Are There Tax Benefits to Using Nebeus’ Crypto-Backed Loans?
Crypto-backed loans are a new way to borrow money. They have been growing in popularity over the last few years, and it’s not hard to see why. With traditional loans, as an individual, you need a credit score that is near perfect, or your loan will be denied. However, no credit check is required with crypto-backed loans, so even people who would otherwise be unable to get a loan can now qualify for one!
Nebeus has been around for a while, so there’s no doubt that their service is safe and secure.
However, it’d be great if there was more information about the Tax Benefits of Crypto-backed loans. It can be tricky to know the tax benefits for every country in the world as there are so many different laws, regulations, and hearsay that seem to change every day. But, I wanted to write this article to summarise a few of the potential tax benefits that cryptocurrency-backed loans are most likely to provide.
Before we begin, some of you are probably asking:
What are Nebeus’ Crypto-Backed Loans?
Nebeus describe itself as a Crypto-backed Loans Platform. They offer other services such as purchasing insurance policies, helping you rent your crypto, and letting you exchange currencies, but Crypto-backed Loans are the leading service they currently have.
Crypto-backed loans are a great way to access funds without going through the traditional banking system. This leading service lets people borrow Stablecoins (USDT or USDC) or Fiat money (like Euros, US Dollars, or British Pounds) by putting their cryptocurrency investments up as collateral.
Nebeus have a few different loan options to accommodate different users’ needs.
One option is Quick Loans. These are immediate and pre-approved that come directly from their treasury. Overall, Nebeus provide 50% of the loan-to-value and 0% interest for three months.
Another option is Flexible Loans, which are more suited to your individual needs. Choose your terms and get a maximum of 80% of your crypto’s value for up to 36 months: a great rate considering the market.
It must be taken into consideration that, as crypto is believed to be highly volatile since it has the potential to be manipulated and influenced, thus, incurring significant changes in the value of currencies, one is able to gain or lose money pretty quickly. When you hold a crypto-backed loan and at the same time your crypto’s price goes in a downward movement, therefore, losing its value, Nebeus makes it easy for you to manually add more collateral to your loan, giving you more control in avoiding margin calls and eventually, the liquidation of your collateral.
Additionally, if you want extra peace of mind, with Auto Margin Call Management, Nebeus will help you navigate any volatility in the markets by automatically adding more collateral by taking it from your account to keep things running smoothly.
As well as that, Nebeus will protect your crypto collateral for 10 days during margin calls. If the market goes up and the price of your crypto increases again, Nebeus will cancel the margin call, and your loan will continue as if nothing happened. On the contrary, if prices keep falling and you do not add more collateral manually or do not repay your loan during those 10 days, Nebeus will sell your collateral to cover the cost of repaying what was borrowed. The loan then ends, any excess collateral is returned to you, and you get to keep your borrowed funds.
What Does Nebeus Say About Tax Benefits?
Nebeus doesn’t say too much about taxes and potential tax benefits. As their COO, Michael Stroev mentioned in an interview with TechBullion, this is because the number of different countries and the number of different laws would be pretty overwhelming to provide advice for.
“It is your responsibility to determine, if any, taxes apply to the payments you make or receive, and it is your responsibility to collect, report and remit the correct tax to the appropriate tax authority, regardless of jurisdiction. Nebeus is not responsible for determining whether taxes apply to your transaction, or for collecting, reporting or remitting any taxes arising from any transaction, to you or any taxation, governing or third authority.”
This is all standard legal stuff and not anything to worry about. It simply means that you’ve got to take your taxes into your own hands, as it can vary from country to country, instead of relying on Nebeus to give you detailed advice.
So, What Are the Tax Benefits of Crypto-Backed Loans?
Cryptocurrency taxes differ per country, ranging from zero tax regulations to taxes on profits beyond a particular level, to set taxes on all capital gains.
However, as Cryptocurrency has only become mainstream in recent years, it’s taken a while for tax authorities and governments to begin writing legislation. The HMRC in the United Kingdom, for instance, has a Cryptoassets Manual that was updated recently, in February 2022. It has limited and bare-bones guidance on crypto-asset loans, but it is the best place to start getting informed.
As a rule-of-thumb, you’ve got to use good judgement based on general tax laws already in place. Plus, you’ve got to be prepared for new laws to be put in place at any time!
Some of the main benefits of Crypto-Backed Loans are:
You can cash out your crypto profits without selling your crypto assets
Perhaps the value of your crypto investments have sky-rocketed, and you’ve got a nice profit sitting there. But, if you sell your cryptocurrency to get access to those profits, you’re most likely to need to pay tax on them.
The amount of tax can vary significantly. It usually falls between 15% and 24% of those profits mentioned above. Taking the UK as an example, it depends on:
● What level of income do you currently have
● Whether you’re trading full-time
● And the length of time you’ve had the cryptocurrency
Here’s the good part: instead of selling your cryptocurrency, if you take out a loan with that cryptocurrency as collateral, this is not a taxable event in most countries.
That means the government doesn’t get anything from it!
Remember, even if the value of your crypto asset keeps increasing, you’ll still have to keep up paying the interest rate attached to the loan. That’s a small price to pay, though!
There are fewer fees to pay in the first place (and there are more affordable interest rates!)
Compared to traditional, non-DeFi loans, Crypto-backed loans are frequently associated with more affordable borrowing costs.
Also, traditional loans sometimes come with a slew of fees that must be paid in addition to the interest rates.
However, with handy crypto-loans, you can borrow at reduced interest rates and with minimal to no fees. Not bad!
An Example of the ‘Crypto-Haven’ Portugal:
You may have heard that Portugal is the place to be if you’re heavily invested in Cryptocurrency. Why? As in Portugal, crypto earnings are tax-free, provided the individual isn’t a professional trader. You can verify this by downloading the Portuguese Tax Authorities’ official position – be warned that it’s written in Portuguese!
Who Counts as a ‘Professional Trader’?
You’re probably wondering if all the cryptocurrency trading you do will classify you as a professional trader, which is a good question.
In all honesty, it can be hard to tell. Again, it all depends on individual countries’ definitions, which is quite frustrating!
However, by looking for some standard criteria, it is likely you only count as a professional trader if:
● You depend on cryptocurrencies A LOT, especially compared to other sources of income
● According to your volume and repetition of transactions (Well, a lot more than the average crypto-enthusiast!)
● You have a dedicated, in-person workspace for you or anyone you have hired to help with cryptocurrency trading
The Bottom Line: Do You Get Taxed if You Borrow a Crypto-backed Loan?
It is important to note that, in general, the majority of cryptocurrency trading results in taxable events.
However, as regulations can vary massively from country to country, we’ve gone into detail on 3 specific regions to give you an overview.
United Kingdom Taxes
According to Recap, HMRC has not issued clear guidance on crypto-backed loans. However, HMRC has recently released its Cryptoassets Manual to bring more clarity regarding taxes and crypto.
From reading the manual, you can see that as DeFi is such a new way of doing things, even governments have struggled to keep up. HMRC state this directly in the CRYPTO61214 section:
“The lending/staking of tokens through decentralised finance (DeFi) is a constantly evolving area, so it is not possible to set out all the circumstances in which a lender/liquidity provider earns a return from their activities and the nature of that return.”
As there are many possible results, HMRC opts to set out “guiding principles” instead. These principles are based upon types of receipts and expenses as found in centralised financial practices, an overview of which can be found here in BIM35000.
What does this really mean, though? It means determining if either:
1. The gain was earned by the lender providing a service to the borrower/DeFi lending platform – so, if the income has the nature of revenue
2. The lender earned the gain through the capital growth of the asset – so, if the gain has the nature of capital
As you can see, the current regulations are vague and rely heavily on previous legislation. The best method is to play it cautious and speak to a qualified accountant. HMRC is cracking down on untaxed Crypto gains, so you should always keep track of any transactions and follow centralised finance tax laws where possible.
Currently, Portugal keeps things relatively simple as it is considered the go-to spot for crypto-traders.
Why? As according to the latest Portuguese legislation:
“The sale of crypto-currency is not taxable under the Portuguese tax system, unless by its habituality it constitutes a professional or business activity of the taxpayer.”
This means that you only have to begin worrying about crypto-related taxes in Portugal if you make it a core part of your income so that you get counted as a ‘professional’.
United States Taxes
CoinTracking have the most up-to-date guide I could find on all the tax issues while trading cryptocurrency, at least in the United States.
When it comes to loans, borrowing is not usually a taxable occurrence in the United States. So, in simpler terms: loaning someone crypto or fiat is not typically a taxable event.
When it comes to personal loans, any interest to pay isn’t deductible. It is only tax-deductible if it fits the criteria as interest on the investment.
An important warning, though: if you plan on using the crypto-backed loans money to then buy more crypto, to then sell that cryptocurrency at a loss or with a profit, things might get messy and risky. However, crypto’s volatility, with several market cycles frequently occurring in a single year, presents enormous potential for the brave investor. It is critical to remember that keeping organised finances and being prepared for the possible changes in the market are required to invest responsibly.
Are You Ready to Get a Crypto-Backed Loan? Start with Nebeus
Nebeus’ service keeps things more straightforward than most. Their intuitive app and user-friendly interface take any stress from moving your money about.
So, if you do your research and know what you’re getting into, Nebeus’ crypto-backed loans are probably your best bet.
(P.S. Lloyds of London back them for over £100 million, so you know you’re in safe hands!)