Investing in cryptocurrencies in Andorra can be a very relevant option for many people, especially from Spain. As all businesses related to cryptocurrencies, tokens, NFTs and the various blockchain applications or mining itself are purely digital and do not require a physical location, they are a very frequent target client to go to live in Andorra. So much for traders as well as for holders or entrepreneurs with projects with crypto assets.
Although Andorra is not a crypto paradise at least not yet, it is remarkable the the country's efforts to open up internationally and attract the most innovative sectors and markets like Big Data or, in this case, blockchain. What Andorra is a jurisdiction that bets on cryptocurrencies and blockchainThis is demonstrated by the fact that a bill to regulate the sector is currently in the parliamentary process.
In this article we will discuss the situation and the advantages of doing a business in this sector in the Principality. Of course, the main and most obvious advantage is the fiscal one, but it is not the only one.
Cryptocurrency environment in Andorra in 2022
With the price of Bitcoin at about 40.000$ and with the first international institutional supports already made, Bitcoin is slowly coming of age. Some continue to say that it is a bubble, but they are the same that they said when it was at 300$ and they are the same as when it fell from the peak of 20,000$ of 2017 to approximately 10,000$ they said "I told you so", even though 10,000$ it should also be a supposedly exorbitant amount for them.
The frequency of profiles of Bitcoin investors and hodlers and in general cryptocurrency traders who move their business to the Principality of Andorra has increased a lot in 2021, a year already marked by a strong boom and a maximum of new residents due to the pandemic, the economic crisis, the poor management of both by the governments of Spain, teleworking and trend set by El Rubius. The newest fashion in this sense is that of the video games with cryptocurrencies, of which there are already numerous projects in Andorra and practically all of them have been established during 2021 and of which we have a lot of experience.
The importance of fund traceability
However, from Andorra Insiders we must insist that the source of funds must be clear when someone who owns these crypto assets wants to settle in some currency, especially if the objective is to operate with said funds again through the banking system and acquire goods and services with them. Maintaining the traceability of operations is essential to be able to declare cryptocurrencies.
Specifically speaking of the Principality, we already reflected in other articles how meticulous and strict Andorran banks are. This has always happened because the Andorran banks have investments of great wealth and businesses from all over the world, and their prestige is highly valued, image and brand for investors of all kinds as a serious, respectable and responsible bank.
Therefore the banks they are always cautious and put problems in all activities considered morally doubtful (for them): from online games, casinos and others related to gambling, to adult themes and pornography, through tarot and fortune telling businesses. In addition and as we also commented, after the BPA crisis that led to the transformation of the country, these controls have been intensified.
The case of cryptocurrencies is therefore not an exception, quite the opposite. Due to their properties and anonymity and how new they are, these assets are highly susceptible to money laundering and therefore for banks to accept the income and cash flows generated with them, it must always be proven that the ultimate origin of the funds resides in an entity of the banking system or that somehow the completely legal origin can be certified thereof.
Intermediate operations are also taxed
The cryptocurrency exchange per se generates a taxable income that must be declared in personal income tax, regardless of whether whoever transmits the cryptocurrency obtains a legal tender currency (fiat), another cryptocurrency or another type of asset. That is to say: that when someone sells for example bitcoin, even if they obtain another cryptocurrency such as Ethereum, that operation per se is already subject to tax and constitutes a capital gain or loss that must be declared.
This fiscal impact, for many still unknown, has been clearly exposed by the tax authorities of practically all of Europe, including Andorra. In fact, in Spain, the verification of all operations, which includes the exchange of information with other jurisdictions such as Malta and Estonia, are part of the tax control plan for this year, and therefore, it is foreseeable that tax inspections will intensify in the sector.
The operation is therefore relatively simple and works like this both in Andorra as in most countries of the world including Spain: each time a certain amount of cryptocurrencies, tokens or crypto assets is liquidated or sold, the holder of them obtains a capital gain / loss calculated as the value of the crypto in the sale operation minus the value in the purchase. At the end of the fiscal year, gains and losses from all operations are offset and the net income subject to tax is obtained.
We insist that this treatment is applicable regardless of the asset obtained And regardless of whether they are on a specific platform or exchange and the funds have not been withdrawn from the bank.
Cryptocurrency trading log for traders
In this sense, we recommend have a record of all operations carried out with bitcoin and other cryptocurrencies at hand in order to certify and justify, when the funds are to be settled and reintroduced into the financial system in current currencies, that the origin of the funds is lawful. It should be noted that you can have these cryptos in an external wallet, as long as it can be shown how that capital has gotten there.
Numerous clients and people around the world have a huge wealth in cryptocurrencies, especially in Bitcoin, but because they bought in the early days of this technology through low-traceable platforms and methods, they cannot liquidate and reintroduce the funds back into the financial system. Y Currently there is no use in owning Bitcoin if you cannot trade with it.
Have tools like Coin Tracker o Coin Tracking or similar to register all operations with cryptocurrencies is highly recommended if you want to declare correctly and have the option of liquidating the capital to the banking system.
Cryptocurrency taxes in Andorra: personal income tax
For practical purposes, cryptocurrency trading is usually done in a personal capacity, except in cases in which a group of investors deposit a joint capital in a company, in which case it is the company that carries out the trading.
Specifically, in the case of Andorra at the moment, and pending specific legislation, cryptocurrencies are considered as one more normal asset, and therefore obtained as individuals, they are taxed on the basis of personal income tax savings as capital gains, which is a 10% on net profit with € 3,000 exempt income. As a society the profits of the company are taxed to the 10% also but deducting expenses in which the salary of the administrator of the same can be included.
Thus, the gains obtained from trading cryptocurrencies in Spain are subject to personal income tax at a rate between 19% and 26% (due to the tax increase in 2022), while the maximum rate applicable in Andorra is 10%. Less than half, certainly a significant savings. You can read about Andorran taxes in greater depth here.
The main difference however is that In jurisdictions such as Spain, the cryptocurrency must be declared in the Wealth Tax, that is, it is taxed for the simple fact of owning cryptocurrencies in one's own patrimony. In Andorra there is no wealth tax, nor on inheritance and donations, with which the mere possession of these crypto assets is exempt from tax.
Crypto platforms used
The most famous exchange used in Andorra is Binance, although Coinbase is also very established. There are also the banks taking over Kraken. In general, we recommend that you verify that the platform on which you operate allows Andorra as the country of residence of the account and that it is a reliable, secure platform whose traceability of funds is clear. In general, it must be a platform with a reputation and that provides confidence to Andorran banks in such a way that they understand that there is no possibility of carrying out money laundering or other types of fraud with them.
The new legislation that is brewing
Due to the covid-19 crisis, Andorra has prepared a package of measures or plan for 2023 called "Horitzó 23" with which it intends to face the dire consequences that this pandemic has caused, especially as regards the economic ones. One of the 77 initiatives of the plan is the modification of the Law 35/2014, on electronic trust services to include in these all systems blockchain.
This law was passed in 2014 and seeks to regulate those electronic services that require trustnamely: electronic signatures and seals, certificates of authentication, and electronic delivery services and time stamps. Thus, the modification of the law would give all cryptocurrencies and other blockchain-based technologies the legal value of being reliable and usable.
Although the implications of the measure are quite unpredictable, for example, it would be a first step to be able to create cryptocurrency brokers in the country, to allow smart contracts, legal support and protection for crypto holders and traders, documentary validity in trials, etc.
That is, the implications of the law they go far beyond cryptocurrencies, since it implies admitting the value of distributed consensus that technology itself manages to make a reality. If we continue along these lines, we may be talking a few years from now about legally granting notarial and contractual validity, registration and exchange, etc. to all the tools that use blockchain and even to be able to issue cryptos. Not bad, although we will see what it really translates into.
Finally, it should be noted that the implementation of a license from the Andorran Financial Authority (AFA) that can be requested by companies that operate with cryptocurrencies in the same way that occurs with brokers, investment funds and financial advisers. This regulation would allow the growth of a very strong fintech sector in the Principality and the diversification of the banking system.
Mining and blockchain business in Andorra
Other activities related to cryptocurrencies such as cryptocurrency mining or other businesses related to the blockchain have also arrived in Andorra. The type of residence that this type of profile usually takes advantage of is the self-employment, by means of the creation of a society to develop your activity. The taxation of the company, as in the case of a natural person, is the 10% on the profit obtained in society. This percentage applies regardless of the activity to be carried out with cryptocurrencies, You can also deduct all expenses related to the activity.
On the other hand, projects of video games with NFT with the new business model applied to video games called «play-to-earn» in which many game assets (skins, characters and accessories, weapons, perks and even virtual lands and more) are linked to an NFT token (usually from the Ethereum network) in such a way that it is unique and verifiable by the network. In this way, and also adding a commonly used cryptocurrency, a whole market of digital assets in the environment of said video game virtual.
Other alternatives that are being developed are projects that seek link games with DeFi technology, for example using staking tokens to give rewards in video games or to remunerate the simple fact of playing and betting on the game. Also the idea with NFTs is that they have properties (in their smart contract) in such a way that they can progress, evolve or gain valuable characteristics.
The legal and fiscal treatment of the creation and distribution of NFT collections for example in Open Sea It must also be taken into account and treated with the greatest possible rigor and in compliance with current legislation. In this sense, we also recommend obtaining specialized advice, and for this reason we have an exclusive Department dedicated to legal advice on cryptocurrencies and blockchain projects in Andorra.
The establishment of companies aiming to be leaders in the Web3 sector and blockchain solutions such as mafia racks it is also giving impetus to the sector in the country.
Prevention and prudence
As a summary, although crypto assets are innovative and interesting, it is important to note that Andorra and its banking system have a restrictive positioning in money laundering prevention policy. In other words, in any case, the origin of the funds must be justified, as well as the traceability of the operations. For this, it is important have the most experienced and knowledgeable professionals in the sector, since passing the regulatory compliance and banking compliance procedure is an essential procedure to be a resident and be able to operate in Andorra.
At Abast Global we are professionals in establishing people and businesses in the Principality of Andorra and we have a extensive experience in blockchain and cryptocurrencies. With our legal, tax and accounting services, the safest and most carefree establishment in the Principality of Andorra is completely guaranteed. Of course and as always, we offer you comprehensive support from the first to the last moment. May contact us and tell us your particular case here, and can read part of the services we offer here.