Where is Bitcoin legal tender and where is it banned?

Where is Bitcoin legal tender and where is it banned?

Bitcoin is used by more and more people everyday as a payment tool. It is estimated that around 300 million people around the world – from emerging to advanced economies – have possessed Bitcoin at some point in their lives.

The first country to recognise Bitcoin as legal tender was El Salvador in June 2021.

The Central African Republic became the second nation to do so in 2022. Bitcoin is also legal tender in the city of Lugano in Switzerland where it can be used to pay for public services and consumer goods.

As things stand, there are still dozens of countries that restrict the use of Bitcoin by imposing transaction limits and heavy taxes on the digital asset. This is because of the perceived threat it poses to national monetary systems or the illicit activities it can be associated with.

A handful of countries, such as China, Egypt, and Bangladesh have outright bans on the use of Bitcoin as an investment vehicle in addition to its use as a payment method.

Do I have to pay tax on my crypto?

Like almost everything else, you may have to pay tax on your crypto holdings depending on where you live. As an individual, this could include capital gains, income, or value-added tax (VAT) on crypto investments and transactions.

For instance, if you live in the UK you have a tax-free allowance of £12,300 on any gains you have realised from your crypto investments. If your profits exceed this limit, you will need to pay capital gains tax.

A range of countries like the US, Canada, and France also levy capital gains taxes on crypto. It is important to remember that you are only liable to pay this tax if you sell your crypto for fiat currency; making this a taxable event.

Some destinations around the globe function as crypto tax havens so they can attract the best blockchain developers, technology, and investment. You don't need to pay capital gains taxes on crypto if you reside in Germany, Switzerland, Singapore, or the UAE.

It is always worth checking the tax policy in the jurisdiction you hail from. For instance, in Germany, profits from selling cryptocurrencies are tax free if the asset has been held for more than one year.

Is crypto legal in the UK?

Yes, it is legal to buy, sell, and trade cryptoassets in the UK. But only professional investors and institutions are allowed to trade more complex crypto derivatives.

Cryptoassets are treated as property in the UK and are broken down into four categories by the UK's tax collection agency HMRC: exchange tokens, utility tokens, security tokens, and stablecoins.

Exchange tokens are defined as cryptoassets that are used as means of payment and are attractive investment choices because of their ability to appreciate in value. Bitcoin is deemed an exchange token by HMRC.

Utility tokens are those that are issued by a group or business with the purpose of giving token-holders better access to blockchain goods and services. Security tokens are viewed as instruments that provide investors rights in a business, such as partial ownership or a share of future profits.

Stablecoins are digital assets that have their value tied to fiat currencies like the dollar or precious metals like gold.

The UK has a tax free allowance of £12,300 for capital gains on cryptoasset investments. Any profits beyond this limit are subject to taxation.

The UK is working toward regulating the cryptoasset market by introducing progressive legislation that gives consumers more protection whenever they invest in the nascent asset class or use the services of exchanges and custodians.

What taxes do crypto businesses have to pay in the UK?

If a company or business is carrying out activities that involve cryptoassets, they are liable to pay tax on them, according to the country's tax authority HMRC.

Taxable activities include buying and selling cryptoassets, providing goods and services in return for cryptoassets, and trading cryptoassets for traditional assets. Separate taxes also apply if companies engage in mining.

Cryptoasset businesses must pay the same taxes any other business would. This may include one or more of the following: capital gains tax, corporation tax, corporate tax on chargeable gains, income tax, national insurance contributions, stamp duty, and VAT.

The amount of tax a business must pay is subject to its income, expenditure, profits, and losses that it must declare annually.

Copyright © 2024 ETC Group. All rights reserved