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The Legal Depth of Cryptocurrency.
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Tax Laws in India
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All proceeds from the cryptocurrency shall be taxed at the rate of 30%, as per
the provisions of the Union Budget 2022-23. Furthermore, 1% Tax Deductible at source on every cryptocurrency transaction irrespective of profit or loss. Also, unlike stock investments there is no provision of offsetting the loss.
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But you can avoid this 30% crypto tax by using USDT on the polygon chain and using decentralised protocols to swap/sell cryptocurrencies, or by transacting in peer-to-peer network.
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FEMA and the Cryptocurrency
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Cryptocurrencies like Bitcoin and Ethereum are used for various purposes like
a store of value, transfer of value, micropayments, and decentralized applications. Furthermore, the utility of crypto tokens have been well established through decentralised finance. Under FEMA1 the tokens or the assets involved in the crypto space shall be considered and treated as a good or a commodity.
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The definition of currency2 under FEMA is inclusive and includes 'any instrument which can be used to create a financial liability'. The term currency notes mean and includes cash in form of coins and banknotes, the RBI also advocated that it does not classify cryptocurrency as currency under FEMA3.
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i. Foreign Exchange is defined as a Foreign Currency under the Sec 2(n) of the FEMA, and Foreign Currency as defined by FEMA under Sec 2(m) is a currency other than an Indian Currency. But the Cryptocurrencies are not considered currency under the FEMA and therefore the cryptocurrency is neither foreign currency nor foreign exchange under the FEMA.
c. Cryptocurrency can be classified as goods and that is why if a person resident in India, enters transaction with a person resident outside India, it will be considered as export and import and accordingly, the provisions of FEMA will apply accordingly. Moreover, transactions in the context of foreign trade would fall under the classification of 'Current Account Transaction4' under the FEMA.
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FATCA and the Cryptocurrency
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FATCA is the Foreign Account Tax Compliance Act which is an act designed
to facilitate reciprocal financial reporting between United States and more than 110 different countries and over 300,000 Foreign Financial Institutions, with the goal of promoting financial transparency and reducing offshore evasion, fraud, money laundering, etc. Form 89385 orders the individuals to report their holdings in any financial foreign assets.
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The biggest hurdle in excluding your cryptocurrency as a non-reportable asset is going to be whether a financial exchange or account is considered a Specified Foreign Financial Asset for purposes of reporting. Presumably, if the cryptocurrency is being held in an offshore location in something called “a bank account” chances are you’re going to have to report it on your Form 8938. If a foreign bank is a branch of the US institution, you may be able to avoid disclosing it under one of the form 8938 exceptions.
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If you happen to have your money sitting in a fund abroad, which is being managed by a hedge fund or other venture capitalist/managed fund, or the money parked is being recognised as being handled by any big institution then it’s appropriate reporting has been ordered under the abovementioned law.
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Cryptocurrency laws and regulations in UAE
a. The FSRA6 issued supplementary guidance on the regulation of Initial
Coin/Token Offerings and Virtual Currencies (under its Financial Services and Market Regulations), under which it commented on initial coin offerings (ICOs), The ADGM7 regulations highlight mandatory requirements to carry out the regulated activity and aim to promote transparency and technology governance to ensure compliance with anti-money laundering and combating financial terrorism requirements.
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DMCC8 has introduced a regulated activity known as “proprietary trading in crypto-commodities”, businesses in the DMCC carrying this licence are only permitted to trade on their own behalf barring ICOs.
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The Securities and Commodities Authority (SCA), the securities regulator of the UAE, and Dubai Financial Services Authority (DFSA), the financial regulator of Dubai International Financial Centre, recently announced that they have not issued regulations to govern ICOs and establish cryptocurrency exchange houses in the UAE. Despite all of this, Dubai aspires to become the blockchain hub of the world and this can be ascertained with the incorporated use of blockchain technology in their operations, while new crypto projects are flowing into the city.
5. Singapore’s new law
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The new legislation will require virtual asset service providers in the city-state
which only do business overseas to be licensed. The city-state is welcoming the technologies of cryptocurrency and has launched a framework for regulating the industry when other countries such as China have opted for outright bans. These legislations are formed for the sole purpose of protecting the citizens from the extreme volatility these assets offer. Binance is the biggest player to have become disillusioned by this move.
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This law also gives greater powers to the Monetary Authority of Singapore to prohibit individuals who are deemed unfit from performing key roles, activities, and functions in the financial industry.
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Furthermore, imposes higher maximum penalty of S$1 million ($737,050) on financial institutions if they experience cyber-attacks or their services are disrupted.
6. Conclusion
Cryptocurrencies have endured a lot of financial and regulatory turmoil since their inception, it is a new asset class and with its increased adoption, governments would have to regulate it and set up consensus both internationally or domestically. Interestingly, it could be a future occurrence if we saw a SEBI like regulatory body for cryptocurrency in India.Citations-
1.The Foreign Exchange Management Act, 1999
2.Section 2(h) of the Foreign Exchange Management Act, 1999
3. Internet And Mobile Association ... vs Reserve Bank Of India on 4 March 2020
4. Section 2(j) of the Foreign Exchange Management Act, 1999
5. Form 8938 is related to FATCA
6. Financial Service Regulatory Authority.
7. Abu Dhabi Global Market
8. Dubai Multi Commodities Centre
Sources-
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Legislative.gov.in
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Indian Kanoon
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Ipleaders
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Quartz India
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Vijay Pal Dalmia; Mondaq
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Goldinglawyers
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Asia Business Law Journal
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Bloomberg
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