With the growing use of cryptocurrencies in transactions, the need for regulations of this asset is increasing each time more. In this article, we will take a closer look at how some countries are dealing with the regulation ofit.
WHY CRYPTOCURRENCIES SHOULD BE REGULATED?
Cryptocurrencies became a significant trend in financial markets and an increasinginvestment class. The quick growth of cryptocurrencies has intensified the focus of regulators since the advent of this new asset brings challenges on how to protect investors and customers. In the context of Europe, so far, there is a regulatory gap that leads to uncertainty and a lack of harmonization on how cryptocurrencies are regulated.
In the European Union, a new Market in Crypto Asset Regulation (MiCA) has been worked on and should be voted on this year. This regulation seeks to bring harmonization and protection at the EU level. That seems to be a start of a harmonized legal framework, however, as Mark Branson, the president of Germany’s financial regulator BaFin said, ‘the most important point is that it doesn’t need just a European solution. It needs a worldwide solution’, and the MiCA regulation could be only the start of a broader regulation.
Considering that this harmonized regulation is not yet set forth, below we present how some countries are regulating cryptocurrencies now.
WHAT ARE THE CURRENT REGULATION FRAMEWORKS?
In general, the regulation of cryptocurrencies is in its early stages. Below you will find how cryptocurrencies are currently regulated in Germany, Estonia, Hungary, the Czech Republic, Poland, Serbia, and Turkey.
CRYPTOCURRENCY REGULATIONS IN GERMANY
The German government was one of the first to provide legal assurance to financial institutions, allowing them to hold crypto assets. In Germany, since 2021, institutional crypto investors can officially invest in cryptocurrencies, however, there is no regulation for private crypto investors. When characterizing cryptocurrencies, the German Federal Financial Supervisory Authority(BaFin) views and classifies cryptos as “units of account” according to the meaning of the German Banking Act. Thus, they are not considered legal tender, money, or foreign exchange notes or coins. The regulators have decided that they are considered crypto assets by the definition of financial instruments.
CRYPTOCURRENCY REGULATIONS IN ESTONIA
Estonia was also one of the first in the EU to make several amendments to the legislation concerning the regulation of the industry, beginning to issue crypto licenses in 2017. In addition, Estonia became the first country to enforce the EU Anti-Money Laundering Directive in national law. This provided a legally regulated ground for businesses associated with virtual currencies. In November 2011, the Law on Money Laundering and Terrorist Financing came into force in Estonia. This law specified a virtual currency as a “value presented in digital form that can be transferred digitally, stored or sold, and which individuals or legal entities accept as a payment instrument, but it is not a legal tender”.
CRYPTOCURRENCY REGULATIONS IN HUNGARY
Under Hungarian Law, there is no specific legal definition of cryptocurrencies yet, but it is in development. In this sense, Hungary does not yet consider cryptocurrency an authorized form of legal tender because it is not put out by a central authority and does not have a verified exchange rate by the Hungarian National Bank. In this regard, all profit made through investment activities, and the use of cryptocurrencies, is classified as “other income”.
CRYPTOCURRENCY REGULATIONS IN CZECH REPUBLIC
In the Czech Republic, cryptocurrencies are largely unregulated. There, they are not regulated as a currency, instead, they are categorized as commodities. According to Article 4(1) of the Payment System Act, cryptocurrencies are not treated as electronic money and according to Article 2(1)(c) of the Payment System Act, they are also not considered funds. However, despite being largely unregulated, the Czech National Bank, authorizes Czech banks to offer cryptocurrency-related services as long as AML/KYC regulations are fulfilled.
CRYPTOCURRENCY REGULATIONS IN POLAND
In Poland, the government does not consider cryptocurrency to be a ‘currency unit, a payment instrument, or electronic money’, and there is no forthright supervision by the financial authorities upon activities related to the issuing and trading cryptocurrencies. However, since October 2021, activities related to virtual currency became a separate regulated field, administered by the Tax Administration Chamber, which maintains a register of crypto activities named the Register of Virtual Currencies.
CRYPTOCURRENCY REGULATIONS IN SERBIA
In Serbia, in 2021, the ‘Law on Digital Assets’ (LDA) came into effect and legalized the trading and mining of cryptocurrencies. The Law explicitly stipulates that “mining” of cryptocurrencies is allowed in Serbia, but that other provisions of that law do not apply to miners. The Law stipulates that it applies only to the use of services derived from cryptocurrency that is mined, so if there is a service derived from crypto mining, such as utility tokens, the Law applies.
CRYPTOCURRENCY REGULATIONS IN TURKEY
Currently, there is no existing regulation on cryptocurrencies in Turkish Law, and not enough concepts to entirely define it. In terms of Turkish Law, cryptocurrencies do not fall within the definition of “money”, since it is not ‘put on the market by the competent authorities of the country’; nor as “electronic money”, since it is not “being issued by persons authorized by the Central Bank of the Republic of Turkey’. It also does not fall under the definition of being goods, because it does not fulfil the element of having a corporeal existence; and, as the Capital Markets Board stated in 2018, Bitcoin, and therefore, other cryptocurrencies, cannot be considered as securities. In this sense, the sources in Turkish legislation are insufficient to define cryptocurrency, leading to uncertainty about which legislation would be used to assess cryptocurrencies and which supervisory authority they will be subject to.
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HOW IS THE TAXATION ON CRYPTOCURRENCIES IN THESE COUNTRIES?
In Germany, cryptocurrency is considered private money and its profits are tax-free as long as they are under 600 euros.
There is no special regime for cryptocurrency taxation in Estonia, and businesses working in that field will have the same taxes applied to their operation as the other businesses.
In 2021 there was an amendment to the Hungarian Income Tax Act, implementing that as a private investor, the rule is to pay a personal income of 15% on crypto assets purchased for investment.
The Czech Republic has not yet introduced any specific tax law related to crypto. The taxation of crypto companies is subject to EU legislation and the goal of the crypto-related economic activities, which mightbe included under different sets of general laws.
In Poland, for personal income taxes, revenue from crypto transactions is taxed as income from cash capital. For private transactions, the profits are regulated as income from property rights, and the earnings are taxed progressively at rates between 18% and 32%. Profits from business activities are taxed at 19%.
Concerning taxes, under Serbian Law, it is prescribed that the capital gains tax will be applied to digital assets as well as their mining. Capital gains tax is determined by calculating the difference between the buying and selling price of a cryptocurrency. In the case of mining, the way of acquiring is not buying but creating crypto, the so-called mining, so, for taxation, mining costs are considered as the purchase price.
As there is no regulation of cryptocurrencies in Turkey, no special taxation rules are applied. However, according to the Income Tax Law of Turkey, every type of income, despite its nature, is subject to income tax, so all economic value generated by crypto assets may be subject to income tax.
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HOW TRANSACTIONS WITH CRYPTOCURRENCIES ARE TAKING PLACE?
Unfortunately, many potential buyers of cryptocurrencies are afraid that it is still insecure to buy, resell or trade cryptocurrencies, due to the lack of specific regulation in many countries.
Crypto exchanges in Germany consist mainly of setting exchange fees for purchases and sales, usually as a percentage of the transaction volume. Regulations stipulate that citizens and legal entities can buy or trade crypto-assets as long as it is done through licensed exchanges and custodians. Firms must be licensed with the BaFin.
In the Czech Republic, cryptocurrencies are not interpreted as a monetary unit. Consequently, cryptocurrencies are not an official means of payment and are not subject to the law on payment systems. Although they are not an official means of payment, cryptocurrencies may nevertheless be used in transactions.
In Turkey, in April 2021, it was published in the official gazette a ‘Regulation on the Non-Use of Crypto Assets in Payments’, which stipulated that crypto assets should not be used in payments, in transferring e-money directly or indirectly, and not be a mediator for the platforms that provide services of purchasing, selling, storing, transferring crypto assets payment and e-money institutions, thus, this Regulation brings highly strict provisions on cryptocurrencies in Turkey.
Nonetheless, under Serbian Law, it is specified that miners can freely sell the acquired cryptocurrency on the market, for example, through a stock exchange or intermediary.
The fact that cryptocurrencies do not have a definition in some countries yet does not mean that they cannot be subject to legal transactions. In that sense, legal disputes will inevitably arise, and a legal framework will be developed by looking at concrete disputes, judicial decisions, and legal doctrine. For this reason, when legal transactions involving cryptocurrencies take place, it is of great importance to get the assistance of a lawyer.
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Cryptocurrency Regulations in Europe: An Overview
All rights reserved. All rights of the Cryptocurrency Regulations in Europe: An Overview article belongs to Gurcan Partners International Law Firm. The author has no responsibility for the information in this article. This article is prepared just to inform.
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