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The Other Side of Blockchain Technologies: Global Cryptocurrency Regulations

November 20, 2021
by Leon Marshall,

Article Recap

Governments around the world handle cryptocurrency regulation differently. While some allow for all kinds of cryptos to be traded, others ban them outright. A few things should be kept in mind before venturing into the markets, as the results may vary depending on the location.

Over the years, cryptocurrency’s influence has continued to grow. Regulatory frameworks are required to take care of the ways this asset class is managed. Some governments openly include trading in their existing framework – such as Japan or Sweden, to eventually bring up the national economy from the state it is in. Others allow the industry to grow under a strong regulatory framework, as is the case with Belarus. Let’s review some of the more prominent examples of regulation throughout the world.

Australia

Overall, Australia’s stance toward crypto regulation is proactive. It classifies them as legal property, incurring capital gains tax for profits or losses. After registering with the Australian Transaction Reports and Analysis Centre (AUSTRAC), crypto exchanges can begin operating freely. However, they have to also meet AML/CFT obligations as well. As of 2019, privacy coins have been delisted and ICOs have a new set of regulatory requirements set out by the Australian Securities and Investments Commission (ASIC).

Belarus

A decree by the president of Belarus gives local residents of the country the right to operate crypto. The buying, selling and creation of crypto all fall within this right. Mining is not prohibited, and trading crypto in exchange for other currencies is permitted, including the Belarusian ruble. There will be no tax on crypto until 2023.

Canada

Regulators within Canada are currently looking at crypto in a positive light. It is the first country to approve a Bitcoin exchange-traded fund. The Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) require dealers and trading platforms for crypto to be registered with provincial regulators. Taxation of crypto in Canada is similar to other commodities and all investment firms have to register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) as they are considered money service businesses. Local banks do not open client accounts dealing with crypto if these conditions are not met.

China

When it comes to cryptocurrencies, Mainland China has been seeing red all the way back since 2013. In 2021, after many rocky years, it imposed national bans and blocks over digital currencies and any activities pertaining to them.

European Union

Governance of crypto and its exchanges in the EU varies, but most members deem virtual currencies legal. Taxation can range from 0% to 50%, while reporting requirements and KYC/CFT obligations have become stricter with the Fifth and Sixth Anti-Money Laundering Directives (5AMLD, 6AMLD). The Markets in Crypto-Assets Regulation (MiCA) is a proposal by the European Commission that is yet to take effect. It offers a framework with a focus on consumer protections, introducing new licensing and conduct guidelines. 

France

The country of love is in love with crypto, whose operations, regulated by the French Court, are deemed legal within the premises of the country. A bill on the governing of ICOs has also been passed, but firms are required to meet and follow the set standards. Those include capital requirements and consumer protection. Freedom of crypto in France is additionally granted upon agreeing that the appropriate amount of taxes would have to be paid.

Germany

The German Federal Financial Supervisory Authority (BaFin) classifies digital currencies as “units of account” to be used for the purpose of payment. Before engaging in the commercial purchasing operations, individuals and firms must obtain approval. BaFin has highlighted that ICOs will be examined on a case-by-case basis, which is a potential opportunity for rising tokens. Regulated financial institutions like banks can also operate with crypto on behalf of clients after an amendment in the AML rules.

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India

In India, crypto is not legal tender, but despite this, the Central Board of Direct Taxation requires owners to pay taxes on trading profits from virtual currencies. In 2020, the Supreme Court brought back crypto into the game after a ban on financial institutions performing crypto transactions two years earlier by the Reserve Bank of India (RBI). At this time, the country’s stance is unclear. A new law, proposed in 2021, could allow for the mining, holding, trading, and issuing of only state-backed crypto.

Japan

Under the Payment Services Act (PSA), cryptocurrencies in Japan are recognized as legal property. The initial regulations of 2017 have been amended in the PSA. Exchanges are to register with the Financial Services Agency (FSA) and be compliant with AML/CFT restrictions. Taxation goes under the label “miscellaneous income” and is therefore applied when trading crypto.

Luxembourg

For its size, Luxembourg has revealed itself as a power player in the Bitstamp crypto exchange platform. No tax is imposed on transactions using virtual currencies. The government regards them as “intangible assets”, meaning that only exchanges for a declaration can be subject to tax.

Malta

Sitting right between Europe and Africa, the island of Malta’s view of crypto is a tad blurry. No predefined laws for direct handling are in action. However, there are several larger businesses that can bypass the almost lenient tax laws and have managed to become the country’s top providers. Three blockchain bills passed by the parliament, led by prime minister Joseph Muscat, also work in favor of crypto, as they propose an economic strategy that could gather more investors from the globe to invest in Malta.

Singapore

The island country’s regulatory framework with regard to crypto is that of property and not legal tender. The Monetary Authority of Singapore (MAS) is in charge of licensing and regulating exchanges in the PSA. Long-term capital gains in Singapore do not go through taxation, making the country a safe haven for crypto. Gains of companies that come in the form of regular digital currency transactions, however, are taxed as income. One of the laws signed in hindsight of crypto’s potential and its prospects for allowing businesses dealing in crypto to prosper is the Blockchain and Cryptocurrency Regulation of 2020

South Korea

South Korea does not look at crypto as a financial asset or legal tender, which has made trading quite a popular option. The overseer of exchange regulation is the South Korean Financial Supervisory Service (FSS) and operators have to abide by the strict AML and CFT requirements. In September 2021, a new law was introduced and it states that exchanges and service providers of digital currencies are to register with the Korea Financial Intelligence Unit (KFIU).

Switzerland

One of the most open countries from the very start, the Switzerland government actively urges people to engage in financial activities with cryptocurrencies. Not only are taxes low, but there are also tax exemptions. The country’s wealth tax scheme is further empowered by the view of the regulator of crypto as assets to be disclosed in one’s annual return. In 2018, the top blockchain tech-related businesses had an estimate worth of $44 billion – truly, the “crypto valley”.

United Kingdom

In the UK, as with other entries in the list, cryptocurrencies are not legal tender, but they are properties. Any virtual currency exchanges are to register with the UK Financial Conduct Authority (FCA). However, even if they do so, offering crypto derivatives trading is not an option. What stands out here are KYC, AML, and CFT requirements that apply only to crypto. Taxation is dependent on the activities and transactions participants, and while crypto is exempt from VAT, there is a capital gains tax in general. Surcharges, on the other hand, are applicable for goods and services obtained by using Bitcoin or altcoins.

United States

Perhaps the country with the largest number of cryptocurrencies available for owning, trading, and receiving, the US could also be called the foggiest in regard to its regulation stipulations. At this time, primary regulatory institutions are considered the Securities and Exchange Committee (SEC), the Commodity Futures Trading Commission (CFTC), the US Treasury, the Financial Crimes Enforcement Network (FinCEN), and the Internal Revenue Service (IRS). Their views do not always align, even when it comes to the question of what type of asset exactly should cryptocurrency be classified as.

Despite this, the adoption and use of virtual currencies within the US is fairly positive. State to state laws differ, but the IRS’ classification of crypto as assets with value and property has made them taxable entities. Due to the different views of crypto – for instance, SEC considers them securities and the CFTC classes them as commodities – trading crypto derivatives and investing in them is made possible. A more streamlined approach is in the workings and is expected to provide a clear vision of what cryptocurrencies are to be regarded as in the future.

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