For years, high-net-worth individuals have been using offshore bank accounts in countries considered to be tax havens to reduce their annual taxes. With increasing attention pointed to these tax havens and many governments beginning to crack down on the low tax associated with them, some see Bitcoin as a potential alternative to the traditional offshore bank. Despite closing loopholes on offshore bank accounts, Bitcoin still faces minimal regulations, helping it appeal to those in search of the next offshore tax haven.
Why People Would Turn to Bitcoin for This Purpose
Tax havens have arguably become more mainstream in recent years, as evidenced by the vast list of celebrities revealed to have offshore accounts in the recent Panama Papers. Some of the use of tax havens is due to a desire to pay a low tax, but that might not be the only reason. Investors in countries that have weak property rights might opt for offshore holdings to stop government expropriation. It is also possible that those buying companies or properties would want to hide their identity for a negotiation advantage and opt for offshore holdings to achieve this.
Any of those reasons to use traditional tax havens can also be applied to Bitcoin. Specifically, the use of Bitcoin delivers secrecy, so no one needs to know about your holdings, letting you keep that negotiation edge. If someone does not have confidence in domestic banking institutions, Bitcoin could be an alternative since it is not tied to any government.
Another interesting point to note is who can take advantage of Bitcoin as a tax haven. Traditionally, only those with a high net worth could afford to open an offshore account as a tax haven. However, ordinary citizens regardless of wealth can invest in Bitcoin since doing so is much simpler and more accessible.
Closing Loopholes Might Lead to Increased Bitcoin Adoption
Those who have studied the subject feel that as more loopholes are closed or other crackdowns occur, more people will turn to Bitcoin instead. Once the Panama Papers were revealed, the high-net-worth individuals listed turned to other methods to minimize their taxes. As more of those methods are discovered and either banned or strongly frowned upon, Bitcoin might end up as one of the few options available.
Predictions for the Future of Bitcoin as a Tax Haven
Despite its great potential, no expert is going to predict that Bitcoin will take over the full $20 trillion market of offshore tax havens. Instead, they expect it to slowly accumulate a portion of this market. There are also expectations for adaptions and new services, such as the potential ability to use a decentralized exchange to buy tokenized assets and securities using Bitcoin.
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