Abo and Penaranda Law firm

Main logo w text_1 1

Cryptocurrency in the Philippines: Adoption, Regulations, and Taxation Insights

In recent years, cryptocurrencyhas gained popularity in the Philippines —a nation full of tech-savvy individuals and a high rate of remittance inflows. The Bangko Sentral ng Pilipinas (BSP) laid out policies to protect consumers, minimize the risk of fraud and money laundering while, at the same time, supporting the growth of cryptocurrency. With its growing utilization among consumers, companies, and even government programs, cryptocurrencies are anticipated to have significant impact on the financial system in the country.

The Philippines is emerging as a significant player in the crypotocurrency and fintech space in Southeast Asia with supportive regulatory frameworks and a growing user base, through significant adoption, a robust regulatory framework, and clear taxation guidelines. As the landscape develops, users, investors, and regulators will encounter both opportunities and challenges.

Definition of Cryptocurrency

The Philippines’ central bank, the Bangko Sentral ng Pilipinas (BSP), defined virtual currency as a type of digital currency created by a community of online users, stored in electronic wallets (e-wallets), and generally transacted online. Furthermore, it defined cryptocurrency as a type of virtual currency that uses cryptography, which is a method of storing and transmitting data in unreadable form so that only the intended receivers can read and process it. Currently, some of the most recognizable cryptocurrencies in the country are Bitcoin, Ethereum, and Tether.

The Philippine Government’s stance on cryptocurrency

Through the Bangko Sentral ng Pilipinas (BSP), the Philippine government embraces the evolving financial landscape in the country and recognizes the potential of cryptocurrencies while emphasizing the need for regulatory oversight. In fact, the Philippines ranked second in the world in Chainalysis’s Global Crypto Adoption index.

It is also worth noting that the BSP issued Circular No. 944 in 2017, acknowledging cryptocurrencies as a valid payment method and ensuring that virtual currency exchanges adhere to anti-money laundering (AML) and counter-terrorism financing (CTF) regulations. However, the Securities Exchange Commission (SEC) issued an advisory in 2018 giving caution to investors about the potential risks of cryptocurrency and mandating companies involved in cryptocurrencies to register with the SEC and adhere to securities regulations.

Current Regulations

In 2021, the BSP issued the Guidelines for Virtual Asset Service Providers (VASPs) wherein a comprehensive regulatory framework for virtual currency exchanges in the country was established. These guidelines require VASPs to obtain a license from BSP before they operate in the country and emphasize the importance of anti-money laundering (AML) and counter-terrorism financing (CTF) measures.

In 2023, the Securities Exchange Commission (SEC) released a draft implementing rules and regulations (IRR) for public comments relating to cryptocurrencies and digital financial products. It aimed to expand the enforcement actions to be conducted by the SEC to protect the interests of financial consumers through rulemaking, surveillance, inspection, and market monitoring.

Tax Implications

Despite a lack of clear guidelines from the Bureau of Internal Revenue (BIR), investors can expect their cryptocurrency-related revenue to be taxable.

The principal kind of taxation applied to cryptocurrency transactions is the capital gains tax (CGT), which can reach up to 15%, but the particular rate may vary based on the type of transaction. Filipinos who possess or trade cryptocurrencies in the Philippines are required to record any capital gains on their annual tax returns; therefore these profits must be included in income tax returns.

Further, the Tax Code, as amended defines gross income as all income obtained from whatever source. Given that, income earned through cryptocurrency transactions should be included in the taxpayer’s taxable income. Here, income is generated when a cryptocurrency like bitcoin is sold, spent, traded for another property, or accepted as payment for services given.

Taxation of cryptocurrency will also depend on whether it is treated as an ordinary asset or capital asset. Individuals or companies that actively trade cryptocurrencies in the ordinary course of business may be categorized as inventory. As a result, any income earned from the sale or exchange of cryptocurrencies may be liable to value-added tax (VAT).

In comparison, cryptocurrency held for investment purposes, such as long-term capital appreciation, is more likely to be classified as an intangible asset. Under this classification, cryptocurrency is considered a capital asset. As a result, the gains from the sale or exchange of such assets would be subject to ordinary income tax.

Conclusion:

Philippine law firms serve as essential partners for fintech and cryptocurrency companies, providing comprehensive legal support that encompasses regulatory compliance, tax advisory, consumer protection, and risk management. The varied perspectives among BIR officers regarding the taxation of cryptocurrencies highlight the complexities and evolving nature of this sector. Therefore, it would be advisable for one to still seek the help or assistance of lawyers in navigating or tackling tax-related issues of cryptocurrency transactions.

Expert in the field such as tax and fintech law firms are vital to the cryptocurrency ecosystem, offering expertise that ensures compliance, promotes innovation, and protects consumers. Their contributions help create a stable and legally sound environment for the growth of cryptocurrency and fintech businesses.

Sources:

Share:

More Posts