The blockchain buzz has not been without its fair share of controversy and varied opinions. Investor giants like Charlie Munger and Warren Buffett (to name two) have publicly stated that they do not believe the industry’s support is justified and shown scepticism over its total lack of actual intrinsic worth. Though some might argue the industry to be nothing more than a gamble and ticking timebomb for regulators and investors, investors like Robert Kiyosaki view it as more bullish.
The blockchain market is uncertain. A frequently asked question is the tax implication and rules regarding blockchain. In brief, the tax implications involved in blockchain developments will not be discussed at length though it is worth noting that, in terms of the South African Revenue Services (SARS’s) regulations on blockchain currencies, the following regulations apply –
- “SARS will continue to apply normal income tax rules to cryptocurrencies and will expect affected taxpayers to declare cryptocurrency gains or losses as part of their taxable income;
- The onus is on taxpayers to declare all cryptocurrency-related taxable income in the tax year in which it is received or accrued. Failure to do so could result in interest and penalties;
- Taxpayers who are uncertain about specific transactions involving cryptocurrencies may seek guidance from SARS through channels such as Binding Private Rulings (depending on the nature of the transaction).”
There are no reporting requirements under the Financial Intelligence Centre Act, 2001 (Act No. 38 of 2001) (hereafter referred to as FICA) for blockchain in crypto assets. FICA defines “cash” in its interpretations clause as – “(a) A coin and paper money of the Republic or of another country that is designated as legal tender and that circulates as, and is customarily used and accepted as, a medium of exchange in the country of issue; (b) travellers’ cheques.”
Accordingly, cryptocurrency does not fall under this definition and thus reporting is not necessary. Secondly, since it is not possible to transfer crypto assets via EFT, the reporting obligations in respect of crypto in this regard is also not necessary (S31 of FICA).
What is noteworthy is that in terms of South African regulations of cryptocurrencies, the relevant body of authority which individuals and companies will deal with is the Intergovernmental Fintech Working Group (IFWG) which comprises of members of the South African Reserve Bank, National Treasury, the Financial Sector Conduct Authority (FSCA), the Financial Intelligence Centre and SARS. The latest is that the IFWG released the Position Paper on Crypto Assets in April 2020. The aim of this group is to regulate and bring more certainty to the crypto affairs in South Africa. Given that this group comprises important financial institutions and gatekeepers, it would be in the best interests of individuals, and more specifically subsidiary and holding companies to fulfil the groups’ requirements and be in contact with them throughout the process of starting a subsidiary in South Africa. A second group, namely, the Crypto Assets Regulatory Working Group (CARWG) was established to review the position on crypto assets and consider public policy.
Neither of these groups, have to date, released any further information on the formation of subsidiary crypto companies, nor did they discuss the topic in their January 2019 joint consultation paper (known as the “Consultation Paper on Policy Proposals for Crypto Assets”) as there has likely not been many (if any) businesses (whether local or international) seeking to form subsidiary companies in South Africa which deals with crypto assets.
If you need any assistance on the legal, tax and financial aspects of blockchain investment, do not hesitate to contact us to assist you.