Palau does not have specific laws defining cryptocurrencies but generally regards them as virtual currency. While individuals are permitted to hold and trade cryptocurrencies, the Financial Institutions Commission has enforced a moratorium on commercial crypto businesses since March 2019. This means that engaging in crypto-related business operations within Palau is currently restricted, pending a dedicated legal framework. The Bureau of Revenue and Taxation manages tax administration in Palau, operating under a territorial tax system. This system dictates that only income explicitly sourced within Palau is subject to taxation. For individuals, foreign-sourced crypto income, including capital gains from the sale of cryptocurrencies, is not taxed and therefore carries a 0% rate. There are no distinctions based on holding periods, as foreign-sourced gains are consistently exempt. If any crypto income were definitively sourced within Palau, it would be treated as ordinary income. For businesses, a 12% Business Profits Tax applies to territorial income. Additionally, the 10% Palau Goods and Services Tax (PGST) may be applied to crypto goods or services if they are deemed taxable supplies. Specific guidance for activities such as staking, Decentralized Finance (DeFi), or Non-Fungible Tokens (NFTs) is currently unavailable. However, under the territorial tax system, income from these activities would likely be taxed at 0% if considered foreign-sourced. Commercial crypto mining operations conducted within Palau would be subject to the 12% Business Profits Tax, whereas foreign-sourced mining income would not be taxed. Converting cryptocurrency to fiat currency or swapping one crypto for another is not a taxable event if these transactions are foreign-sourced. Palau is in the process of developing a Payment Service Bill, which is intended to create a framework for a national stablecoin and a broader digital payment ecosystem. This legislative development does not currently impact the existing moratorium on commercial crypto businesses or the general tax principles for other cryptocurrencies.
Tax Rates
| Effective individual rate | 0 |
| Capital gains tax | 0% (foreign-source), territorial income taxed as ordinary income |
| Income tax on crypto | 0% foreign-source, Palau-sourced treated as ordinary income |
| Corporate tax | 12% (Business Profits Tax on territorial income) |
| VAT | 10% PGST applies to crypto goods/services if deemed taxable supplies |
Activity Taxes
| Staking | No specific guidance, likely 0% if foreign-source under territorial rules |
| Mining | 12% if commercial Palau-sourced activity, 0% if foreign-source |
| DeFi | No guidance, general territorial income rules apply by default |
| NFTs | No guidance, treated under general asset rules if applicable |
Taxable Events
| Crypto → Fiat | Not taxable if foreign-source conversion activity |
| Crypto → Crypto | Not taxable if foreign-source swap activity |
Holding Period
| Holding period benefit | No benefit, 0% foreign-source regardless of holding period |
Sources