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Crypto Law/Level VII · Loopholes worth understanding/7.2 Residency and borders/Lesson 3

Zero-tax countries and their catches

What ‘no income tax’ really means for a crypto holder, and the four ways a gain can still be taxed after a move.

Education, not legal, tax or investment advice. Crypto law differs between countries and states and changes often. Check the current rules where you live with a qualified lawyer or tax adviser before you act.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. A non-US citizen genuinely resident in the UAE, which has no personal income tax, or the Cayman Islands, with no income tax on individuals, can sell coins with no local tax; the catch is the departure and residence rules of the country left behind.
  2. Prove UAE residence under Cabinet Decision No. 85 of 2022: 183 days in a 12-month period, or 90 days with a residence permit plus a permanent home or job there; get a tax residence certificate, because a visa alone is not tax residence.
  3. Leave the UK cleanly: fewer than 16 days there in a tax year after recent residence makes you automatically non-resident, but returning within five years can tax gains made abroad under the temporary non-residence rule.
  4. Check exit charges before moving: Portugal treats losing residence as a crypto disposal, and a US citizen in a zero-tax country still owes full US tax with no foreign tax to credit.
  5. Update the residence and tax number on every exchange account to match reality, since CARF platforms report residence to tax authorities; keeping a home, family or work in the old country undermines the move.

MaterialsThe residence rules of the country being considered, for example UAE Cabinet Decision No. 85 of 2022HMRC’s RDR3 guidance on the UK statutory residence test, including temporary non-residenceA dated record of where you lived and where each coin was bought

Wonder

  1. If a country has no income tax, are my crypto gains tax-free once I live there?
  2. Can my old country still tax me after I leave?
  3. Does a residence visa make me a tax resident?

Explore

  1. A few places levy no personal income tax. PwC’s tax summaries say there is currently no personal income tax in the United Arab Emirates, and no income or withholding taxes on individuals in the Cayman Islands. For a crypto holder, that means a sale made while genuinely resident there may produce no local tax. But the local rule answers only one question: what that country charges. Whether another country can still tax the same gain depends on citizenship, on the rules of the country left behind and on proof of the new residence. Each of these is a catch.
  2. The first catch is citizenship. A US citizen remains taxable in the United States on worldwide income wherever they live (lesson 7.2.1). Moving to a country with no income tax removes the foreign tax that could otherwise be credited against US tax, so the full US tax on the gain remains. Puerto Rico works differently because it is a US territory with its own federal rules (lesson 7.2.2). For a US citizen, a no-tax country can lower the total bill only where US law itself gives relief, and the foreign earned income exclusion does not cover capital gains.
  3. The second catch is becoming resident in the new country. A visa is an immigration status, not a tax residence. Under UAE Cabinet Decision No. 85 of 2022, in force from 1 March 2023, an individual is tax resident if their usual place of residence and centre of financial and personal interests is in the UAE, if they spend 183 days or more there in a 12-month period, or if they spend 90 days there and meet further conditions, such as holding a residence permit and having a permanent home or a job or business there. A tax residence certificate is often what the old country asks to see.
  4. The third catch is leaving the old country. Under the UK statutory residence test, someone who spends 183 days in the UK in a tax year is resident, and others can be resident through UK ties. The UK also has a temporary non-residence rule: a person who had sole UK residence in at least 4 of the 7 tax years before leaving, and who returns within 5 years, can be taxed in the year of return on certain gains made while away. Other countries tax departure itself; Portugal, for example, treats losing residence as a disposal of crypto (lesson 7.2.4).
  5. The fourth catch is that information still travels. Under the OECD’s Crypto-Asset Reporting Framework, platforms in participating countries collect each customer’s tax residence and report it to their own tax authority, which shares it with the residence country (lesson 7.2.7). A holder who claims to have left a country but keeps a home, family or work there can find their old tax office receiving data that contradicts the claim. When two countries both treat someone as resident, tax treaties have tie-breaker rules (lesson 7.2.6), but many no-tax countries have fewer treaties, and the US saving clause still applies to US citizens.
  6. A practical check: for the past three years, write down every country where you had a home, spent more than 90 days, had family living with you, or worked. Next to each, note its residence test, whether it has a departure or temporary non-residence rule, and whether you are a citizen. Compare that list with the residence recorded on each exchange account. Gaps between the story and the records are what examiners look for. This lesson explains the rules and their catches; it does not recommend moving anywhere. An adviser who knows both countries can apply the rules to a particular case.

Key facts

  • PwC reports that the United Arab Emirates currently levies no personal income tax.
  • PwC reports that the Cayman Islands imposes no income or withholding taxes on individuals.
  • UAE Cabinet Decision No. 85 of 2022, in force from 1 March 2023, makes an individual tax resident after 183 days in the UAE in a 12-month period, among other tests.
  • Under the UK statutory residence test, a person who spends 183 days or more in the UK in a tax year is UK resident.
  • The UK temporary non-residence rule can tax certain gains made abroad if a person returns within 5 years after having sole UK residence in at least 4 of the 7 prior tax years.
  • A US citizen living in a country with no income tax has no foreign tax to credit and generally owes the full US tax on crypto gains.

Exercise nine, six, three, one

9CollectList up to 9 ties that a real or imagined holder keeps with a home country after moving to a no-tax country: homes, family, work, day counts, accounts, citizenship.
6ClusterSort them into 6 groups: citizenship, days, homes, family, work and financial records.
3DistillReduce the 6 to 3: which ties would most likely keep the old country’s claim alive?
1CrystallizeWrite 1 sentence explaining why a country with no income tax does not guarantee that a crypto gain goes untaxed.

Fact check

Dates, figures and claims checked against the published sources listed below.

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