Bitcoin Legality

Landscape

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By Matt Hussey

Learn

Jan 18, 2019

Bitcoin’s legal status differs from country to country. Some countries have little or no regulation, some are actively seeking to class it as an asset or commodity, and some have banned it all together.

What you will learn

What you will learn

Should you pay tax on Bitcoin? Are governments regulating it? Is it even legal? This guide is all about exploring what happens when Bitcoin bumps into the legal apparatus of a state.

Should you pay tax on Bitcoin? Are governments regulating it? Is it even legal? This guide is all about exploring what happens when Bitcoin bumps into the legal apparatus of a state.

Is Bitcoin legal?

It depends where you are. The vast majority of countries are fine with having its citizens buy and trade Bitcoin. But there are some places where that line is blurred, and others where governments are hostile towards it.

  • 🇪🇺In the EU - The European Union has passed no specific legislation on Bitcoin as a currency. But, it has stated that VAT/GST and other taxes apply to any transactions made using Bitcoins to buy goods and services.

  • 🇨🇳 In China - The country has taken a hard stance against Bitcoin. It has banned local Bitcoin exchanges, ICOs and is clamping down on foreign exchanges and Bitcoin mining.

  • 🇺🇸 In the US - Owners of Bitcoin - and other cryptocurrencies - are required to track gains and losses in order to comply with IRS regulation. It is taxed as a property, not a currency.

The People’s Bank of China - the central regulatory authority in the country - has said the currency is illegal. However, Bitcoin can still be traded, but only over the counter.

Where is it illegal?

The definition of illegality is different in each country. In some, the Central Bank discourages its use (Cambodia), others it can’t be used as a payment tool (Indonesia), and in some places it’s a jail-able offence (Bangladesh, Macedonia).

  • 🇩🇿 Algeria - Banned from purchase, sale, use and holding of Bitcoin.
  • 🇧🇴 Bolivia - Banned any currency not regulated by a country or economic zone.
  • 🇪🇨 Ecuador - Banned any currency competing with the country’s own digital money.
  • 🇧🇩 Bangladesh - Jail-able offence under anti-money laundering laws.
  • 🇳🇵 Nepal - Jail-able offence.
  • 🇵🇰 Pakistan - In the process of being illegal under the Prevention of Electronic Crimes Act.
  • 🇰🇭 Cambodia - Not recognised or accepted by National Bank of Cambodia.
  • 🇮🇩 Indonesia - Illegal as a payment tool.
  • 🇻🇳 Vietnam - Illegal as a payment tool.
  • 🇲🇰 Macedonia - Jail-able offence.

What about taxes?

Like the above, the tax landscape is tailored to the state you’re located in.

In the US 🇺🇸

Bitcoin is regarded as property, not currency. That means selling, spending and even exchanging crypto for other tokens will have capital gain implications.

Trading cryptocurrencies produces capital gains or losses.

Receiving payments in crypto in exchange for products or services or as salary is treated as ordinary income at the fair market value of the coin at the time of receipt.

Spending crypto is a tax event and may generate capital gains or losses. Converting a cryptocurrency to U.S. dollars or another currency at a gain is subject to capital gains.

Mining coins is considered ordinary income equal to the fair market value of the coin the day it was successfully mined.

ICOs do not fall under the IRS's tax-free treatment for raising capital. Thus, they produce ordinary income to individuals and businesses alike.

In the UK 🇬🇧

The UK outlines two broad areas when it comes to tax on Bitcoin: if you mine it or buy and sell it, they are both taxable, but in different ways.

If the bitcoins have been purchased, any increase in value is liable to capital gains tax. Tax will only crystallise when the bitcoins are converted into another currency, be it sterling or dollars or even another cryptocurrency.

If someone is mining Bitcoins this is seen as a trade and will be subject to income tax and national insurance. Any expenses claimed would need to relate solely and specifically to the trade of mining.

Regulating Bitcoin

There are differing views about the regulation of Bitcoin. States again are taking the lead on this.

In the UK, the government’s financial regulator is mulling whether it should regulate Bitcoin - and is due to make a decision sometime in 2018. This regulation, if any, could act as a template for other states going forward.

Further afield, blocks like the EU has said it will regulate Bitcoin if there is no wider consensus on how to regulate it and other cryptocurrencies.

In the US, the SEC does regulate all securities - which includes Bitcoin - and the Commodity Futures Trading Commission has oversight on Bitcoin as it is classed as a commodity in federal law.

However, there is no broad, overarching regulation of Bitcoin in America, yet.

The future

As Bitcoin's popularity continues to attract people to cryptocurrencies more generally, regulation is going to follow. But due to the uneven nature of Bitcoin's popularity - and government's desire to regulate it - expect this patchwork of legality to continue.

By Matt Hussey

Learn

Jan 18, 2019

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