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Hashbon Space: Crypto Grand Tour. Part 5 — European Union

Hello Hashtronauts!

We welcome you aboard our crypto world travel with the “Hashbon Space Edition” column. As you remember, last week we overviewed crypto legislation in Southeastern Asia. There are some facts from that article that we need to mention.

From 13 countries of the region, Thailand takes the first place, where 20.1% of their Internet users own crypto. The economy of Southeastern Asia is one of the fastest growing in the world and is predicted to become the fourth largest regional economy by 2030. Governments in Southeastern Asia continue to disagree on how to regulate cryptocurrencies, even as digital assets rise in popularity.

Please set your seats back to their upright and locked position and fasten your seatbelts. Make sure you have a Schengen visa. Today we are going to investigate the multicultural association — European Union. Have a pleasant flight!

To make it easier to navigate across our Crypto Grand Tour, we devote each Hashbon Space Edition to a group of countries which are united by some geographical features or have a single legal regulation.

European Union — crypto regulation in general

The European Union (EU) is a political and economic union of 27 member states that are located primarily in Europe. The union and EU citizenship were established when the Maastricht Treaty came into force in 1993. Now there are 27 members of EU: Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden.

According to Hootsuite’s 2022 Global Digital Yearbook, on average, 37.8% of Internet users around the world own one cryptocurrency or another. The first country from the EU is the Netherlands, which takes twelfth place, where 12.9% of their Internet users own crypto. Many EU countries go after each other with a minimal gap: Ireland 11.1%, Austria 10.4%, Portugal 9.7%, Belgium 9.4%, Germany 9.0%, Spain 9.0%, Greece 8.6%, Denmark 8.3%, Sweden 8.3%, France 6.4%, Italy 6.3% and Poland 5.5%.

The European Central Bank classifies cryptocurrencies (including Bitcoin) as convertible decentralized virtual currencies (crypto assets). There is no direct regulation of cryptocurrencies yet. In July 2014, the European Central Bank advised local banking organizations not to conduct transactions with cryptocurrencies until an appropriate regulatory framework is developed for them. In October 2015, the EU Court of Justice decided that when Bitcoin is used as a means of payment, operations to exchange it for fiat currencies should not be subject to value added tax (VAT).

In 2017, the regulation of cryptocurrencies was replenished with another norm — amendments were made to the EU Directive on combating money laundering, which are aimed to reduce the risk of using virtual currency to launder funds obtained by criminal means. Under these changes, “virtual currency platforms” and cryptocurrency service providers are required to follow the same requirements for identifying their customers and tracking suspicious transactions as other financial institutions, including banks.

In 2020, The European Commission finalized a proposal for legislation to regulate crypto-assets, which many agencies have endorsed within the union. This legislation is intended to keep financial regulatory frameworks from fragmenting and level the financial playing field across the EU. In 2022, Fabio Panetta, representing the leadership of the European Central Bank, called for the early establishment of control over cryptocurrencies. He represents the wing of the European Central Bank interested in the early creation of a digital euro. In his opinion, a token pegged to the fiat currency of the EU will be an excellent alternative to Bitcoin.

Austria

Austria has not currently adopted specific legislation regarding cryptocurrency-related business activities. Under current legislation, cryptocurrencies do not constitute legal tender for purposes of Austrian law. The Austrian Bundesministerium für Finanzen (BMF, Ministry of Finance) recently released new kryptosteuer guidance, reforming crypto tax from the 1st of March 2022. The BMF views cryptocurrency as an intangible asset, not a fiat currency. However, it taxes cryptocurrency like income under the Austrian Income Tax Act.

Belgium

There is no cryptocurrency regulation in Belgium. In March 2018, it was reported that the Special Tax Inspectorate (STI) began searching for its citizens who invest in cryptocurrency on foreign platforms. The goal is to find those who made money on this and did not pay taxes. Income tax in Belgium is 33%. Belgians are required to declare profits from cryptocurrency activities as “other income” on their tax return. The Belgian authorities have launched mandatory registration of crypto companies. The Financial Services and Markets Authority (FSMA) has announced that every startup that has developed an application for cryptocurrency trading or storing tokens must register in a special registry. This is the only way companies are able to legally operate in Belgium and provide services to local holders of digital currencies.

Bulgaria

So far, not a single Bulgarian legislative act contains provisions directly related to regulating cryptocurrency activities in Bulgaria. This means that law does not prohibit the registration of a cryptocurrency company in Bulgaria, and crypto activities are not directly regulated or sanctioned. Bulgaria does not have an official legal definition of cryptocurrencies and is guided in its legal approach by the policies of the European Union. From the point of view of taxation, cryptocurrencies in this state are treated in the same way as income from the sale of financial assets.

Croatia

Croatia does not have a cryptocurrency law, but this does not mean that trading is not regulated. The current Income Tax Law treats cryptocurrency as an investment. Based on this, its exchange for real money is taxed at a flat rate of 12%. Cryptocurrency mining is also taxed under the Income Tax Law. In other words, the tax is paid out of other income (periodic mining) or income from self-employment (continuous mining). In addition, from January 1, 2020, the Law on the Prevention of Money Laundering and the Financing of Terrorism came into force. All companies engaged in virtual currency trading and / or providing cryptocurrency storage services on virtual wallets fell under it. In order to regulate the crypto market, Croatia began issuing a license for crypto exchange and custody service providers (a provider of crypto exchange and deposit services). The company that receives the license has the right to engage in the exchange of cryptocurrency, as well as provide services for its storage on virtual wallets.

Republic of Cyprus

The regulation of blockchain technology and cryptocurrencies in Cyprus at the moment remains unfinished. Since 2014, the Cyprus Securities and Exchange Commission has repeatedly issued numerous warnings regarding digital assets to investors and the public. Thanks to low taxes and openness to innovation, the country has become the epicenter of blockchain activity. In 2018, the Cyprus Securities and Exchange Commission announced the establishment of an Innovation Center as part of a business incentive program and the creation of a regulatory framework for transformational technologies, including blockchain and digital assets. A year later, in 2019, then Treasury Secretary Harris Georgiades announced the development of a Blockchain and Digital Assets Regulation Bill as part of the country’s National Strategy for the Use of Blockchain and Related Technologies. The bill went into effect the same year.

Czech Republic

The Czech Republic is one of the first EU countries to introduce regulation of cryptocurrencies and their status within the country. In April 2015, the Governor of the National Bank registered the document “Security of Internet Payments and Cryptocurrency”. Based on this document, EU laws apply to virtual currencies, unless restricted by the laws of the Czech Republic. In January 2017, The Czech Republic adopted a bill limiting the anonymity of transactions — crypto exchanges and other exchange services were required to verify their clients in order to combat money laundering and terrorist financing. Transactions, however, with cryptocurrencies are not taxed and are not subject to licensing. In 2018, the Blockchain Connect/Czech Alliance opened in the Czech Republic. Its major task is to develop and promote technologies. The support and financing of such structures testifies to the state’s interest in promoting innovative financial technologies and maintaining stability at the state level.

People involved in cryptocurrencies prefer to open a business in the Czech Republic. The Czech license allows the company to operate in all EU countries, provides freedom in the variety of services offered, and has several other advantages.

Denmark

Bitcoins are essentially not regulated in Denmark because this ‌digital currency doesn’t fall under the umbrella of financial services. Denmark is one of the countries that has recognized cryptocurrency. This state is home to several startups and exchanges, such as CCEDK, an innovator in the decentralized exchange crypto space that released Bitcoin “3.0” technology. In the future, Denmark plans to completely abandon conventional paper money in favor of digital currencies.

Estonia

In November 2017, the Money Laundering and Terrorist Financing Prevention Act (MLTFPA 2017) came into force in Estonia, which made it possible to engage in cryptocurrency business legally. Cryptocurrency (including Bitcoin) is considered as an alternative means of payment, ‌ a non-traditional financial instrument that has a monetary value and is outside the standard banking system. In March 2018, the Financial Supervision Authority (EFSA) published recommendations for ICOs, according to which tokens can still be recognized as securities under Estonian securities and stock market legislation. It also provides for punishment (up to criminal) for violation of the current legislation. Providers of alternative means of payment are required to register with the Estonian Business Register and get licenses/permits from FIU to conduct such activities.

Finland

In Finland, Bitcoin is treated as a financial (payment) instrument and not as an asset, meaning that it is exempt from VAT. For tax purposes, transactions with cryptocurrencies are considered a private contract, equivalent to a contract for difference (CFD). Purchasing goods with cryptocurrencies or converting cryptocurrencies into fiat money “realizes” the value, and any price increase is taxable; but losses are not taxed. Bitcoins acquired as a result of mining are considered as earned income. At the beginning of July 2018, the Central Bank of Finland published a document called “The Great Illusion Of Digital Currencies”, in which it explained its attitude towards virtual currencies. According to the representative of the Bank, cryptocurrencies are not real currencies, but only “systems for counting non-existent assets.”

In 2019 the Finnish Financial Supervisory Authority (FIN-FSA) has granted permission to five local companies that will be the first to provide legal crypto services in the country. The financial regulator has approved applications from LocalBitcoins, Northcrypto, Prasos, Prasos Cash Management and Tesseract Group.

France

France is another country that recognized the potential of blockchain and digital assets. Following the French Central Bank’s comprehensive bitcoin report in 2013, the Financial Markets Authority and the Office for Prudential Control and Conflict Resolution warned investors of the potential pitfalls of digital assets that arise from their unregulated nature. In 2016, in 2016 the French government started working on a legal framework allowing the use of blockchain for the registration of securities. In 2017, the French Financial Markets Authority launched a unique UNICORN program, under which ICO projects could apply for approval. In addition, France was the first to adopt a special regulation allowing the registration and transfer of unregistered securities using blockchain technology. In 2019, France launched the French Digital Assets Association, an organization whose goal was to simplify digital asset legislation and define specific taxation schemes.

Next one is…

Let’s take a break, we had a real grand tour today. It’s our new record. We visited 10 countries and absorbed so much information. Don’t forget to buy a ticket for our next Sunday flight. Captain Wise Raccoon thanks you for your interest and patience.

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