Governments worldwide remain uncertain of how best to regulate cryptocurrency as its popularity as an alternative portfolio holding continues to increase. Here is a breakdown of each country’s current digital currency regulatory environment.
While cryptocurrency investors and blockchain firms exist across the United States, no clear regulatory framework has yet been outlined for their asset class. The Securities and Exchange Commission (SEC) views cryptocurrency as a security, while the Commodity Futures Trading Commission (CFTC) considers Bitcoin (BTCUSD) to be an asset class, while Treasury views it as currency and the Commodity Futures Trading Commission identifies it as such. Crypto exchanges operating within the US fall under the Bank Secrecy Act (BSA), and must register with Financial Crimes Enforcement Network (FinCEN). They must also comply with anti-money laundering (AML) and countering financing of terrorism (CFT) requirements as part of their registration requirements.
IRS considers cryptocurrency property for federal income tax purposes. Investors should closely watch Ripple Labs Inc. vs the Securities and Exchange Commission case filed in December 2020 alleging’registration provisions of federal securities laws were violated,’ currently in trial. On September 7th 2021 the SEC also announced it would bring suit against Coinbase Global Inc (COIN) due to failure to provide further regulatory clarification regarding Lend – however this initiative was quickly shut down soon afterwards by Coinbase itself.
Canada’s regulators have taken an active stance toward cryptocurrency. On February 18, 2021, a Bitcoin Exchange Traded Fund (ETF) was listed on the Toronto Stock Exchange; another was added February 19th. Furthermore, both Canadian Securities Administrators (CSA) and Investment Industry Regulatory Organization of Canada (IIROC) announced that trading platforms and dealers in Canada must register with provincial authorities; furthermore they recognize crypto as money service businesses (MSB) that require registration with Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), taxation of crypto works similarly to other commodities in Canada.
The U.K. considers cryptocurrency property, not legal tender. Furthermore, cryptocurrency exchanges must register with the Financial Conduct Authority (FCA), but are not permitted to offer crypto derivative trading. Lastly, FCA has implemented cryptocurrency-specific requirements such as know your customer (KYC), anti-money laundering (AML), and counter terrorist financing (CTF). Finally, investors still pay capital gains tax when trading cryptocurrency trades although taxability depends on type of activity and who was involved more generally in transaction.
Japan’s Payment Services Act (PSA) recognizes cryptocurrency assets as legal property. Cryptocurrency exchanges must register with the Financial Services Agency (FSA), comply with AML/CFT requirements, and pay taxation on cryptocurrency trading gains as “miscellaneous income.”
Australia takes an aggressive stance towards crypto regulation. Under Australian laws, cryptocurrency assets are considered legal property and subject to taxes accordingly. Exchanges may operate provided they register with AUSTRAC and meet specific AML/CTF requirements. Furthermore, in 2019 ASIC issued guidelines regarding initial coin offerings (ICOs) as well as prohibiting exchanges that offered privacy coins.
Singapore’s Monetary Authority recognizes cryptocurrency as property but not legal tender, following in the footsteps of Britain. Exchange licensing and regulation under Payment Services Act (PSA) make Singapore an excellent cryptocurrency safe haven. Long-term capital gains don’t incur taxes in Singapore while companies that regularly transact in cryptocurrency are subject to income taxes on any gains treated as income.
Prior to May 2021, South Korean Financial Supervisory Service (FSS) was in charge of regulating cryptocurrency exchanges with operators subject to stringent Anti-Money Laundering/Combat Money Laundering requirements. Starting September 2021, crypto exchanges and virtual asset service providers had to register with Korea Financial Intelligence Unit (KFIU), part of Financial Services Commission (FSC). Finally in 2022 parliament approved new taxes on digital assets with cryptocurrency income exceeding 2.5 million won (approx. $1,800 USD) being subject to 20% tax while anything valued under this threshold remains tax-free.
China’s People’s Bank of China (PBOC) maintains that cryptocurrencies should be treated as property rather than legal tender when calculating inheritances, with cryptocurrency exchanges banned from operating because they allow people to invest without proper permissions. Binance, the world’s leading crypto exchange, was forced to relocate its headquarters after China banned crypto regulation – with speculation suggesting Malta or Cayman Islands as potential locations based on past experience. Chinese bitcoin miners were also forced to shut down or relocate due to this country-wide ban in May 2021 due to China’s prohibitive policies resulting in business closure or relocation or both options being taken advantage of.
Although cryptocurrencies aren’t legal tender in India, its Central Board of Direct Taxation requires investors to pay taxes on any profits earned trading crypto assets. In 2018, the Reserve Bank of India (RBI) banned financial institutions from transacting in virtual currencies; however, in March 2020 the Supreme Court overruled this decision; although regulations still remain unclear; for example India established legislation early 2021 prohibiting issuing, holding, mining and trading cryptocurrencies except state-backed digital assets.
Cryptocurrency is generally legal within the European Union (EU), however exchange governance varies by country government. Tax rates also range from 0%-50% across EU member countries. Recently, however, the Fifth and Sixth Anti-Money Laundering Directives (5AMLD and 6AMLD) have been implemented, increasing KYC/CFT compliance reporting requirements while standard reporting requirements also increased significantly. Furthermore, in September 2020 the European Commission proposed Markets in Crypto-Assets Regulation (MiCA), in order to boost consumer protections while setting clear industry norms while also introducing licensing demands that would ensure smooth operations within European borders.