Crypto Regulation in Asia, Europe, and North America

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AAX
Jul 29, 2019 · 5 min read

With the steady emergence of cryptocurrencies into the mainstream, different regulatory frameworks are taking shape across jurisdictions.

Regulators are tasked with protecting the investing public and maintaining market stability, without going so far as to curb innovation.

Focusing on private individuals — as opposed to enterprises — the list that follows provides a brief, non-exhaustive overview of regulation around cryptocurrencies, in a few key jurisdictions of interest in Asia, Europe, and North America. They are organized in alphabetical order.

1. China

China has been particularly keen to find use cases for blockchain technology, and receptive to the prospect of a sovereign cryptocurrency, but when it comes to private cryptocurrencies — such as Bitcoin — regulators have adopted a rather cautious stance.

Initial Coin Offerings (ICOs) are not permitted, nor are crypto trading related services, and while China currently hosts the largest Bitcoin mining farms in the world, it is not yet clear whether regulators will continue to tolerate this.

Legal status: Cryptocurrency is not regarded as legal tender. As to its status, the Hangzhou Internet court recently attributed property status to Bitcoin. It is the second court to do so in the span of one year.

Ownership: There are no indications that it is illegal for individuals to own cryptocurrency in China. Banks and other payment institutions, however, are not allowed to accommodate crypto.

Taxation: There are no express provisions for taxing cryptocurrencies. However, if traded as commodities, transacted as a form of investment, or if tokens are used as a payment method, tax may apply. Prior to the sale of tokens, tax assessment and planning may be required to ensure compliance.

2. Hong Kong

Although Hong Kong maintains a relatively liberal regulatory environment, Hong Kong’s Securities and Futures Commission (SFC) has issued statements concerning the risks of money laundering and has raised the possibility that securities laws may apply to some crypto assets.

Legal status: It is not legal tender but is be regarded as a virtual commodity.

Ownership: Ownership is currently not subject to any restrictions or legislation — unless obtained through criminal means.

Taxation: There is no capital gains tax payable from the sale of cryptocurrency and the Inland Revenue Department has not provided any guidance as to how it would assess cryptocurrencies for taxation.

3. Japan

Japan’s amended Payment Services Act (April 1, 2017) defines cryptocurrency as “proprietary value”, not denominated in fiat currencies, which can be traded, used as a means of payment, and transferred via electronic data processing systems.

Legal status: Cryptocurrencies are treated as property.

Ownership: No restrictions are imposed on owning cryptocurrencies. Japan’s ‘Virtual Currency Regulation’, which is included in the amended Payment Services Act, is only applicable to entities that conduct cryptocurrency exchange services as a business.

Taxation: Gains from the sale or use of crypto assets are treated as ‘miscellaneous income’ where the taxpayer cannot utilize losses elsewhere to offset gains realized with crypto. Furthermore, inheritance tax will be imposed upon the death of a person who has held cryptocurrency.

4. Malta

Malta is known for its open and collaborative approach towards blockchain technology and cryptocurrencies. This became most apparent during Malta’s Prime Minister’s address to the United Nations where he hailed crypto as the future of money.

Legal status: Although not regarded as legal tender, depending on the particular coin in question, cryptocurrencies can be regarded as electronic money, financial instruments, virtual tokens, or virtual financial assets.

Ownership: It is not illegal to own crypto in Malta. Investment advisors and fund managers dealing with cryptocurrency require licenses.

Taxation: There is no specific guidance on the taxation of cryptocurrencies. In the absence of specific rules, the general principles of Maltese tax legislation apply.

5. Singapore

Singapore can be regarded as a ‘crypto safe haven’. While cryptocurrency is not legally defined, the government has stated that it is acceptable as a means of payment; not suitable as a store of value; and recognized as a form of personal property. Although Singapore maintains a hands-off approach, in case a token falls within the definition of ‘securities’, the Monetary Authority of Singapore (MAS) will regulate the issue or offer of that token.

Legal status: Cryptocurrency is legal; it does not count as legal tender.

Ownership: MAS has not provided any guidance on whether or not cryptocurrencies may be used for investment purposes.

Taxation: As there are no capital gains taxes in Singapore, gains from investing in crypto assets are not taxable. However, in treating cryptocurrencies as ‘goods’, Singapore’s tax authority does apply Goods and Services Tax — comparable to Value Added Tax (VAT).

6. Switzerland

The government’s attitude towards cryptocurrency can be described as open and positive. Following success in attracting developers and investors, Switzerland’s Zug-Zurich area is now commonly known as the ‘Crypto Valley’.

Legal status: Cryptocurrency is not legal tender. It is not defined in Swiss law but regarded as an asset. It is accepted as payment in some contexts.

Ownership: When tokens qualify as securities, they may be legally owned. The ownership of other types of cryptocurrencies, such as Bitcoin, is unresolved.

Taxation: As an asset, cryptocurrency is subject to wealth tax and must be declared on annual tax returns. Capital gains on assets of individuals are exempt from income tax. However, if an employee receives cryptocurrency as a salary or benefit, it forms part of the beneficiary’s taxable income.

7. Taiwan

While the Taiwanese government has not articulated any specific laws to regulate the crypto economy, regulators have issued several press releases to state their positions and policies, as well as educate the general public.

Legal status: It is not legal tender, a currency, or a generally accepted medium of exchange. Bitcoin and by extension most cryptocurrencies are regarded as virtual commodities.

Ownership: There are no ownership or licensing requirements in place — with the exception of ICOs.

Taxation: At present, there are no guidelines regarding the taxation of cryptocurrency. Being a virtual commodity, it is possible for tax authorities to apply rules pertaining to Business Tax and Income Tax.

8. United Kingdom

The UK does not have laws in place to regulate cryptocurrencies. However, the Governor of the Bank of England reportedly stated that such regulation is necessary.

Legal status: It is not legal tender.

Ownership: There is no clear guidance on ownership.

Taxation: Due to their ‘unique identity’, cryptocurrencies cannot be compared to conventional investments or payments. Their taxability depends on the specific activities and parties involved. Gains or losses, however, are subject to capital gains tax.

9. United States

In the US, both Federal and state authorities have been searching for ways to best regulate cryptocurrencies. This has taken on a sense of urgency with Facebook’s recent announcement of Libra. Regulation, as well as definitions of cryptocurrency, vary from state to state.

Legal status: It is not legal tender.

Ownership: Until clearer definitions are provided by which to classify cryptocurrencies, cryptocurrency funds are advised to treat any coin other than Bitcoin, Litecoin, and a handful of commodity coins, as securities.

Taxation: The Internal Revenue Service regards cryptocurrency as property. As such, every individual needs to keep a record of crypto purchases and sales, pay taxes on any gains, and pay taxes on any mined cryptocurrency.

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Originally published at https://blog.aax.com on July 29, 2019.

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