.
One way that wealthy people potentially reduce their taxes or optimize their tax is by getting a second passport. I discuss it in a full video, "Can You Get a Second Citizenship and Potentially Reduce Your Taxes Significantly?" Check out this video right here, "Buy a Second Citizenship and Reduce Your Taxes." I explain absolutely everything. Check it out right here.