Back in 2009, the peer-to-peer payment system named Bitcoin, created by an unknown person or group using the alias Satoshi Nakamoto, made its debut and set the scene for the new era of digital currencies.
More than a decade later, law enforcement agencies, tax authorities and government regulators still debate the legality of crypto. So, what is the current status of bitcoin legality in the UK? Which countries are friendly to cryptocurrencies and which are not?
This article will give you the answers and more.
Let’s get started!
Crypto Exchange Regulations in the UK
Currently, the UK does not regulate cryptocurrencies. Although the government confirmed last year that crypto assets are considered property, there are no specific laws regarding crypto currencies, and they are not regarded as legal tender.
However, as of January 10, 2021, all companies offering cryptocurrency-related services such as recognised cryptocurrency exchanges, investment managers, advisers and professionals in the UK market, or those providing services to UK residents, need to register with the FCA. In short, all cryptoasset business carrying out activities that fall under Money Laundering Regulations must register with the FCA in order to operate.
However, the development of the Financial Conduct Authority’s cryptocurrency regulations in the UK has not gone smoothly.
In October 2020, the FCA banned retail cryptocurrency derivatives in an effort to protect amateur investors from “sudden and unexpected losses”. The ban, though, which came into effect on 6th January 2021, does not cover professional traders or institutional firms.
At the end of 2020, the FCA enforced a “temporary registration regime” due to its inability to process all registration applications. This regime moved the registration deadline to 9th July 2021. According to UK cryptocurrency regulations and latest FCA registration requirements, all crypto exchanges have to meet the anti-money laundering, terrorist financing and transfer of funds regulations. However, the FCA claims that not many companies comply with the AML standards, and the majority need to update their operations and reapply again.
In June 2021, the FCA banned Binance, one of the biggest cryptocurrency exchanges in the world, from operating in the country. Even though this decision is believed to have little impact on the company’s customers in the UK, the FCA clamping down on unregistered exchanges is a clear warning sign of the dangers and risks that come with investing in crypto.
How Is Cryptocurrencies Taxed in the UK?
Since HMRC recognises that crypto-assets cannot be compared to traditional payments, the tax rates differ according to the activities and entities involved in the transaction.
Taxes for individuals are subject to capital gains and losses, meaning that anyone who holds crypto assets as a personal investment will be taxed on any profits made on those assets. Capital losses, on the other hand, can be considered for tax liability.
Are Bitcoin ATMs Legal in Britain?
If licenced and regulated by the FCA, Bitcoin ATMs are legal in the United Kingdom. Currently, Britain is the proud owner of over 250 Bitcoin ATMs, more than any other country in Europe.
Future Cryptocurrency Regulations in the UK
Even after Brexit in 2020, the cryptocurrency regulations in the UK remained consistent with the EU standards. However, Great Britain is likely to alter its crypto-regulations to some degree in the near future.
The UK has expressed its intention of adopting a broader approach to cryptocurrency regulation, including consulting with stakeholders on a wide range of questions, such as the use of crypto investments, the use of DLT in financial services and potential future actions the government might take to improve security.
The government is also exploring the possibility of regulating stablecoins, another clear signal of future changes to the FCA’s attitude towards cryptocurrency.
Most countries still haven’t defined their cryptocurrency regulations, preferring the wait-and-see approach. Others have accepted BTC and other digital currencies with open arms. But which are the most crypto-friendly countries in the world?
The United States of America
The USA generally has a positive stance towards cryptocurrencies, even though some government agencies work on reducing bitcoin’s use in illegal transactions. What’s more, well-renowned U.S businesses such as Microsoft and Overstock began to approve payment in bitcoins.
Back in 2013, USA’s FinCEN started issuing guidance on bitcoin, and the Treasury Department classified it as a money services business (MSB). This means that any crypto-related services such as cryptocurrency exchanges and money transmitters must register with the FinCEN, have an AML program, keep appropriate records on suspicious activity and make reports to FinCEN,
The US was recently proclaimed the most crypto-ready country worldwide based on several metrics, such as legislation, Google searches and the number of crypto ATMs. According to the 2021 Crypto Ready Index, the US scored 7.13 out of 10, the highest in the world.
Despite all this, the US Internal Revenue Service has categorised BTC as property, making it subject to taxation. This, combined with potential stricter regulation in the future, might leave investors looking at other bitcoin-friendly countries.
Canada is definitely one of the countries that are friendly to crypto currencies. It has been quite proactive in its acceptance of crypto currencies and is the first to approve AML-related regulation of crypto service providers.
Canada’s Revenue Agency considers Bitcoin a commodity, which means all transactions are treated as barter, and the gains from crypto are handled like any business income. Taxation depends on the activity, i.e. where it’s a business or just an investment.
In terms of regulation, all the crypto-related businesses in Canada are considered money service businesses and, as such, subject to the relevant laws. For instance, exchanges are obligated to register with the FINTRAC, abide by compliance plans, report any suspicious transactions and keep certain records.
Australia is considered to be one of the most crypto friendly countries. It has been progressively implementing cryptocurrency regulations, declaring all digital currencies legal in 2017.
As of April 2018, all cryptocurrency exchanges need to register with the Australian Transaction Reports and Analysis Centre and comply with the AML/CTF 2006 rules. The Law explicitly states that Bitcoin and other crypto currencies will be treated as property and thus subject to capital gains tax. This is a major step forward compared to Australia’s previous double taxation policy under the country’s goods and services tax.
The European Union
Even though most of its members are crypto-friendly countries, the EU still doesn’t have specific legislation regulating the status of crypto currencies, and legislation varies from one state to the next.
Nonetheless, the European Court of Justice considers buying and selling cryptocurrencies a supply of services and so the activity is exempt from VAT in all member states.
For more clarification, let’s take a look at bitcoin legality by country:
- In Germany, crypto is considered “private money” and is not subject to VAT. In addition, crypto is exempt from the long-term capital gains tax, provided the value is less than 600 euro within one year. This rule, however, only applies to investors who reside in Germany, while businesses must pay corporate income tax when dealing in crypto. Furthermore, Germany has recently passed a new Act allowing domestic special funds to invest up to 20% of their portfolios into bitcoin and similar crypto-assets. This decision is sure to reinforce the country’s position as a financial investment centre as well as help it move forward toward legitimising cryptocurrencies as assets.
- Portugal is one of the most friendly countries towards crypto in the EU. Individuals in Portugal who make a profit from the sale, purchase or exchange of bitcoin are exempt from income tax or capital gains tax. Companies, on the other hand, do not enjoy the same benefits as all businesses dealing with crypto are subject to the applicable taxes.
- Malta is another favourable destination for bitcoin investors, crypto exchanges and blockchain projects. The country even welcomed Binance after Hong Kong clamped down on regulations regarding crypto. However, recently there have been concerns over Malta’s lax crypto policies, especially concerning the lack of a regulatory body that would provide oversight into operations.
Topping the list of the most friendly countries for crypto is El Salvador—the first to adopt bitcoin as legal tender.
Under the new law, every business must accept BTC as payment for goods and services, unless it does not have the technology to complete the transaction.
Following the announcement of the new law, Athena Bitcoin said they plan to instal 1500 crypto ATMs in El Salvador, making it easier for the two million residents of the country who live abroad to send money home.
While some applaud this decision, others are worried about crypto volatility. Namely, the IMF recently expressed concerns that crypto currencies could threaten “macroeconimcal stability” as well as cause damage to financial integrity through crypto’s link to illicit activity, such as funding terrorism.
Other Bitcoin-Friendly Countries
Other countries widely regarded as having a positive stance on bitcoin include:
- Another Meditiarian island known for its friendly attitude towards crypto, Cyprus is well on the way to regulating digital currencies. Despite the lack of proper regulation, the country allows exchanges and blockchain startups to operate within its borders.
- Singapore has no capital gains tax on crypto, making it one of the most crypto tax friendly countries. Even though this rule only applies to individuals trading in bitcoin, Singapore is still a great place for independent businesses and individual investors.
- Malaysia is another country where profits made from bitcoin and other cryptocurrencies are not taxable as capital gains. Individuals that sell or buy crypto here are regulated only under the Payment Services Act 2019 which includes risks connected to money laundering and terrorism funding.
- Hong Kong also does not impose capital gains tax, which means bitcoin is not subject to taxation. Under the latest regulations, the city will require all businesses dealing in crypto to be regulated by the market regulator and will only permit them to provide services to professional investors.
- Although Switzerland is not exactly crypto-friendly on a national level, many of its 26 cantons have a positive attitude towards digital currencies and do not impose taxes on profits made from bitcoin dealings.
Countries That Don’t Accept Crypto
While most countries are friendly to cryptocurrencies, others are cautious and perceive bitcoin and the like as a threat to the current monetary systems. Because of its decentralised nature and links to activities such as money laundering and drug trafficking, bitcoin is considered illegal in some parts of the world.
Below are some countries that have banned or tried to cut off banking support crucial for bitcoin trading and use.
Cryptocurrencies are essentially banned in China.
China crypto currency regulations prohibit all financial institutions, banks and exchanges from dealing with bitcoin. The government is also cracking down on miners even though 65 to 75% of bitcoin mining in the world takes place in China.
While individual miners might slip through the cracks, commercial ones should consider substitute mining centres for ones with better cryptocurrency regulations.
As of January 1st, 2021, the Russian Federation backed away from its total crypto ban. As long as they pay taxes, the new cryptocurrency law allows Russians to own bitcoins or other digital assets. In addition, the bill allows cryptocurrency exchange only through licensed operators.
However, Russians can’t exchange cryptocurrencies for any goods and services within the domestic economy. The current Russian legislation, although resolves bitcoin’s mining legality issues, still considers BTC a monetary substitute and not legal tender.
In the past decade, the legality of bitcoin has been a hot topic in Vietnam. Nevertheless, Vietnam’s State Bank maintains its position that cryptocurrencies are not a legitimate payment method. Therefore the use of crypto currencies as means of payment in Vietnam is illegal and subject to punishment fees.
Other Countries That Are Not Crypto Friendly
- After tightening restrictions on cryptocurrency exchanges, Turkey banned BTC and similar currencies due to a lack of regulation in April.
- India doesn’t have anti-cryptocurrency regulations, but there is a proposal to ban private cryptocurrencies. One of the reasons is that the government is looking to promote its own central bank digital currency, the digital rupee.
- In February, Nigeria imposed a ban on bitcoin and even threatened to close bank accounts that use cryptocurrency exchanges.
The relationship between digital currencies and governments has always been challenging and intense. Over a decade has passed since the introduction of BTC and most countries in the world still don’t have adequate regulations or universal definition regarding cryptocurrencies. That said, many are taking a positive stance towards accepting crypto as legal tender.
Britain definitely falls in that category. When it comes to bitcoin legality in the UK, the country may not have specific cryptocurrency regulations, but it is making significant steps towards achieving that goal. Currently it is one of the five most crypto-friendly nations in the world and as regulation and taxation policies improve, it might even rank higher.