Cryptocurrency and Blockchain Regulations around the World (Part 1)
Cryptocurrency regulations are always going to be a hot and controversial topic. The landscape is continually evolving and it can even leave the experts extremely confused. To make sure that you don’t suffer from “paralysis via analysis,” we are going to split this article into two parts.
In this part, we are going to cover the state of crypto regulations and taxations in the following countries:
- South Korea
In South Korea, cryptocurrencies are not considered legal tender. The crypto exchanges are legal even though they are under strict regulations. These regulations include government registration and other measures are overseen by South Korea’s top financial regulator, the Financial Services Commission (FSC). Initial Coin Offerings (ICOs) have been banned in South Korea since September 2017.
The Six Bills of 2018
On December 30, 2018, the FSC produced six Bills to the National Assembly. Each Bill has a unique proposal for crypto regulation and all of them include some provisions for user protection, anti-money laundering, market manipulation, use of nonpublic information, and disclosure requirements.
The FSC has also imposed tighter reporting obligations on banks with accounts held by crypto exchanges in 2018. Anonymous cryptocurrency traders may withdraw from their cryptocurrency accounts but cannot make new deposits. Minors and foreigners are not allowed to trade, regardless of their place of residence.
Taxation: The Ministry of Strategy and Finance under South Korean finance minister, Hong Nam-ki, introduced a cryptocurrency taxation framework in 2018 which will be enforced in 2019.
Malta has one of the most progressive approaches to cryptocurrencies. Malta has gained an international reputation as the “Blockchain Island.” Because of their liberal attitude towards crypto and distributed ledger technologies, many crypto companies such as FLETA and Binance have chosen to make Malta their home.
The Three Bills
On June 4, 2018, Malta became the first nation to create official regulations for crypto operators by passing three bills:
- Malta Digital Innovation Authority Act
- Innovative Technology Arrangement and Services Act
- Virtual Financial Assets Act.
These three bills are not necessarily limited to crypto and can be applied to industries in various fields. These bills will bring along some much-needed legal structure to the industry. Let’s understand what each of these will bring to the table.
While cryptocurrencies are not legal tender, they are recognized by the government as “a medium of exchange, a unit of account, or a store of value.” Cryptocurrency exchanges are legal and regulated in Malta.
Taxation: Maltese national tax policy permits Malta-based international companies to pay as little as 5% tax.
In Singapore, cryptocurrencies are not considered legal tender but treated as “goods”. Crypto trading and exchanges are legal. The Monetary Authority of Singapore (MAS), the country’s central bank, takes a relatively soft approach when it comes to regulating cryptocurrency exchanges. Instead of creating new laws, they chose to apply existing legal frameworks where possible.
2018 Payment Services Bill
On November 20, 2018, MAS finalized a new regulatory framework for payment services in their Payment Services Bill. According to MAS, the Bill “will provide a more conducive environment for innovation in payment services, whilst ensuring that risks across the payments value chain are mitigated.” The Bill also notes:
“Activities to be regulated by the bill include the issuing of accounts and electronic money, the transfer of money within and out of Singapore, the acquisition of merchants who will use their platform, money changing, and the dealing in and exchange of digital payment tokens such as bitcoin.”
The Payment Services Bill consists of two parallel regulatory frameworks:
- The first one enables MAS “to regulate systemically important payment systems for financial stability as well as efficiency reasons.”
- The second one needs retail payment service providers to be licensed. As MAS notes, one license is required per service provider at any point in time.
In January 2018, Deputy Prime Minister Tharman Shanmugaratnam stated that cryptocurrencies would have to go through the same AML and CFT (Anti-Money Laundering and Combating the Financing of Terrorism) measures as fiat currencies.
Taxation: Businesses involved in digital currency trading are taxed on profits, however, individuals are not taxed for any capital gains on investments. Also, since cryptocurrencies are treated as “goods”, they may be subject to the Goods and Services Tax (GST).
Japan is one of the most progressive countries in the world when it comes to cryptocurrency regulation. They recognize cryptocurrencies as legal tender under the Payment Services Act.
Regulations Post Coincheck Hack
The watershed moment for regulations came during the notorious Coincheck hack. Hackers managed to steal $530 million in cryptocurrencies from the Coincheck exchange and that shook the Japanese regulators into taking action. They wanted to do something to prevent future hacking incidents.
Japan’s top financial regulator, the Financial Services Agency (FSA), published a draft report outlining the country’s new regulatory framework for cryptocurrencies and initial coin offerings. An amendment was made to the Payment Services Act which will now require cryptocurrency exchanges to be registered with the FSA in order to operate. This is a pretty lengthy and extensive process which can take up to six months with particular emphasis around cybersecurity and AML/CFT.
The FSA also mentions in the report that the continuous innovation in this space should not be hampered and hence they recognize the importance of collaboration with accredited self-regulating entities.
Taxation: On December 2017, the National Tax Agency ruled that gains on cryptocurrencies should be categorized as ‘miscellaneous income’ and investors are taxed at rates of 15%-55%.
So there you have it. This should give you the state of regulations and taxations in four of the most crypto-friendliest countries in the world. In the next part, we are going to cover the following countries: United States of America, France, India, Canada, Poland, Mongolia, and the United Kingdom.