Regulation

Crypto Regulation Around the Globe: the Most Friendly Jurisdictions

By Single Broker

In the previous article, we discussed the differing crypto regulations across world regions. Here, we will look at the most developed countries in terms of crypto laws. How do these countries deal with cryptocurrencies, what laws they implement and what taxes apply?

The most crypto-friendly countries, according to Nasdaq, are:

Portugal

Cryptocurrencies: Legal
Crypto exchanges: Legal, controlled by a central bank

In Portugal, there are no specific regulations for cryptocurrencies, including their issuance and transfer. As a result, cryptos aren't prohibited. Investors can buy, sell, and hold crypto assets.

Portugal has one of the most friendly tax regimes. If you profit from the buy and sale of cryptocurrency, you don't have to pay tax on the capital gains. The exchange of cryptos for other currencies is also tax-free. Individual investors who receive payments in crypto aren't levied with income tax.

For companies, other tax rules are applied. If the business receives payment in cryptocurrency, capital gains taxes are levied. That's why Portugal isn't the best place for crypto business. It's unlikely there will be a wave of companies moving to Portugal.

At the same time, the country is moving towards favorable legislation for crypto exchanges. The country's central bank registers entities that act as virtual asset service providers (VASPs). In June 2021 alone, the bank approved two crypto exchanges.

Switzerland

Cryptocurrencies: Legal, they are accepted as a means of payment in some cantons
Crypto exchanges: Legal, regulated by two leading authorities, SFTA and FINMA

Not surprisingly, Switzerland is on the list of the most developed jurisdictions. The country is one of the world’s financial centers with well-known banking standards. Switzerland was one of the pioneers of cryptocurrency adoption. Currently, there are no sector-specific laws or regulations that would control blockchain technology or cryptocurrencies. Existing laws are used to regulate blockchain technology. The new rules won't affect the current regime.

Cryptocurrencies are not classified as legal tender; thus, they are not "money" under Swiss law. For individuals, cryptocurrencies are considered assets and subject to wealth tax. Capital gains on the assets are exempt from income tax. The Swiss Financial Market Supervisory Authority (FINMA) and the Swiss Bankers Association (SBA) are the leading authorities in crypto regulation.

If we talk about companies, before implementing a blockchain-based business model or set digital assets in the market, they should know that several statutes may apply in addition to foreign laws. Cryptocurrency exchanges must be registered and obtain a license from FINMA. However, a crypto licensing exemption is provided for public deposits of up to CHF 1 million.

The country has proper legislation for ICOs. In 2018, FINMA issued guidelines for existing financial legislation to offerings in various areas, such as banking, securities trading, and collective investment schemes. In 2019, the Federal Council got a motion from the government to include cryptocurrencies in the existing provisions. In September 2020, the Blockchain Act was approved to determine the legalities of exchanging cryptocurrencies and cryptocurrency exchange operations.

Switzerland is divided into 26 cantons; each of them has its own legislation and understanding of cryptocurrencies. For instance, in Zurich, capital gains from cryptos are tax-free, while mining is treated as regular income. In Bern, profits from mining and trading are considered regular income. Lucerne classifies capital gains with tax-exempt status.

The adopted amendments to the Swiss Code of Obligations that came into force on February 1, 2021, allowed the introduction of uncertificated securities on a blockchain.

As of August 1, 2021, the Federal Act on the Adaptation of Federal Law to Developments in Distributed Electronic Register Technology will take place. In September last year, Parliament already approved the distributed ledger technology blanket act. The Act selectively adapts 10 existing federal laws. It was taken to improve conditions for DLT and blockchain in the country.
Especially noteworthy is the introduction of a DLT license, which will be applied to facilities involved in trading, such as financial market infrastructure built around the management of DLT securities. Regulation will also be implemented to manage the allocation of crypto-based assets should an organization go out of business.

The country has low taxes. Additionally, it exempts individuals and entities from taxes on dividends. Zug is already known as "Crypto Valley." The area attracts many businesses (crypto and non-crypto) due to low taxes in the region. In 2017, it started accepting BTC and ETH as payments for operating expenses. Zurich, Geneva, Ticino (Chiasso accepts Bitcoin as tax payments from 2018), Vaud, Lucerne, and Berne are also crucial as technological hubs.

Singapore

Cryptocurrencies: Not legal tender
Crypto exchanges: Legal, must be registered with the Monetary Authority of Singapore

Compared to other jurisdictions, Singapore seems to be the fastest and the most comprehensive. The Monetary Authority of Singapore (MAS) is the leading crypto regulator. In January 2020, the Payment Services Act (PSA) was issued to regulate traditional and digital token-based payments along with Notice PSN02 (Prevention of Money Laundering and Countering the Financing of Terrorism – Digital Payment Token Service), introducing robust anti-money laundering and terrorist financing (AML / CFT) measures to define and prevent the illegal flow of funds through the country using digital payment tokens (DPT).

Crypto exchanges and crypto trading are legal in the country. Bitcoin is classified as a good by the tax authority, so it’s subject to Goods and Services Tax. MAS has a neutral position on cryptos. In 2017, the authority claimed it wouldn't regulate virtual currencies, but provide the regulation of digital payments tokens, if they were classified as "securities".

In 2018, cryptocurrencies were regulated under AML and CFT measures as fiat currencies. From January 2020, crypto exchanges and other cryptocurrency businesses are regulated by the MAS and must obtain an operating license.

Crypto legislation changes constantly. In July 2020, the MAS introduced the Omnibus Act (OA). Under this Act, virtual asset service providers launched in the country but operating abroad should be regulated. In January 2021, the MAS developed the PSA to match changes to international standards. The Securities and Futures Act (SFA) is used for DPTs if they are capital market products.

Germany

Cryptocurrencies: Private money
Crypto exchanges: Legal

In Germany, cryptocurrencies are classified as “private money”. Germany’s Financial Supervisory Authority (BaFin) is a leading crypto regulator.

Cryptos are excluded from VAT during transactions and aren't subject to long-term capital gains tax for resident investors. Thus, long-term investors prefer this jurisdiction. If an investor holds cryptos for less than a year, capital gains taxes are applied on amounts exceeding 600 euros. Germany tries to avoid high-volume crypto trading. At the same time, businesses have to deal with corporate income tax.

As for crypto exchanges, in November 2019, the Bundestag introduced a law that required companies that custody cryptocurrencies for Germans to apply for a crypto custody license or leave Germany.

In July 2021, Germany's Fund Location Act that allows special funds to invest up to 20% of their portfolios in crypto came into force. This law is expected to cause flows of up to $415 billion into crypto.

USA

Cryptocurrencies: Not legal tender
Crypto exchanges: Legal, regulated following state regulation

Although the US is not on the list of the most friendly crypto countries or at the top of those who accept cryptocurrencies, we should talk about the States as its legislation changes rapidly.

Although cryptocurrencies have reached a volume that can't be ignored anymore, the US still doesn't have a specific authority that would regulate this market. Currently, the crypto market is controlled by CFTC, SEC, and IRS. US regulation is fragmented in general. Besides various federal banking and market authorities, there are local state jurisdictions.

The country doesn't have a proper definition of cryptocurrencies. There are discrepancies among authorities. In 2013, the US Treasury listed BTC as a convertible decentralized cryptocurrency. In 2018, the leading cryptocurrency was discussed in a US Supreme Court regarding a change of the definition of money.

The Commodities Futures Trading Commission (CFTC) has defined BTC and ETH as commodities since September 2015. Also, the authority allows virtual and cryptocurrency derivatives to trade publicly on exchanges under its regulation and supervision. U.S. Securities and Exchange Commission (SEC) classifies cryptocurrencies as securities and uses securities laws regarding digital wallets. The Financial Crimes Enforcement Network (FinCEN) does not see cryptos as a legal tender. At the same time, it looks at cryptocurrency exchanges as money transmitters assuming cryptocurrency tokens are "other value that substitutes for currency". The Internal Revenue Service (IRS) also doesn't define cryptos as a legal tender. Still, it classifies them as "a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value." The authority has released tax guidance for crypto assets.

Crypto exchanges are legal in the country. Still, there is no authority that would be responsible for their regulation. Exchanges are subject to the Bank Secrecy Act (BSA). To operate, the exchange has to get a FINCEN's license and implement an AML/CFT and Sanctions program. Also, exchanges are required to provide information on the originators and beneficiaries of transactions with cryptos.

US laws are changing constantly. Crypto adoption will definitely grow. Still, a wide range of regulation systems creates problems for crypto regulation in general.

Takeaway

More and more countries are introducing crypto legislation. It’s vital as it’s clear cryptos won’t disappear but instead will become a part of the world's traditional financial system. Although some jurisdictions are still tough, the experience of others will create a favorable crypto environment.