Regulation Of Bitcoin Around The World

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Governments and tax authorities continue to develop their fiscal and tax positions relating Bitcoins. Many countries are releasing warnings about the risks associated with the use of Bitcoins, with some providing more concrete guidance on regulation and tax treatment of the digital currency.

Earlier this year, the United States Law Library of Congress surveyed over 40 countries for their official stances on Bitcoin to determine whether and how Bitcoins are used, regulated and taxed in those foreign jurisdictions. Most of the comments addressed three main themes: Bitcoin’s status (or lack thereof) as legal tender, consumer protection, and taxation.

Most notable in the survey are China and Brazil: Both countries have imposed significant regulations with respect to Bitcoins. In China, Bitcoins are treated as a special virtual commodity. It is not considered a currency, and banks and payment institutions are prohibited from dealing in Bitcoin. Brazil enacted a law in late-2013 that has created the possibility of normalization of electronic currencies like Bitcoin. The law lists the principles that must be observed by the payment arrangements and institutions, according to the parameters to be established by the Brazilian Central Bank.

Brazil stands alone with its Bitcoin regulation amongst its Central and South American counterparts. Neighboring jurisdictions have not provided for any formal regulation of the virtual currency despite its increased use. In Chile, a group of American Libertarians founded an organic farming community with an economy based on Bitcoins. In Nicaragua, an American banker bought a plot of land in one of the most important tourist areas in the country for 80 Bitcoins (roughly USD $72,000 at the time) and has since been encouraging the adoption of Bitcoin.

The United Kingdom announced that it will treat Bitcoins like any other form of payment for tax purposes: Value Added Tax will be due in the normal way from suppliers of any goods or services sold in exchange for Bitcoins. The European Union (EU) has passed no specific legislation relative to the status of the Bitcoin as a currency. In France, Germany, Finland and Estonia, the authorities have stated that Bitcoin is an alternative means of payment but not an official currency, and as a result revenues generated are subject to taxation.

The Central Bank of the Russian Federation stated that services of Russian legal entities aimed at assisting the exchange of Bitcoins for goods, services, or currencies are a “dubious activity” associated with money laundering and terrorism financing. The statement recommended that Russian individuals and legal entities refrain from transactions involving Bitcoins. Similarly, the Reserve Bank of India issued a public notice to users, holders and traders of virtual currencies (including Bitcoins) regarding the potential risks, financial and otherwise, to which they are exposed. Following the advisory, India’s largest Bitcoin trading platform suspended its operations, citing the notice.

At present, Hong Kong has no legislation directly regulating Bitcoins and other virtual currencies. However, existing laws provide sanctions against unlawful acts involving Bitcoins, such as fraud or money laundering. Singapore has reportedly published tax advice with respect to Bitcoins, noting that the digital currency is not considered a good nor does it qualify as currency but will be assessed under the Goods and Services Tax. Malaysia and Japan have not issued statements regarding Bitcoins.

As for the countries not surveyed by the United States or countries that have yet to take an official position on Bitcoins, time will tell as to how the digital currency will be adopted and integrated in different jurisdictions.

For now, the regulatory and tax discussions are as young as the currency. As Bitcoin use and acceptance increases, fiscal and tax authorities will face a more complex debate that will demand more than simply providing public warnings of the risk of Bitcoin use.

 

Topics:  Bitcoins, Financial Regulatory Reform, Virtual Currency

Published In: International Trade Updates, Science, Computers & Technology Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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