Since the very concept of a cryptocurrency is relatively new, there is no wonder that legal regulation of digital assets is still quite vague and ambiguous. Same as it happens with a considerable amount of innovations appearing & getting popular during the last couple of decades, the society often faces with a problem of the lack of legal sources clarifying a cryptocurrency’s position within the frameworks of existing laws.

The legal status of digital currencies varies widely among different states. To start with, while a significant number of countries officially allows a cryptocurrency (e.g. USA, Japan, Canada, UK, Australia, Estonia, Denmark, Swiss, Netherlands, Finland etc.), there is also a list of countries which ban its use and consider certain (or any) crypto-operations as an illegal activity (e.g. Iceland, Vietnam, Kirgizia, Bangladesh, Bolivia, China, Ecuador, Nepal, Lebanon, Indonesia etc.).

There are also several countries which have neither given any legal status to digital coins, nor recognized it as illegal (e.g. Russia, France, Switzerland, Belgium, Spain, Columbia, Czech Republic, Germany, New Zealand, Israel, Ukraine, Croatia, Poland, Hong Kong, Slovenia, Turkey, Singapore etc.).

Although the countries officially allowing the use of a cryptocurrency bring more clarity on its legal implementation, there are still high chances to get confused as each state has its own position regarding digital currencies’ legal status, and these positions may differ substantially. Some jurisdictions consider digital coins as a payment method, while others – as an exchange method. Several governments stated that the legal nature of a cryptocurrency assumes that it is a subject to taxation, while in a number of countries there are still no taxes on crypto-transactions.

The main reason for a confusion is the fact that a few years ago a cryptocurrency’s potential impact on the financial market was not taken seriously and consequently, digital assets were not a subject to any legal regulations; no authorities considered creating laws on crypto coins as a relevant activity that is worth the time spent on it.

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However, as digital currencies economic value was rising dramatically, many states had to change their mind and come up with the bills on a cryptocurrency’s regulation. The European Commission has proposed to consider digital assets as “a digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat currency, but is accepted by natural or legal persons as a means of payment, and can be transferred, stored or traded electronically”.

The tax law varies widely, depending on the country. The most common tax statuses are the following: “taxed as an asset” (e.g. Israel); “taxed as foreign currency” (e.g. Switzerland); “subject to income tax” (e.g. Spain); “subject to income tax and losses are deductible” (e.g. Denmark); “corporations pay corporate tax, unincorporated businesses pay income tax, individuals pay capital gains tax” (UK).

Cyprus puts any digital assets under common civil law principles. The Central Bank (CB) of Cyprus has stated that “Bitcoin is not illegal, but at the same time neither is it subject to control or regulation”. It does not accept digital currencies as payment method; however, a cryptocurrency has confirmed legal status in Cyprus, which is ensured by a number of educational institutions officially accepting digital currencies as tuition fees. Although the CB of Cyprus keeps appealing to initiate taxes for crypto-transactions, in fact, any profit received from cryptocurrencies trade is not a subject to any taxes.

The USA considers digital currencies as both monetary funds and a property. The USA Securities and Exchange Commission has declared that is going to acknowledge a cryptocurrency as a recognized alternative to investments.

Germany considers digital coins as both private monetary funds and a financial instrument.  Same as the European Court, Germany recognizes an exchange of digital currencies for fiat ones as a transaction that should be released from VAT. However, commercial business, such as selling cryptocurrencies must be a subject to a taxation, according to German Ministry of Finance.

Chile has presented a Bill on cryptocurrencies regulation. Minister of Finance Felipe Larrain has filed a Bill on financial technologies & cryptocurrencies regulation to the Congress. The country’s authorities highlight that Chile’s crypto-industry keeps growing and developing, however, the activities of cryptocurrency companies are still not a subject to any operating legal regulations. As Felipe Larrain states, he believes that if certain laws regulating digital finances are accepted, it will help to reduce many currently existing risks related to cryptocurrencies.

Since what’s not expressly forbidden is permitted, crypto-transactions can take place in the states that have not taken any position regarding a cryptocurrency’s legitimacy. However, the lack of legal guidance & clarity on legal future makes digital currencies operations quite tricky for legal entities – there is no certainty on business development perspectives. At the same time, no legal regulation means – no taxes, which opens the door for entrepreneurs’ substantial benefit.