The lawmakers of Costa Rica are making moves in a bid to transform the way the country sees and deals with digital currencies. The critical piece to this puzzle is completely removing all taxation surrounding digital assets in the country, including BTC, making this destination a potential crypto-paradise of the future.
Cryptoassets Market Law
Johana Obando, the Deputy of the Legislative Assembly of Costa Rica, presented a plan to the Congress of Costa Rica to remove taxes from digital assets in a bill. The bill was titled the Cryptoassets Market Law, or MECA. Within this bill, Obando noted that this incoming legislation had the power to “protect individual virtual private property, to the self-custody of crypto-assets and decentralization.” Harnessing the power of decentralized technology has already been shown to promote enhanced security for the users surrounding money of the future.
Obando wrote on Twitter claiming that she was going to be presenting a bill that would grant legal certainty to Fintech, and companies of a similar nature in Costa Rica, helping to deliver a more enhanced digital economy and the use of crypto assets, such as Bitcoin, Ethereum, and Litecoin. If this proposition was passed into law, MECA would allow digital assets to thrive further than ever in the country without causing any significant distortion to the existing central bank but exist alongside in “perfect harmony.” The content within the bill clearly explains what should be constituted as virtual currency and will ban the government from adding any taxes on them.
The MECA tax regime aims to protect investors from paying extra capital on taxes when digital assets are used to pay for services and goods, along with insulating investors with holdings in cold storage. The bill will cover miners as assets mined in the country will no longer be subject to additional tax payments.
This being said, any gains that come from investing and trading in digital assets will be subject to income tax under this bill. The bill has received much praise, with support from Costa Rican Congressmen Jorge Dengo, Luis Diego, and the like, but the nature of the resistance caused by the legislation still needs to be clarified.
Digital Asset Taxation Around The World
This sudden move to remove taxation from virtual assets has been constructed to come closer to El Salvador’s path, noting BTC as a legal tender. The development of virtual currency taxation has seen different ideals and growth from varying jurisdictions worldwide, making this idea nothing new but something people are still trying to figure out the best process. Some regions have made this tax regime law, while others have developed specific rulings to reduce the level of interest that virtual assets bring.
A country that holds one of the most stringent tax policies for digital currencies in India, with the Indian Finance Minister levying a 30% tax, 4% on realized profits, and a potential surcharge application. However, countries like Portugal, which has almost zero taxes, are considering introducing levies on this digital industry. In the West’s largest law-enforcing bodies, the United States and European Union, it is the convention that taxes are to be paid on any gains that have been made from investing or trading digital assets when the time comes they are sold.
What are Digital Assets?
According to the most basic definition, a digital asset is anything that exists in a digital format. Historically, ‘digital assets’ referred to media formats previously considered physical items, such as photos, videos, and documents. Today, such media formats are created, stored, and shared digitally.
However, since we have been introduced to the world of blockchain technology, the idea of ‘digital assets’ has grown significantly to include a broader range of investable assets:
● Cryptocurrencies
● NFTs
● Tokenized Real Estate
● Asset-Backed Tokens
As the world has started to adopt this new form of blockchain-backed digital asset, the definition of digital assets has shifted to being primarily focused on assets that have the backing of a distributed ledger, compared to a digital media file. Many assets, such as commodities and real estate, can be tokenized to become digital assets created for trading, opening an entirely new perspective of what we deem to be the digital asset marketplace.
A new opportunity exists for investors in the financial services industry due to the emergence of investable digital assets backed by technologies capable of transforming businesses and investments.
The change in the law would be very beneficial for many businesses looking for a more secure approach to building their finances through blockchain technology. As more development is seen, a law change regarding the taxation of crypto will likely benefit Costa Rica’s economy in a big way.
