MCS | Cryptocurrency Taxation Guideline in 10 Countries

MCS | Cryptocurrency Taxation Guideline in 10 Countries

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Since 2014, as investment institutions’ interest in cryptocurrencies increases and crypto users surge, cryptocurrencies have become an important regulatory target for governments around the world, and more and more governments are joining the ranks of introducing crypto-related taxation.

Guidance Issued Timeline (Source: PwC Annual Global Crypto Tax Report 2021)

As various types of new cryptocurrencies such as stablecoins, DeFi, and NFTs are released, it has become difficult to define all circulated cryptocurrencies under the 'property' classification. Regulatory agencies in each country are taking a cautious stance on cryptocurrency taxation policies and are continuously revising guidelines.

Currently, the taxation of cryptocurrencies differs from country to country. Some countries regard cryptocurrencies as commodities or investment assets and apply related tax laws. In some countries, cryptocurrencies are neither considered personal financial assets nor taxed. In some countries, mining or operation using cryptocurrency is prohibited, and cryptocurrency issuance or company establishment for cryptocurrency distribution is also prohibited. Some have not even made an official decision on cryptocurrency regulation. In this post, we will take a look at the cryptocurrency taxation guidelines in 10 countries based on the PwC Annual Global Crypto Tax Report 2021.

1. United States

Direct Tax

Existing Administrative GuidanceIn the United States, the Internal Revenue Service (IRS) has issued administrative guidance on certain aspects of the U.S. federal income tax treatment of cryptocurrencies and cryptocurrency transactions. This includes: Notice 2014-21 (16 FAQs), which, among others, defines "virtual currencies," characterizes convertible virtual currencies as property, and addresses mining activities; Revenue Ruling 2019-24, which prescribes the treatment of hard forks and airdrops; the 2019 Frequently Asked Questions (updated in 2020), which supplements Notice 2014-21 by providing guidance on the application of U.S. federal income tax principles to cryptocurrency transactions; and Chief Counsel Memorandum 202124008, which concludes that swaps of certain cryptocurrencies do not qualify as tax-deferred like-kind exchanges under Section 1031 of the Internal Revenue Code as it existed prior to its amendment in 2017.

LegislationThe Infrastructure Bill (Public Law No: 117-58), which was enacted on November 15, 2021, will impose certain information reporting obligations by "brokers" with respect to "digital assets." The bill also contains definitions that may be leveraged for other IRS guidance projects in the future. These rules will apply to returns required to be filed, and statements required to be furnished, after December 31, 2023. Specifically:

  • The term "Digital Asset" is defined as “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary [of the Treasury Department].”
  • The definition of a “broker” is expanded to include “any person who (for consideration) is responsible for regularly providing any service effectuating the transfer of digital assets on behalf of another person.”
  • The bill covers gross proceeds and basis reporting and requires transfer statements between brokers and interim reporting for transfers to non-brokers.
  • The bill requires reporting by anyone who receives more than $10,000 worth of digital currencies in the course of a trade or business in one transaction or multiple related transactions.

Legislative ProposalsThe Build Back Better reconciliation bill (H.R. 5376), which passed the House on November 19, 2021, includes significant business, internation, and individual tax increase provisions. In the context of cryptocurrency, effective for transactions occurring after December 31, 2021, the bill would expand the wash sale rules under Section 1091 of the Internal Revenue Code to cover “digital assets” (defined the same as under the Infrastructure Bill), including contracts or options to purchase or sell digital assets. The bill would also expand the definition of “appreciated financial position” in the Section 1259 constructive sale rules to include positions with respect to digital assets, effective for constructive sales that occur, or for contracts entered into, after the date of enactment.

Indirect Tax

  • Few states have addressed cryptocurrency and cryptocurrency transactions in state sales and use tax laws or other state sales and use tax guidance. In the few states that have issued guidance, states generally treat cryptocurrency as a medium of exchange.
  • Similarly, states have not generally issued guidance related to the taxability of other cryptocurrency activities, such as mining, airdrops, and hard forks, but such activities may be subject to state sales and use tax depending on the specific facts and circumstances.
  • Emerging technologies related to cryptocurrency (e.g., NFTs) may potentially be subject to state sales and use tax under existing state sales and use tax frameworks

2. Singapore

Direct Tax

Singapore asserts its jurisdiction to tax primarily on the basis of the source. Income sourced (or deemed sourced) in Singapore, as well as foreign-sourced income received in Singapore, will be subject to Singapore income tax. An entity, whether resident or non-resident will be liable to Singapore income tax if it carries on a trade or business in Singapore or derives income sourced (or deemed sourced) in Singapore.

While there are no specific laws in place on the taxation of digital tokens, the Inland Revenue Authority of Singapore (IRAS) has published an e-Tax Guide entitled “Income Tax Treatment of Digital Tokens” on 17 April 2020 which provides guidance on the taxation of digital tokens. The e-Tax Guide is not legally binding on taxpayers, however, it is based on general tax principles and provides an indication of the IRAS’s views.

The main points of guidance provided by the IRAS are as follows:

  • Tax treatment of the digital tokens depends on the characterization of the token for Singapore income tax purposes (payment token, utility token, security token)
  • Income tax treatment for the holder of the digital token depends on the characterization of the token, the method of receipt/disposal of the tokens, and the circumstances surrounding the receipt/disposal.
  • The taxability of initial coin offering (ICO) proceeds depends on the rights and functions of the tokens issued to the investors.
  • The IRAS does not prescribe any methodology to value payment tokens. Taxpayers can use an exchange rate that best reflects the value of the tokens received, provided that: (1) the exchange rate must be reasonable and verifiable, e.g. based on exchange rates available on payment token exchanges; and (2) the methodology used to determine the exchange rate is consistently applied year on year.

Indirect Tax

Prior to 1 January 2020, supplies of digital tokens/virtual currencies/cryptocurrencies were treated as a taxable supply of service and subject to GST at either the standard rate of 7% or zero-rated. With effect from 1 Jan 2020, supplies of “digital payment tokens” will no longer be subject to GST. Specifically:

  1. The use of digital payment tokens as payment for goods or services will no longer give rise to a supply of those tokens.
  2. A supply of digital payment tokens in exchange for fiat currency or other digital payment tokens, and the provision of any loan, advance, or credit of digital payment tokens will be exempt from GST.

The GST treatment for digital tokens/virtual currencies/cryptocurrencies that do not qualify as “digital payment tokens” remains unchanged.

The definition of “digital payment token” is legislated in the GST Act.

3. United Kingdom

Direct Tax

The UK tax system has, over the years, moved from a worldwide tax system to a more territorial tax system over years especially in the case of the companies by enacting dividend exemption regime, an elective branch exemption regime, and reformed Controlled Foreign Company (CFC) regime. However, individuals are still taxed on a worldwide basis, subject to some limited exemptions.

While no specific tax legislation is in place regarding the taxation of cryptocurrencies, Her Majesty's Revenue and Customs ("HMRC") issued Cryptoassets Manual ("CM") on 30 March 2021, which provides guidance on how HMRC is going to treat a transaction/business associated with the crypto assets. However, the CM is not legally binding on taxpayers, but it indicates the position likely to be taken by the HMRC concerning the crypto assets.

Some clarifications provided by CM in respect to the taxation of crypto assets are:

  1. Profits tax treatment of all types of tokens is dependent on the nature and use of the token. Importantly HMRC does not consider crypto assets as currency or money but more equivalent to a commodity.
  2. Whilst crypto assets are, legally, intangible assets, they do not generally fall in the intangible asset tax regime because they are not for "enduring use" within a business. They are therefore usually chargeable assets (i.e. subject to the capital gains tax regime) for companies and individuals.
  3. Profits of a company or a business are taxed as income from trading crypto-assets if certain conditions/factors are met; otherwise, any gains arising will be taxed as chargeable gains.
  4. In HMRC view, individuals will be considered trading in crypto assets only in exceptional circumstances. However, if the taxpayer’s activity is considered to be trading in the crypto assets, then the income will be subject to income tax. Otherwise, capital gain tax is payable on the gains arising from the sale of the crypto assets.
  5. Companies holding crypto assets as an investment are subject to pay corporation tax on any gains on the sale of the crypto asset.
  6. Partners or members are liable to corporation tax on the gains if they are a company. Otherwise, the individual partners will pay the capital gain tax if the partnership or limited liability partnership holds crypto assets as an investment.
  7. Crypto assets received as employment income it is treated as ‘money’s worth’ and are subject to Income Tax and National Insurance contribution based on the value of assets converted into sterling pounds.
  8. CM signifies that the HMRC will continue to look into the crypto space more closely in the near future. However, we have not yet observed a growing level of tax audit or investigation activity.

Indirect Tax

Digital assets are generally considered to be within the scope of UK VAT, although HMRC’s publicly available VAT guidance is increasingly limited in comparison to the developing number, type of, and transactions in digital assets.

To date, HMRC’s guidance has concentrated on cryptocurrencies and in contrast to its view from a direct tax perspective (as set out above), for VAT purposes the trading of exchange tokens on exchanges is treated by HMRC as within the financial services exemption available for the ‘issue, transfer or receipt of, or any dealing with, money, any security for money or any note or order for the payment of money. Fees charged or revenue earned by intermediaries in relation to the exchange transaction are also VAT exempt where the intermediary is involved in facilitating the transaction. This is a reflection of the European position and is in line with the CJEU judgment in Hedqvist (C-264/14) which laid out the VAT liability of transactions and revenue streams.

Due to the limited scope of HMRC’s published position, taxpayers have looked to obtain an individual ruling with HMRC and agree to VAT exemption for certain types of transactions. However, it remains the case that with regards to other types of tokens or new types of digital assets, e.g. NFTs, the VAT position is less clear and consideration must be given to the token type, what rights, if any, attach to the token and can be exercised by the owner, and the location of the parties to the transaction.

4. United Arab Emirates

Direct Tax

The UAE currently has no system of federal income taxation. Instead, most of the Emirates have their own corporate income tax decrees (“the Decrees”) enacted in the late 1960s.

The Decrees very broadly deal with who are taxable persons, rates, administration, computation of taxable profits, and loss relief. The Decrees continue to apply and potentially levy income tax on all companies (including branches of foreign companies) operating in the respective emirates at rates of up to 55%.

Although the Decrees continue to exist and are enforceable, in practice corporate income tax is only applied to the upstream oil and gas companies and branches of foreign banks.

The UAE Decrees currently do not levy WHT, stamp duty, personal income tax, or any other taxes, and there are currently no transfer pricing rules in the UAE.

We do not foresee that the existing Decrees can be applied in their current form, and the above practice is unlikely to change in the near future.

Entities established within a designated free zone in the UAE are not considered to be “onshore” in the UAE and are therefore subject to the rules and regulations of that free zone.

Free zones in the UAE typically offer companies established in their free zone either (I) a tax exemption or (ii) a 0% tax rate. The length of these tax holidays can vary between 15 to 50 years, with a possibility of renewal upon their expiry.

Based on public sources, our understanding is that the UAE is looking into a possible introduction of a Federal corporate tax. However, there have been no public announcements from the UAE in this regard, beyond references from the International Monetary Fund to economic impact studies carried out by the UAE government and general statements from the UAE Government in the media (including the Ministry of Finance Annual Report 2014).

As such, there is currently no visibility on the scope of application of a possible future federal corporate tax regime, or on the interaction between a federal corporate tax and the existing Decrees. Based on the above, under the current direct tax framework in the UAE, we don't expect cryptocurrency transactions to be subject to direct tax or withholding tax.

Indirect Tax

Value-added tax (“VAT”) was introduced in the UAE on 1 January 2018 with a general standard rate of 5%.

The current position on taxation of cryptocurrencies is unclear as there is no guidance that has been published to date from a VAT perspective and it will depend on the view the UAE Federal Tax Authority (“FTA”) takes on cryptocurrencies pursuant to the Federal Law No. 8 of 2017 (“VAT Law”) and the implementing regulations.

5. Germany

Direct Tax

The German tax system is one of the most complex regimes in German and international law. It is based on very few principles but a complex system of principles and exceptions.

For the German crypto taxation, the regime has no specific rules for this new economic field. However, the tax system has general rules that can apply. At this point in time, the direct taxation of crypto assets in Germany is in a very early stage. Just recently, on the 17th June 2021, the Federal Ministry of Finance has issued the first draft on the direct taxation of virtual currencies and tokens. Until then there were no official statements on the federal level on this matter but only very diversified statements of single tax authorities in the case by case considerations.

Due to the draft status at this point in time, it is not clear which guidance will be part of the final letter by the Ministry. There are a lot of critics from the industry and the tax practice. The most pressing topics are:

  1. The rebuttable presumption for mining to be a commercial activity
  2. The taxation of staking
  3. The extension of the speculation period from one year up to 10 years for coins and tokens that generate further income
  4. The extensive taxation of airdrops as “other income”
  5. The non-inclusion of statements regarding equity-tokens
  6. The non-existent statements for how to declare crypto gains/losses to the tax authorities

Indirect Tax

N/A

6. Australia

Direct Tax

The cryptocurrency was first launched in 2009, however, it wasn’t until December 2014 that the Australian Taxation Office (“ATO”) published guidance on the income tax treatment of investing and trading in cryptocurrency. The ATO has since published general guidance on the income tax treatment of cryptocurrency in Australia on their website.

There has been recent increased scrutiny from the ATO in relation to the profits made from cryptocurrency investing and trading. However, there is no specific income tax legislation in force that applies to cryptocurrency. The ATO has issued a limited number of taxation determinations and public tax rulings that consider either the income tax or GST treatment of cryptocurrency; however, these are not binding for taxpayers. Taxpayers may approach the ATO and seek a tax ruling to confirm the tax outcomes of a specific scenario and the ATO’s response will be legally binding for the applicant in this circumstance.

Australian tax residents are subject to Australian income tax on their worldwide income. Australia also adopts a capital gains tax regime and applies a withholding tax regime where rates of up to 30% may apply to interest, royalties, and dividends paid to non-residents (although this rate may be reduced as a result of the operation of a double tax treaty or where the dividends are considered to be “fully franked”).

Under the current Australian income tax rules, cryptocurrency is not viewed as money or foreign exchange but rather a capital gains tax (“CGT”) asset or as a revenue asset, like shares or property, with the character of the asset depending on the intention of the holder. While a digital wallet can contain different types of cryptocurrencies, each cryptocurrency is a separate asset.

Where cryptocurrency is held on a capital account, a CGT event is triggered when cryptocurrency is sold or exchanged for AUD or other cryptocurrencies or used to obtain goods and services (unless it is considered a personal use asset). In certain circumstances, a 50% discount of the taxable gain can apply where the cryptocurrency has been held by an individual or trust for a period in excess of 12 months. Given the significant increase in cryptocurrency markets and the rapid rise of cryptocurrency prices, it is likely that the ATO will consider investing and trading in cryptocurrencies to be on revenue account, i.e. for short-term gains, rather than long-term growth. Accordingly, any profits from cryptocurrency would be taxed as assessable income and not subject to the 50% CGT discount.

Where a cryptocurrency investor holds cryptocurrency as an investment or hobby, they may not be subject to capital gains tax on the disposal of a cryptocurrency. This will depend on whether it can be demonstrated that the cryptocurrency is a ‘personal use asset’ valued at AUD10,000 or less.

We note that given the nature of the cryptocurrency, it is often difficult to demonstrate intention for long-term investment purposes and it is likely to be assumed that the cryptocurrency is held on a revenue account unless there is clear evidence to substantiate otherwise. In this case, gains or losses realized from cryptocurrency transactions are subject to income tax at the investor’s marginal tax rate (and is not subject to discount), or for traders, under the trading stock rules.

If an investor is carrying on a business of trading cryptocurrency, then the cryptocurrency will be considered to be held on a revenue account. Profits or losses realized from the disposal of cryptocurrency should be included in their taxable income.

For larger organizations including financial institutions, the taxation of cryptocurrency may fall under the Taxation of Financial Arrangements regime. The precise tax treatment will depend on the nature of the underlying cryptocurrency but would generally be on revenue account, where these rules apply. There are still a number of interpretative issues that need to be resolved in relation to when and how this regime might apply to cryptocurrencies.

Indirect Tax

Prior to 1 July 2017, sales and purchases of digital currency (such as bitcoin) were subject to Goods and Services Tax (“GST”). However, since then the sales of digital currency are input taxed sales which mean that:

  • No GST is paid on the sale of the digital currency; and
  • Generally, GST credits cannot be claimed for the GST included in the price paid for any purchases to make those sales.

The definition of “digital currency” is legislated in the GST Act

7. Canada

Direct Tax

Corporations and individual residents in Canada are subject to Canadian income tax on worldwide income. Relief from double taxation is provided through Canada's international tax treaties, as well as via foreign tax credits and deductions for foreign taxes paid on income derived from non-Canadian sources.

Subject to relief under an international tax treaty, non-resident corporations are subject to Canadian income tax on income derived from carrying on a business in Canada and on capital gains arising upon the disposition of taxable Canadian property (TCP). Similarly, non-resident individuals are subject to Canadian income tax on income from employment in Canada, income from carrying on a business in Canada and capital gains from the disposition of TCP.

Canada imposes domestic withholding tax (WHT) at a rate of 25% on interest (other than the most interest paid to arm's-length non-residents), dividends, rents, royalties, certain management, and technical service fees, and similar payments made by a Canadian resident to a non-resident of Canada. The rate of WHT may be reduced pursuant to the provisions of a relevant international tax treaty.

To date, there is no federal or provincial tax legislation in Canada specific to cryptocurrencies or transactions involving cryptocurrencies. Additionally, the Canadian Department of Finance has not provided any indication as to when legislation may be forthcoming.

Canada Revenue Agency (CRA), the agency responsible for administering taxes in Canada, has provided some administrative guidance on federal income tax considerations associated with cryptocurrencies.

Indirect Tax

In Canada, there are two levels of value-added / sales taxes:

  1. A federal value-added tax levied under the Excise Tax Act (“ETA”). The federal tax includes the Harmonized Sales Tax (“HST”), which is made of a combination of a provincial component (8% or 10%) and a 5% federal component, and is applicable in some provinces (“participating provinces”) such as Ontario (13%), New Brunswick (15%), Nova Scotia (15%), Newfoundland and Labrador (15%) and Prince Edward Island (15%). The federal tax also includes the Goods and Services Tax (“GST”) applicable in all other provinces and territories.
  2. Provincial sales taxes (“PST”) are applicable in 4 provinces, including the province of Quebec where the Quebec Sales Tax (“QST”) is a value-added tax generally harmonized with the GST. The PST in the other 3 provinces is in the nature of a retail sales tax, not recoverable by the end-user.

In general, all supplies that are made or deemed to be made in Canada (Quebec) are subject to GST/HST (QST), unless they are specifically exempt. Taxable supplies include, inter alia, supplies of intangible personal property (“IPP”).

The Canada Revenue Agency (“CRA”) has issued limited guidance on the taxation of mining activities and the position is evolving. Auditors have not been treating mining transactions consistently. The latest position provided by the CRA, without any official pronouncement being issued, would be that mining is a commercial activity leading to taxable supplies with a requirement to charge or remit GST or HST on the value of virtual currency received and a right to an input tax credit on mining costs. That seems to be so even if the recipient is not identified.

For the use or supplies of virtual currencies, except as noted below, the supply or exchange of a virtual currency could possibly be treated as a taxable supply of an IPP, even when simply used as a method of payment.

However, new legislation was enacted on June 29, 2021 with an effective date of May 17, 2019. Under the new rules, the definition of a financial instrument in subsection 123(1) of the ETA was amended by adding new paragraph (f.1) to include a virtual payment instrument. The definition of virtual payment instrument was also added to subsection 123(1), and it provides that the expression means property that is a digital representation of value, that functions as a medium of exchange, and that only exists at a digital address of a publicly distributed ledger. The definition of virtual payment instrument excludes:

  • Property that confers a right, immediate or future, absolute or contingent, to be exchanged or redeemed for money or specific property or services or to be converted into money or specific property or services;
  • Property that is primarily for use within, or as part of, a gaming platform, an affinity or rewards program or a similar platform or program; or
  • Property that is prescribed property.

Currently, no property is prescribed.

Since a virtual payment instrument is limited to property, it would not include anything that is considered to be money for purposes of the GST/HST. As a result, a virtual currency (such as a Bitcoin) that meets this definition qualifies as a financial instrument for GST/HST purposes, meaning that suppliers/users are not required to charge and collect GST/HST on supplies or the use of virtual currency. The supply, use or exchange of a token that qualifies as a virtual currency would generally be GST/HST exempt (although it could be zero-rated in limited circumstances when dealing with non-residents and other qualifying conditions are met). Accordingly, suppliers of virtual instruments would generally not be entitled to recover the GST/HST applicable on related costs as an input tax credit.

The same treatment would be expected to apply for QST purposes.

In general, the supply of a virtual currency would not be expected to be subject to PST

8. South Korea

Direct Tax

Under the Korean tax system, Korean resident corporations and individuals are taxed on their worldwide income whereas non-resident corporations and non-resident individuals are taxed only to the extent of their Korean-source income.

On July 22, 2020, the Ministry of Economy and Finance released the proposal to enact new taxation on the income derived by a Korean resident individual & non-resident (individual & corporation) from the transfer (sale or exchange) or lease of virtual assets (e.g., bitcoins). On December 2, 2020, the National Assembly approved the proposal to amend the tax law, and the amended tax law shall be effective for transfers or leases of virtual assets on or after January 1, 2022. The effective date has been further postponed to January 1, 2023 as approved by the National Assembly on December 2, 2021.

In the case of a Korean resident company, income derived by the Korean resident company from the transfer (sale or exchange) or lease of virtual assets (e.g., bitcoins) has been subject to corporate tax, regardless of the new legislation, because gross income for corporate tax consists of any gains, profits, income from trade and commerce, dealings in property, rents, royalties, and the income derived from any transactions carried on for gain or profit under the existing corporate income tax law.

The amended tax law has expanded the scope of taxation whereby income derived by a Korean individual resident from the transfer or lease of virtual assets would be classified as ‘other income’ subject to 22% income tax rate (including local income tax). In addition, income derived by a non-resident individual or a foreign corporation from the transfer or lease of virtual assets (including the withdrawal of the assets stored or managed by a virtual asset service provider) would be classified as ‘Korean source other income’ subject to Korean withholding tax under Korean tax laws. The withholding tax would be imposed at the lower of 11% (including local income tax) of the total proceeds received from the transfer, lease, or withdrawal of the assets or 22% (including local income tax) of gains from the transfer, etc. (e.g., the proceeds received minus acquisition cost).

In order to claim a tax exemption on the income from virtual assets under an applicable tax treaty between Korea and the country where a non-resident individual or foreign corporation is tax resident, the non-resident individual or foreign corporation should file an application for the tax treaty exemption (together with tax residence certificate) with a Korean tax authority via a withholding agent according to the Korean corporate income tax law.

Indirect Tax

There is no clear provision for VAT treatment on virtual assets under Korean tax law, but the Ministry of Economy and Finance (MOEF) has issued a tax ruling, interpreting that a supply of virtual assets is not regarded as a VAT-taxable supply of goods (MOEF VAT Department-145, 2021.03.02)

9. Vietnam

Direct Tax

Cryptocurrency is not yet legally recognized as a payment instrument in Vietnam. Thus, there are no tax regulations concerning cryptocurrency. Below are some developments so far for reference.

The Prime Ministry issued Directive No. 10/CT-TTg dated 11 April 2018 ("Directive No.10") requiring the State Bank of Vietnam ("SBV"), Ministry of Finance ("MOF") together with other competent authorities to develop a policy and issue a regulatory framework governing cryptocurrencies.

Following Directive No. 10, the SBV has issued Directive No. 02/CT-NHNN ("Directive No.02) on measures to enhance the control of transactions in relation to virtual currencies. Accordingly, the State Bank Governor requires the SBV's head office and its provincial branches, credit institutions, and other organizations providing payment intermediary services to apply measures to control and handle transactions in relation to virtual currencies. Directive No.02 specifically indicates that credit institutions and payment intermediary service providers are not allowed to provide payment services, perform card transactions, provide credit via cards, support processing, payment, money transfer, clearing and settlement, currency conversion, payment transactions, cross-border money transfer relating to virtual currencies for customers because of potential risks of money laundering, terrorist financing, fraud, and tax evasion.

Recently, the Government has issued Decision 942 dated 15 June 2021 which stipulates the strategy on the development of the e-government toward digital government in the period from 2021-2025. In the decision, it is proposed that the research, development, and trial use of cryptocurrency based on blockchain technology will be conducted by the State Bank of Vietnam for the period 2021-2023. Thus, there may be more development on this topic in the near future.

In Decision 2146 dated 12 November 2021, it is proposed that the Ministry of Finance would cooperate with the Ministry of Justice and the SBV to build a legal framework to control virtual currency in accordance with international practice to mitigate tax evasion and money laundering but the timeline is uncertain.

Indirect Tax

Same as those for the Direct Tax.

10. El Salvador

Direct Tax

On June 8, 2021, the head of the Ministry of Economy presented to the Legislative Assembly the “Bitcoin Law”, this bill was sent to the Financial Commission for its study, after the analysis, the Financial Commission issued a favorable opinion and subsequently, the Bitcoin Law (hereinafter referred to as “BTC Law”) was approved on June 9, 2021. Below are the most relevant aspects contained in the BTC Law.

Purpose of the LawThe purpose of the BTC Law is to regulate bitcoin as an unrestricted legal tender with unlimited release power in any transaction and any title that public, private natural, or legal person require to carry out.

Exchange rateThe exchange rate with respect to the United States Dollar (“USD”) will be freely established by the market; additionally, it is established that all prices may be expressed in bitcoin. BTC Law establishes that the obligations in money expressed in USD prior to the BTC Law may be paid in Bitcoin.

Obligated subjectsThe BTC Law establishes that all economic agents must accept bitcoin as a form of payment when required by someone who acquires goods or services. The term “economic agents” is not expressly defined in the BTC Law, notwithstanding the foregoing, the Competition Law offers (for the purposes of that law) the following definition of economic agent: “an economic agent is considered to be any natural person or legal, public or private, directly or indirectly engaged in a lucrative economic activity or not"

Excluded subjectsBased on the provisions of the BTC Law, those who, due to notorious facts do not have access to technologies that allow transactions in bitcoin, are excluded from the obligation to accept bitcoin as a form of payment. Additionally, it is established that the State will promote the necessary training and mechanisms so that the population can access transactions with bitcoin. Tax & accounting implicationsAs established in BTC Law, bitcoin may be used to pay all tax obligations; additionally, it is established that "exchanges" in bitcoin will not be subject to capital gains tax; and with regard to accounting, it is established that the USD will continue to be used as the reference currency.

State ImplicationsThe BTC Law establishes that the state must provide alternatives that allow users to carry out transactions in bitcoin, as well as have automatic and instant convertibility from Bitcoin to USD when required.

The limitations and operation of the convertibility mechanisms will be defined in the regulations issued by the Central Reserve Bank and the Superintendency of the Financial System. Likewise, it is established that the Executive Branch must create the necessary infrastructure for the application of this law. The BTC Law establishes that before the entry into force of the law, the State will guarantee through a trust in the Development Bank of El Salvador (BANDESAL) the automatic and instantaneous convertibility of Bitcoin to USD. The Bitcoin Law was published in the Official Gazette on June 9, 2021 and entered into force on September 2021.

Indirect Tax

There is no VAT/GST regime in El Salvador.

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