Recent changes have made it more difficult for expats to transfer money to Costa Rica and obtain dollars via ATM transactions. At the same time, IRS reporting requirements have made it expensive and difficult for expats to manage accounts offshore, in places like Costa Rica. However, it is now possible to legally avoid these restrictions with the digital currency, Bitcoin.
Bitcoin is Legal and Regulated in the U.S.
Unfortunately, Bitcoin is a bit of a dirty word in Costa Rica. When ARCR manager Ryan Piercy was kidnapped in 2012, his captors demanded a Half Million Dollar Ransom to be paid in Bitcoin. The defunct Costa Rica based Liberty Mutual traded in Bitcoin, among other forms of currency when it ran afoul of the U.S. Patriot Act. These events, however are made irrelevant with respect to Bitcoin because of the subsequent regulation and legal acceptance of Bitcoin in the United States and many other countries.
According to the United States Internal Revenue Service, Bitcoin under the general category of virtual currency is considered property. The IRS issued the guidelines in 2014 so that taxpayers would understand how to calculate and pay taxes on capital gains from Bitcoin trading. FinCEN, the agency of the US Treasury Department responsible for enforcing the financial aspects of the USA Patriot Act issued virtual currency guidelines in 2013. The regulations simply require Bitcoin exchanges to keep records in line with Money Transmitting Business (MTB), such as Western Union or Moneygram.
Avoidance Not Evasion
Legal experts use the term “Tax Avoidance” to describe situations where individuals and entities structure their business or finances in such a way as to avoid being subject to rules that trigger tax liability. Evasion, however is a crime where a person or entity fails to report income or pay taxes as required by law.
With Bitcoin it’s possible for an expat to avoid much of the banking infrastructure and its subsequent, and ever growing list of restrictions in Costa Rica.
Bitcoin is global currency that erases the Costa Rica border, as if it along with the social policies of the government and idiosyncrasies of particular banks no longer exist.
A good analogy is that Bitcoin has the potential to do to banks and credit card processors, exactly what Uber is doing to taxi drivers. As a disruptive new technology, Bitcoin can disintermediate the banks, and in doing so allow people to avoid all the rules that apply to banking.
Practical Benefits to Bitcoin
Once bitcoin is acquired, it can be transferred almost instantly to any other virtual wallet. Bitcoin transactions are cheap, fast and fully irreversible. Unlike credit card or Paypal transactions that can be disputed, there is no recourse with Bitcoin other than for the two parties to negotiate directly. Removing the banking intermediaries eliminates the regulations and the administrative costs associated with bank infrastructure, employees and the various entities that charge transaction fees.
Simply put, Bitcoin provides many of the same benefits as cash transactions, however the two parties can do business via Internet with few or no financial intermediaries. In Costa Rica, Bitcoin could become the perfect solution for the businesses of renting hotel rooms, vacation properties or apartment rentals.
Depending on how its used, Bitcoin can do specific things.
- Receive cash in person, in Costa Rica
- Exchange for something of value, such as goods or services
- Convert an international money transfer into a domestic bank transfer, fully within Costa Rica
- Pay a bill online in Costa Rica that normally requires a bank account
- Have money sent via Moneygram or Western Union to a person in Costa Rica
Of course none of the described benefits are specifically endorsed or even provided by the banks or money transfer services mentioned above. However, exchanges like the Helsinki, Finland based localbitcoins.com provide geographically specific markets to exchange bitcoin, complete with escrow delivery between parties using cash and bank transfers.
Getting Started with Bitcoin for Expats
Acquiring Bitcoin in Costa Rica presents a bit of a challenge to those who lack access to banking in the United States. This is because one of the easiest way to buy Bitcoin is online and in the United States, through the San Francisco based exchange, coinbase.com. As a FinCEN regulated MTB, coinbase.com keeps the required records of transactions, and also requires bitcoin buyers to provide a social security number, US based telephone number, and a credit or debit card, also with an addresses in the United States. Funds are deposited into a coinbase.com account using domestic ACH or wire transfers.
Using coinbase.com to turn dollars into bitcoin, however is fairly easy for the expat who has maintained financial ties to the United States. It’s also possible to convert a large amount of wealth into Bitcoin before going offshore to live fully “off the grid”.
Playing Catch Up in Costa Rica
The Bitcoin market in Costa Rica lags behind it’s neighbors. Markets are taking off in Panama, Colombia and Venezuela. For those who are willing to stay close to large urban areas or make deals with locals who have bank accounts, it’s possible to trade and live anonymously using Bitcoin assets indefinably. A fluent Spanish speaking person with Bitcoin and good local connections no longer needs a bank account anywhere.
The market in Costa Rica is likely to improve as owners of rental properties figure out there is substantial income to be made in accepting Bitcoin over credit cards or Paypal. After all, it’s the tourists and recent expat arrivals that are most likely to be carrying the Bitcoin. It’s just a matter of time before the entrenched interests figure out there is a new way to take sometime of value off the new arrivals. The fact that Bitcoin totally avoids tax and immigration authorities, and to some extent the Costa Rica banking system is just an added bonus.