Are you considering investing in cryptocurrency? One of the first decisions you’ll need to make is whether to invest as an individual or as a company. This article will explore both options and how they differ.
Investing as an individual
If you choose to invest as an individual, be prepared to do your research thoroughly.
Cryptocurrency is a high-risk investment, and it’s crucial to be as informed as possible before investing. While the rewards can be high, the risks are equally high, and exchanges are often targeted by cybercriminals. You’ll need to consider the associated risks presented to your personal information and data before making a decision.
Depending on your investment style and country of residence, the tax burden can become significantly higher compared to investing through a company.
For example, if you are an Estonian resident and sell your personally held cryptocurrency at a profit, you’ll need to pay income tax on it. However, if you invest through an Estonian limited liability company, you can reinvest the profits without taxes.
Investing as a company
Investing as a company has clear rules in place. A resident company pays income tax on the distribution of profits at the rate of 20/80.
Benefits granted by the employer 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 that are not related to the company’s business are subject to income tax at the rate of 20/80. 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.
Investing as a company offers several benefits, including no taxes when reinvesting profits inside the company, not having to declare and pay income tax each time you sell (in the case of Estonian residents), no yearly corporate tax (only pay taxes when distributing dividends to shareholders), and not being personally liable.
It’s also more convenient to organize investment finances in a separate legal entity, and you’ll have easier means of managing your outgoings, incoming, and tax.
Conclusion
Investing as a company is the best option for e-residents, considering the potentially higher tax rate and personal risk in investing as an individual. Just like having a business bank account, investing in cryptocurrency through a company offers additional protection, easier means of managing finances, and additional benefits and rewards.
Lawyer Georgi Džaniašvili has 10 years of expertise in business legal support and can help with structuring while you deal with cryptocurrency. Contact me at info@juristestonia.ee to set you up on the path for success.
