In 2019, Russian officials revealed plans to build a major special economic zone to cater to cryptocurrencies on Bolshoi Ussuriysky island. Today, we see more countries keying into this plan by creating free economic systems to boost the trading activities in their regions. Despite this development, the benefits to miners are still unclear to many.
Understanding the Basics
Free Economic Zones (FEZ), otherwise known as Free Economic Territories (FETs) or simply Free Zones (FZs), are special economic areas that are exempt from the regulations of their home country. Free economic zones are attractive to bitcoin miners because they offer low tax rates and other incentives, with the inclusion of affordable power. This can be beneficial for miners who wish to set up operations in countries that enable them to make more money than they would if they were originally operating in an economically advanced nation with high taxes and strict labor laws.
Companies located in these regions benefit from special tax and regulatory benefits.They are usually located near the coast or a major river, and often have access to cheap labour, infrastructure, and land.
A Brief History
These special zones have been around for many years, with the earliest establishment in the United Kingdom dating back to 1971. Subsequently, more countries began following suit; these include Ireland and New Zealand (both established in 1976), Japan (1994), South Korea (1998), China (2002), Malaysia (2004), Thailand (2008), and Vietnam (2014).
Originally intended to boost growth while maintaining low taxes, they were usually seen as places where companies could operate without paying any corporate tax at all. However, over time, this concept has changed slightly.
In recent times, it is common for governments to offer incentives such as laws aimed at attracting foreign investors into their territory or offering reduced rates on business licences or permits, on the condition that these companies invest in infrastructure and projects within their region. For legalisation purposes, the World Trade Organisation (WTO) Agreement on Subsidies and Countervailing Measures (SCM) has content on the conditions and benefits of free zones.
Benefits of Mining in a Free Economic Zone
Free economic zones are a great way to get ahead in blockchain competition. Seeing that bitcoin mining is a highly competitive industry, it is necessary to have access to affordable labor and electricity. These zones tend to have lower costs of living than other parts of a country—a feature which is highly beneficial when trying to compete against other miners within a certain location.
Furthermore, these zones have the ability to attract other businesses due to their proximity to major cities or ports, where shipping goods is easier than transporting them over long distances via trucking or railcar delivery services.
Other benefits provided by these zones include:
Low taxes: In countries such as Georgia and South Korea, there are no taxes on mining. This means that your profits will be much greater when compared to mining in a high-tax country.
Low electricity costs: In FEZs - where electricity is cheap or even free (e.g Sweden), mining can be done at home or office without having to pay extra for power usage or maintenance costs associated with large-scale operations.
Countries with Free Economic Zones for Miners
In 2018, the Armenian government pledged to provide and manage a Free Economic Zone with the aim of supporting the development of high-end technologies in the blockchain industry. The dream was to create an infrastructure built on a zone of service centres, warehouses and armed guards.
Recently, ECOS themselves reached out to me to confirm and publicize the fact that this dream has now been fulfilled. Armenia, in partnership with ECOS, now has a Free Economic Zone in Hrazdan with unique conditions such as 0% income tax and VAT, 0% import and export duties, and 0% property and real estate taxes for the next twenty five years.
Prior to this recent development however, other countries have previously created special economic zones for crypto miners. Amongst these countries are:
Switzerland: One of the oldest and most popular special economic zones for blockchain companies is Zug (a small town located in Switzerland). In 2018, the town was ranked as the fastest growing tech community in Europe.
The Philippines: In 2018, the government of Philippine in collaboration with Northern Star Gaming & Resorts Inc, announced its intention to establish a fintech and blockchain hub, with the aim of creating an Asian silicon valley. It is expected that local firms will generate employment in exchange for the tax breaks they will receive in this economic zone. Provisional licences are already being offered to crypto-currency exchanges and other blockchain related businesses located within this economic zone.
Georgia: In 2014, the Georgian government created free economic zones in Bitfury, a major cryptocurrency outlet in the Netherlands. Miners are able to benefit in a zone where mining activities and electricity are not taxed.