Navigating the Uncertainties: Australia’s Cryptocurrency Taxation Guidelines in the DeFi Landscape

Introduction

Australia's cryptocurrency taxation landscape has recently witnessed a surge in complexity with the

Australian Tax Office (ATO) issuing new guidelines on decentralized finance (DeFi) activities. While the guidance aims to provide clarity, concerns have been raised within the legal community about its non-binding nature and the resulting confusion among investors. In this article, we explore the intricacies of the ATO’s guidelines, highlighting the challenges they pose and the need for a more definitive approach.

The Challenge of Non-Binding Guidance

The ATO’s recent guidance, marked as “non-binding” rather than a binding public ruling, has sparked considerable confusion within the Australian crypto community. People are raising concerns about the lack of clarity regarding what triggers a capital gains tax (CGT) event in DeFi transactions. Founder Harrison Dell, a former ATO auditor, advocates for a public ruling to provide a solid foundation for tax compliance, citing the current ambiguity as a potential deterrent to voluntary compliance within the crypto community.

Ambiguities Surrounding DeFi Activities

The uncertainties surrounding DeFi taxation become more pronounced when examining specific activities, such as transferring funds via a bridge or staking Ether on a liquid staking protocol like Lido. Despite attempts to seek clarification from the ATO, direct answers remain elusive. Dell, drawing on his experience, suggests that certain on-chain activities are more likely to trigger a CGT event, emphasizing the need for clear and concise guidance from the tax authorities.

The ATO’s Position on Wrapped Tokens

A significant development in the ATO’s stance is the imposition of capital gains tax on wrapped cryptocurrency tokens. The ATO clarified that wrapping or unwrapping tokens, regardless of their price at the time, will be subject to CGT. This move has raised concerns among crypto investors, with Chloe White of Genesis Block and Blockchain Australia asserting that the ATO’s approach breaches the technology neutrality principle, impacting the financial future of young Australians.

Insight into ATO’s Position on DeFi Tax Implications

The ATO’s detailed guidance on DeFi activities sheds light on potential taxable events. Engaging in DeFi transactions, exchanging crypto for wrapped tokens, and earning DeFi rewards all fall within the purview of CGT events. Practical examples provided by the ATO include lending on DeFi platforms, contributing to liquidity pools, and converting crypto into wrapped tokens, each triggering a CGT event with tax implications based on the value at the time of the transaction.

Navigating the Complexities

Given the intricacies of DeFi transactions and their tax implications, the importance of maintaining detailed records cannot be overstated. While the ATO’s guidance serves as a valuable resource, seeking professional advice is recommended to ensure compliance with the latest tax laws and regulations. The uncertainty surrounding these matters, as highlighted by Dell, may persist until a public ruling is issued or new legislation is proposed to fill the existing gaps.

Conclusion

Australia’s evolving cryptocurrency taxation guidelines, particularly in the realm of DeFi, present challenges that demand attention and careful consideration. As investors and traders navigate this complex landscape, staying informed, seeking professional advice, and advocating for clearer and binding guidance remain essential for fostering a compliant and thriving crypto community in Australia. As the regulatory environment matures, opportunities for a compliant and thriving crypto community in Australia may become more apparent.


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Understanding Corporate Taxation in the UAE: Key Considerations

UAE is a popular jurisdiction for crypto business and that is why we are writing about its taxation. On February 7, 2023, Dubai finally adopted crypto regulation.

Accordingly, today there is a regulator called VARA, which enables companies to obtain licenses and issue tokens under their strict control. Considering the fact that Dubai is actually today also a hub for development, in particular, for NFT marketplaces and metaverse service providers.

And, in general, as a company in the field of developing solutions for blockchain, we have come to the conclusion that this jurisdiction is interesting not only from the point of view of regulation, but also from the point of view of taxation. The tax has appeared, we are ready to talk about it and share with the business interesting insights that we learned after studying the legislation.

The United Arab Emirates (UAE) stands as an economic powerhouse in the Middle East, renowned for its rapid development and thriving business environment. A key driver of its success is the favorable tax regime, which has lured countless domestic and international businesses to its shores. As an integral part of the Gulf Cooperation Council (GCC), the UAE has continually adapted its corporate tax policies to align with global economic trends while preserving its reputation as a tax-friendly jurisdiction. In this comprehensive article, we delve into the intricate world of UAE corporate taxation, offering invaluable insights into the tax structure, regulations, incentives, and the ever-evolving landscape that businesses need to navigate to thrive in this dynamic economy. 

Introducing Corporate Taxation in the UAE

In January 2022, the Ministry of Finance disclosed its intention to implement a federal Corporate Tax (CT) on the earnings generated by businesses. In accordance with UAE Federal Decree-Law No. 47 of 2022 on taxation of corporations and businesses (the “Corporate Tax Law”), businesses will become subject to UAE Corporate Tax from the beginning of their first financial year that starts on or after 1 June 2023. The CT will be enforced uniformly across all emirates.

By implementing Corporate Tax (CT) in the UAE seeks to:

  • Strengthen its status as a prominent global center for business and investment.
  • Expedite its progress and transition towards accomplishing strategic goals.
  • Reiterate its dedication to complying with international tax transparency standards and preventing detrimental tax practices.

Scope of CT Application

Corporate tax represents a direct taxation mechanism imposed on the net income or earnings generated by corporations and various other entities as a result of their business activities. According to the recent legislative updates, CT will apply to:

  1. all businesses and individuals conducting business activities under a commercial license in the UAE
  2. free zone businesses (The UAE CT regime will continue to honor the CT incentives currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business set up in the UAE’s mainland.)
  3. Foreign entities and individuals only if they conduct a trade or business in the UAE in an ongoing or regular manner
  4. Banking operations
  5. Businesses engaged in real estate management, construction, development, agency and brokerage activities.

Exemptions from CT

Below are the rules regarding  corporate tax exemptions: 

  • Businesses engaged in the extraction of natural resources are exempt from CT as these businesses will remain subject to the current Emirate level corporate taxation.
  • Dividends and capital gains earned by a UAE business from its qualifying shareholdings will be exempt from CT.
  • Qualifying intra-group transactions and reorganizations will not be subject to CT, provided the necessary conditions are met.

Furthermore, Corporate Tax (CT) will not be applicable to:

  • an individual earnings salary and other employment income, whether received from the public or the private sector
  • interest and other income earned by an individual from bank deposits or saving schemes
  • a foreign investor’s income earned from dividends, capital gains, interest, royalties and other investment returns
  • investment in real estate by individuals in their personal capacity
  • dividends, capital gains and other income earned by individuals from owning shares or other securities in their personal capacity.

CT Rate

According to the Ministry of Finance, the corporate tax rates stand as follows:

  • 0 per cent for taxable income up to AED 375,000 (EUR 96,440)
  • 9 per cent for taxable income above AED 375,000  (EUR 96,440) and
  • a different tax rate (not yet specified) for large multinationals that meet specific criteria set with reference to ‘Pillar two’ of the OECD Base Erosion and Profit Shifting Project.

Federal Tax Authority (FTA) will oversee the administration, collection and enforcement of the CT. FTA  offers additional resources and instructional materials regarding  corporate tax , as well as instructions on registration and filing tax returns, accessible on its website. 

Taxation Basis Classification and Conditions for Corporate Taxation

In accordance with the tax regimes observed in most nations, the Corporate Tax Law imposes taxes based on both residence and source criteria. The applicable tax basis hinges on the categorization of the Taxable Person.

A “Resident Person” is liable for taxation on income originating from both domestic and foreign sources (i.e., residence basis). Conversely, a “Non-Resident Person” is subject to taxation solely on income generated from sources within the UAE (i.e., source basis).

Residency for Corporate Tax purposes is not ascertained by an individual’s actual place of residence or domicile; rather, it is determined by specific criteria outlined in the Corporate Tax Law. If an individual fails to meet the prerequisites for classification as either a Resident or a Non-Resident person, they will not be considered a Taxable Person and, consequently, will not be subject to Corporate Tax.

What is the purpose and scope of the new corporate tax regime?

The recent news signifies a significant change in the UAE’s taxation landscape, which has long been a magnet for global businesses due to its tax-free status. Here is key takeaways for businesses to consider:

Tax Rates and Thresholds: The UAE’s new corporate tax regime sets the statutory tax rate at 9% for taxable income exceeding 375,000 UAE dirhams (approximately $102,000). However, businesses with taxable income below this threshold will not be taxed. This exemption is designed to support small businesses and startups, reflecting the government’s commitment to fostering entrepreneurship. The Ministry of Finance has asserted that this tax framework will position the UAE’s corporate tax system among the most competitive in the world.

Exemptions for Foreign Investors: Notably, the corporate tax will not be imposed on foreign investors who do not engage in business activities within the country. This move ensures that international investors who use the UAE as a regional hub for their global operations will not be affected by the new tax.

Continued Benefits for Free Zone Businesses: Thousands of businesses currently operate within the UAE’s free zones, which have traditionally enjoyed benefits such as zero taxes and full foreign ownership. The Ministry of Finance has indicated that these free zone businesses can still enjoy corporate tax incentives, provided they meet the necessary requirements. However, specific details about these requirements were not elaborated upon.

Compliance and Transparency: The government aims to make the corporate tax system business-friendly by aligning it with global best practices and minimizing compliance burdens. Corporate tax will be applied based on the profits reported in the financial statements of UAE businesses, following internationally accepted accounting standards. There will be limited exceptions and adjustments, with the primary focus on fairness and transparency.

Impact on SMEs and Startups: While the introduction of corporate tax is not surprising given international trends, some SMEs and startups may be concerned about the potential impact. Some business owners have pointed out that the tax may deter entrepreneurs, especially due to the upfront fees and the prospect of taxation once the business becomes profitable. However, it’s worth noting that the proposed tax rate remains relatively low compared to other low-tax jurisdictions worldwide.

Global Alignment and Digitalization: The UAE government’s decision to introduce corporate tax is motivated by its desire to align with global efforts to combat tax avoidance. Additionally, it aims to address challenges arising from the digitalization of the global economy. Notably, the UAE does not levy personal income taxes, and this corporate tax is seen as a way to contribute to international tax compliance while maintaining the attractiveness of the UAE as a business destination.

In summary, the UAE’s decision to implement a corporate tax represents a significant shift in its economic policies. While it may raise concerns among some businesses, especially SMEs and startups, it is part of the UAE’s commitment to international tax standards and efforts to adapt to the evolving global economic landscape. The country’s move towards taxation underscores the need for businesses to carefully assess their financial strategies and long-term plans in the changing business environment.

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.


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Brunei: small but rich sultanate

Brunei Darussalam (Brunei) is a small state on the island of Borneo in Southeast Asia.

Although Brunei has a population of just over 430,000, it is still one of the smallest nations in the world, but has a thriving economy that is ripe for business opportunities. In this article we will explore the advantages and challenges of doing business in Brunei, taxation, and company formation requirements.

Advantages of doing business in Brunei

  1. Strategic location – Brunei is located in the heart of Southeast Asia, making it an attractive hub for businesses looking to expand in the region. Also its proximity to major markets such as China, Japan and Australia, coupled with its developed infrastructure and transport network, makes it an ideal location for business.
  2. Stable political environment – the country exists as a constitutional monarchy and the government has consistently pursued pro-business policies. The political stability, coupled with a low crime rate, makes the country an attractive destination for foreign investors.
  3. Favorable tax regime – Brunei has no personal income tax and the corporate tax rate is quite low at just 18.5%. This makes it an attractive destination for businesses looking to minimize their tax liabilities.
  4. Skilled workforce – Brunei has a well-educated and skilled workforce, with a literacy rate of over 95%. This is all thanks to the country’s strong education system with a number of universities and vocational schools, and an emphasis on lifelong learning. This means that businesses operating in Brunei can easily access a skilled workforce that is well-equipped to meet their needs.
  5. Ease of doing business – Brunei is ranked as one of the easiest places to do business in the world, according to the World Bank’s Ease of Doing Business Index. The country has streamlined its business registration process and has implemented a number of reforms to make it easier for businesses to operate.
  6. Popular areas for doing business in Brunei are mining (oil), tourism, e-commerce, telecommunications, services and light industry.
  7. English is a popular language for business and finance.
  8. Brunei has a well-developed infrastructure.

The challenges of doing business in Brunei 

  1. Limited market size – this is because Brunei has a population of just over 430,000 people. This means that businesses operating in Brunei may face limited growth opportunities as the domestic market is relatively small.
  2. Limited diversity – Brunei’s economy is heavily reliant on the oil and gas industry, which accounts for over 90% of its exports. This means that businesses operating in Brunei may be exposed to the volatility of the global oil and gas market.
  3. Limited human resources – despite the fact that Brunei has a strong education system, Brunei’s population is quite small and therefore the country may face a shortage of skilled workers in certain industries.
  4. Limited infrastructure – while Brunei has a well-developed infrastructure compared to other countries in Southeast Asia, there is still room for improvement. Businesses may face challenges with logistics and transportation, particularly in remote areas.

Taxation

There are no following types of taxes in Brunei

  1. income tax;
  2. inheritance tax;
  3. wealth tax;
  4. capital gains tax;
  5. value added tax;
  6. sales tax.

But there are types of taxes such as:

  1. Corporate tax – 18.5% for resident/non-resident companies, except those involved in oil operations (55%). 
  2.  Withholding tax – for non-residents: 
  • dividends – 0 %;
  • Interest, commissions, fees or other charges on loans or debts – 2.5%;
  • royalties or other one-off payments for the use of movable property – 10%;
  • fees for the use of, or the right to use, scientific, technical, industrial or commercial knowledge or information – 10%
  • fees for technical services – 10%;
  • management fees – 10%;
  • rent or other payments for the use of movable property – 10%.
  1. Export tax – 1%.

Prospects for it and crypto business 

Brunei has a small but growing IT industry, and there are opportunities for businesses looking to invest in the sector. However, it may not be the best offshore destination for businesses specifically focused on crypto due to the country’s conservative Islamic values and the government’s cautious approach to the technology.

In terms of IT business, Brunei has a well-educated and skilled workforce, and the government has made efforts to promote the development of the sector. 

The government has also implemented a number of policies and programs to support the growth of the IT sector, such as the establishment of the Brunei Economic Development Board (BEDB) and the Digital Economy Council. These bodies are responsible for promoting investment in the sector and supporting the development of local startups.

However, businesses looking to invest in the IT sector in Brunei may face challenges, such as the small market size and limited access to funding. The government has taken steps to address these issues, such as the establishment of a National Innovation System and the provision of funding through the BEDB, but it may take time for these initiatives to have a significant impact.

In terms of crypto business, Brunei’s government has taken a cautious approach to the technology. The country is a member of the Asia-Pacific Group on Money Laundering and has implemented strict anti-money laundering and counter-terrorist financing measures. The government has also issued warnings to the public about the risks of investing in cryptocurrencies.

Furthermore, Brunei is an Islamic country, and Islamic law prohibits riba (in Islam) or usury, which refers to the charging of interest. This could pose a challenge for businesses looking to operate in the crypto sector, which often involves lending and borrowing with interest.

Requirements for a company

It should be noted that Brunei cannot establish an international company and as from 2017 foreign beneficiaries can only establish a local company in the form of Public Company (Berhad) (PC (Bhd.))/Private Company (Sendirian Berhad) (PC (Sdn. Bhd.)) or a foreign company branch in the form of Foreign Company (FC), which once incorporated has the same powers as the local company.

PC (Sdn. Bhd.) – established in the form of LLC; must have at least 2 and not more than 50 shareholders, not younger than 18 years old; at least 2 directors (1 must be resident); registered office in Brunei; the most common capital structure – 2 ordinary shares of BND 1 each.

PC (Bhd.) – established in the form of LLC; must have at least 7 shareholders and can be over 50 shareholders, not younger than 18 years old; at least 2 directors (1 must be resident); registered office in Brunei; each shareholder must have one share, which is equal to BND 1.

FC – a branch of a foreign company incorporated in Brunei as an addition to its parent company incorporated elsewhere; must have a registered office in Brunei and appoint a local agent; once incorporated, receives the same powers and authority as a local company; must file a copy of the annual financial statements of the head office annually with the Registrar of Companies and prepare branch accounts for tax computation.

Results 

Overall, Brunei is an attractive destination for businesses looking to expand in Southeast Asia. Its strategic location, stable political environment, favorable tax system, and skilled workforce make it an ideal location for businesses looking to access major markets in the region. However, businesses should also be aware of the challenges they may face, such as the limited market size, limited diversity, limited human resources, and limited infrastructure. By carefully weighing the benefits and challenges of doing business in Brunei, businesses can make informed decisions about whether or not to invest in the country. Navigating the opportunities and challenges of doing business in Brunei can be complex, but our law firm has the expertise and experience to guide you through the process and help you make informed decisions about investing in the country.

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.


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France – innovations and high-tech country

Brief description of France

France is a country located in Western Europe, is a member of the G7 and G20.

France is also a world leader in innovation, modern technology and research and development, which is also facilitated by state policy and a highly educated workforce.

In addition to the positive dynamics of the development of modern technologies, France also legalized cryptocurrency. The state is also positive about cryptocurrencies, but only if they are regulated.

State policy in the field of innovation

In 2019, France changed its tax system in relation to intellectual property, which created a favorable regime – Intellectual property box (IP box) or “Patent Box”, “Knowledge Development Box”.

The IP box regime in France is governed by art. 219 and Art. 238 of the Tax Code.

Companies can opt for an efficient tax regime and apply taxation at a rate of 10% on net income from granting licenses to operate the following intangible assets:

  • Patents, utility certificates and supplementary protection certificates attached to the patent;
  • Variety certificates of plants;
  • Copyrighted software;
  • Industrial production processes that:
    • represent the result of research activities;
    • are an important accessory to use the invention of patents;
    • are subject to a single license for use with the invention;
  • Inventions whose patentability has been confirmed by the National Institute of Industrial Property.

Sophia Antipolis Technology Park plays a key role in the development of innovative technologies. The main investor in the establishment of Sophia Antipolis was the French government. Currently, the walls of the park unite the largest manufacturers of modern technologies, including such holdings as Intel, IBM, Air France and Orange.

Also, another argument in favor of setting up a business in France is that it has the largest startup campus in the world – Station F. This campus brings together the government, investors and startups, making it easier to get information and recommendations for those who want to open a business and legal faces in the country. 

Companies registered in France can submit their startups to Station F, where there are always public or private investors for potential products can be founded.

Cryptoregulation

In order to adapt to the latest market trends and keep pace with the development of technology, the French state has decided to create a legal framework for the regulation of cryptocurrencies and related issues (ICOs, tokens, etc.). This task was implemented within the framework of the Law on Enterprise Growth and Transformation.

DASP stands for Digital Asset Service Providers. The French Monetary and Financial Code (MFC) has established a list of nine “digital asset services”. They are broadly based on investment services subject to European financial regulation and accurately reflect the activities and operations that DASPs carry out as defined by the FATF.

Article L. 54-10-2 of the MFC defines “crypto asset services” as:

  1. custody of digital assets on behalf of the client;
  2. the service of buying or selling digital assets as legal tender;
  3. service of exchanging digital assets for other digital assets;
  4. receiving and transmitting orders for digital assets, i.e. receiving and transmitting orders for the purchase or sale of digital assets on behalf of a client;
  5. other crypto asset services such as:
    1. portfolio management of digital assets;
    2. advising subscribers to digital assets;
    3. underwriting of digital assets;
    4. guaranteed placement of digital assets;
    5. unsecured placement of digital assets;
    6. operation of a platform for trading digital assets

DASP regulation is based on two modes:

  • mandatory registration of service providers 1 – 4, and
  • an additional (optional) license from any digital asset service provider that requests it and meets the basic requirements.

To obtain an additional license for DASPs that provide services for cryptocurrencies 1-4, mandatory registration is required.

Taxation

Individuals (French citizens, foreigners who are domiciled in France) are subject to personal income tax (“PIT”) on their worldwide income, unless otherwise specified in a double tax treaty. Non-residents of France pay personal income tax only on income received from a French source.

PIT – paid at a progressive rate from 0% to 45%. When calculating the personal income tax rate, the marital status of the taxpayer is taken into account, depending on which a coefficient from 1 to 6 is assigned, after which the personal income tax rate is determined.

Since January 2022, France has set a flat corporate income tax (“CIT”) of 25%.

From January 2021, a reduced CIT rate of 15% has also been introduced. The reduced CIT rate applies to small companies on the first EUR 38,120 of taxable income.

France has a well-developed social security system, and hence social contributions. Compared to other European countries, the rates are quite high, namely employee contributions: from 21.01% to 26.86%, employer contributions: from 30% to 45%.

Value added tax – basic – 20.6% applies to most goods and services, and there is also the first reduced – 10%; second reduced – 5.5%; the third is reduced – 2.1%, which is applied to essential goods and basic services.

Summary

France is a country with a stable economy and the sixth status in the world in terms of GDP, so a fairly large number of businesses strive to get registered in this country. Also in France, there is a sufficient number of highly educated employees in various fields of activity, which is also a plus when establishing your own company.

The government is fully supporting the development of high technologies in the country, as evidenced by such projects as Sophia Antipolis and Station F.

A properly selected tax regime for business, which is aimed at the development of modern technologies, will help to optimize the taxation of such companies as much as possible.

An important point is also the presence in France of the IP box mode, which attracts many IT specialists.

In addition, France is one of the leaders in Europe in online administration. Most government services are available on the official website.

Cryptocurrency regulation in France creates a favorable atmosphere for the development of crypto exchanges and other innovative platforms that can operate throughout Europe.

If you decide to register your own company in France or get the status of an entrepreneur, Manimama is ready to take on all the legal work.

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation. 


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UAE Tax regime

The United Arab Emirates (UAE) is widely known as the financial and business hub of the Middle East.

The absence of a federal income tax makes the jurisdiction even more attractive for doing business and working. This article details what taxes still need to be paid as an individual or entity residing in the United Arab Emirates.

Income Tax

There are no taxes on personal income and capital taxes in the UAE. The UAE does not charge personal income tax, and this applies to both UAE citizens and expats. For foreign employees, the same rules apply here as for locals when it comes to income tax. Accordingly, there is no obligation to file a tax return. The absence of income tax applies to both freelancers and self-employed individuals residing in the Emirates.

Corporate Tax

Corporate tax is a form of direct tax levied on the net income or profits of corporations and other organizations from their business. However, it levies corporate tax on oil companies and foreign banks.

In January 2022, the Ministry of Finances announced the introduction of a federal corporate tax (CIT) on the net income of businesses. The tax will take effect either from July 1, 2023 or January 1, 2024, depending on the fiscal year the business follows. Corporate tax will apply in all emirates.

Corporate Tax applies to:

  • all legal entities and individuals carrying out commercial activities under a commercial license in the UAE;
  • free zone businesses (UAE tax regime will continue to honor the corporate tax exemptions currently offered to free zone businesses that meet all regulatory requirements and do not conduct business in the UAE mainland);
  • Foreign legal entities and individuals only if they conduct trade or business in the UAE on a permanent or regular basis;
  • Banking operations;
  • Enterprises engaged in real estate management, construction, development, agency and brokerage activities.

Corporate Tax Exemption applies to:

  • Businesses engaged in the extraction of natural resources are exempt from corporate tax as these businesses will continue to be subject to the current corporate taxation at the Emirates level;
  • Dividends and capital gains received by a UAE business from its respective shareholdings will be exempt from corporation tax;
  • Qualifying intra-group transactions and reorganizations will not be subject to corporate tax if the necessary conditions are met.

In addition, corporation tax will not apply to:

  • personal wages and other income from employment, whether earned in the public or private sector;
  • interest and other income received by an individual from bank deposits and savings schemes;
  • foreign investor income derived from dividends, capital gains, interest, royalties and other investment income;
  • investment in real estate by individuals in their personal capacity;
  • dividends, capital gains and other income received by individuals from holding shares or other securities in their personal capacity.

With a standard statutory tax rate of 9% and a zero tax rate on taxable income up to AED 375,000 (EUR 93,836) to support small businesses and start-ups, the UAE corporate tax regime will be one of the most competitive in the world.

Excise tax

Excise taxes are imposed on certain goods that are generally harmful to human health or the environment, such as carbonated drinks, energy drinks, tobacco and tobacco products. A detailed list of goods and tax rates can be found in the Decree of the Cabinet of Ministers No. 52 of 2019 “On excise goods, excise rates and methods for calculating excise prices”.

VAT

Value Added Tax (“VAT”) in the UAE applies to most supplies of goods and services, including imports of goods and services. The value added tax rate is 5 percent and is levied on most goods and services.

The obligation to register for VAT does not arise as long as the sales turnover in the country is below the registration threshold, which in the UAE is AED 375,000 (EUR 93836). Companies that reach the AED 187,500 (EUR 46,918) threshold can voluntarily join the registry.

Registration as a VAT taxpayer is required in the following cases:

  • There is reason to believe that the taxable turnover in the next 30 days will exceed the registration threshold (for example, a contract has been concluded);
  • at the end of the month, the taxable turnover for the previous 12 months actually exceeded the registration threshold;
  • the company receives services subject to reporting under the reverse charge method for an amount above the registration threshold.

Registration with the UAE Federal Tax Administration and obtaining a Tax Reference Number (TRN) – the company’s tax number – takes an average of 20 working days. After registering with the Federal Tax Office and obtaining a VAT number, the company must quarterly (and for companies with an annual turnover of more than AED 150,000,000 (EUR 37534303) monthly) prepare and submit a VAT return, as well as pay the resulting VAT no later than 28 days after the end of VAT period.

Profit tax in the Sзecial Economic Zones

Companies registered in the free zones of the UAE are exempt from income tax, capital gains tax, property tax and other taxes, except for VAT.

Other applicable taxes and fees.

  • Withholding tax.

There is no withholding tax in the UAE.

  • Stamp duty.

A Real Estate Transfer Fee (hereinafter referred to as “RETF”) is applied to real estate transfers at rates that vary by emirate. In Dubai, the total RETF is 4% and is divided equally between the seller and the buyer. Rates in most other Emirates are lower than in Dubai.

  • Gift or inheritance tax.

There is currently no inheritance or gift tax on individuals in the UAE.

  • Social Security.

The UAE has a social security regime that only applies to qualified employees of the UAE and other national employees of the Gulf Cooperation Council (hereinafter referred to as “GCC”).

In accordance with guidance from the UAE General Authority for Pensions and Social Security, this list includes all national employees working in federal ministries and departments, in local government departments in each of the Emirates and UAE nationals working in UAE private sector companies. This also includes employees who are citizens of GCC countries, namely Bahrain, Qatar, Kuwait, UAE, Oman and Saudi Arabia.

Citizens of non-GCC countries are not subject to social security in the UAE. Social security contributions are calculated at a rate of 17.5% of the employee’s gross remuneration as stipulated in the employment contract. Social security obligations also apply to employees of companies and branches registered in the FEZ. Of the 17.5% from the whole sum, 5% is paid by the employee and the remaining 12.5% is paid by the employer. In the emirate of Abu Dhabi, a higher rate of 20% applies (where the employer’s contribution is 15%). For other GCC nationals working in the UAE, social security contributions are determined in accordance with their country’s social security rules. The employer is responsible for withholding and transferring social security contributions to employees.

Double tax Avoidance Agreements

The UAE has entered into 94 agreements with other countries to avoid double taxation of investments abroad. A document with a complete list of countries can be found at this link.

In conclusion, it is worth noting that the proposed corporate tax rate in the UAE will be one of the lowest in the world and is still attractive for foreign investment. The company will have enough time to prepare for the introduction of corporate tax, and additional information on the corporate tax regime in the UAE will be provided closer to mid-2022 to help businesses prepare and fully comply with the new requirements.

The content of this article is intended to provide general guidance on the subject and not legal advice.


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Taxation of crypto staking in the United States

Thanks to the growing number of virtual asset transactions, the notion of “crypto-staking” has become more familiar for tax affairs.

Staking can be described as getting rewarded for taking part in the blockchain system, in which users validate crypto transactions by staking their coins, by monetizing more coins by using virtual currencies they possess.

Which is to say, stakers receive rewards from cash in savings accounts, the same as getting dividends from stocks. Although from US federal law perspective, digital currencies are treated differently than fiat currencies and stocks for income tax purposes.

Personal Income Tax

With reference to the Internal Revenue Service (hereinafter: – “IRS”, convertible virtual assets are treated as property for federal income tax purposes, thus general taxation rules apply to such property transactions. According to the Internal Revenue Code, the stock is relevant to corporate shares. As convertible virtual currency is not an interest of the company, it won’t be referred to as stock and neither as security and debt instruments under income tax purposes. However, for the purposes of non-income tax purposes, some categories of virtual assets might be treated as securities, meanwhile there is a bill proposing a treatment of digital assets as “covered securities” in terms of information reporting hence brokers and exchanges will be required to report original sale price in order to calculate capital gain and loss.

Taxation of mining

Thus far, there is no particular official instruction on taxation of staking transactions, while IRS Notice 2014-21 stipulates that a taxpayer who engaged in virtual asset mining is subject to tax on the new virtual currency received from those activities as ordinary income. Likewise, Revenue Ruling 2019-24 states that “a hard fork followed by an airdrop results in the distribution of units of the new cryptocurrency to addresses containing the legacy cryptocurrency.” Prior rulings might be interpreted that the IRS shall view crypto staking benefits analogous to an ordinary income provided that the taxpayer disposes of new coins at the time they are generated.

Nevertheless, in the recent case of Jarrett v. United States established that cryptocurrency mining is not a taxable transaction because it is the creation of property, much like a baker making a cake, plaintiff persuaded the federal court in seeking a refund from the Internal Revenue Service, claiming that taxpayer is not subject to tax until she/he sells or exchanges the new tokens.

Application of Security Laws

The analysis under SEC v. W.J. Howey Co. is required to determine if the cryptocurrency staking service provider qualifies as an investment contract. Howey test sets out the following factors:

  1. an investment of money;
  2. in a common enterprise;
  3. with the expectation of profit;
  4. based solely on the efforts of others.

Evidently, the aforementioned four criteria must be fully met in case of staking of cryptocurrencies, for it to qualify under securities laws and tax principles, which in most of the time, crypto-staking do not fulfill the Howey identified criterias.

Moreover, staking service providers also fail to advance the intent of securities laws. Pursuant to Securities Act of 1934, SEC was granted an authorisation to monitor public companies, with the aim to facilitate investors to make informed decisions, based on the comprehensive and reliable information which has been made available to them. Whereas, in an accessible proof-of-work network, there is already enough transparency and/or basic data asymmetries formed by a staking service arrangement. Hence, it is enough for customers to make informed judgments with respect to selecting providers.

There isn’t specialized IRS guidance on crypto staking. Yet, IRS guidance on mining insists that due to similarities to mining, crypto staking should still be implied to taxation. Following the IRS Notice 2014-21 (the guidance on mining income), earnings from crypto staking is taxable as an ordinary income at its decent market price on the date of receipt. Capital gains tax on increase in value would apply in cases when the taxpayers sell digital assets received as a staking reward. The gains will be predicated upon the holding period of assets, namely, the shorter term gains are subject to ordinary income tax rates, long term gains on the other hand, might receive discounted rates.

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.


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Taxation of cryptocurrency transactions in Poland

Despite the growing nature of virtual currencies - being the digital representations of value and utilities as a medium of exchange, they are still not officially considered to be legal tender in many countries across the globe, including in Poland.

But that vague regulatory schemes didn’t stop their extensive use, so the officials are trying to address the legal gaps to minimize the risks and are regarding them as a potential means to increase central government revenue by introducing relevant taxes.

In 2019, the legislative body eliminated doubts by introducing statutory measures to address the taxation regime of profits made from digital currencies. The article analyses the amended legislative acts, specifically Personal Income Tax Act (hereinafter “PIT” Act); Tax on civil law transactions Act (hereinafter: “PCC Act”) and Tax on goods and services Act (hereinafter: – “VAT Act”) and tax implication over transactions using cryptocurrencies.;

Personal Income Tax

Pursuant to article 10 of the PIT act, revenues obtained from trading cryptocurrencies are classified as the source of revenues from:

  • cash capitals and property rights, including the sale of property rights;
  • non-agricultural economic activity: if the cryptocurrency is traded as part of an activity that meets certain conditions, ​​including: it is of a profit-making nature, it is conducted on its own behalf by the taxpayer, in an organized and continuous manner (and the conditions specified in Art.5b (1) of the PIT Act are not met).

Trading cryptocurrencies generates income, in particular when:

  • selling cryptocurrencies (converting cryptocurrencies into traditional currencies, e.g. zlotys (PLN), euro (EUR), US dollar (USD),
  • exchanging cryptocurrency for another cryptocurrency, for a good or a service. The exchange of cryptocurrencies should be treated as a form of its sale for consideration, similar to the exchange of any other property rights, e.g. receivables.

The income from the property rights referred to in art. 18 of the PIT Act arises when money (traditional currency), other cryptocurrency, goods or services are provided to the taxpayer. While the income from the business activities is considered to be amounts due, even if they have not been actually received. At the same time, the date on which the income from business activity arises is the date of sale of the property right – i.e. the date of sale or exchange of a given cryptocurrency – no later than the date of invoice or payment of the amount due.

Income tax rates

Income from cryptocurrency turnover qualifies for:

Tax-reducing amount, mentioned in the tax rate table above is deducted in the annual calculation of the tax and is estimated as following:

  • revenues from non-agricultural business activities are combined with other income from this source of income. Then the income (loss) on this account should be reflected in the tax declaration:

a) PIT-36, if the form of taxation has been chosen according to general principles, the income will be taxed according to the tax scale (above) as set out in article 27 of PIT;

b) PIT-36L, if the 19% flat tax rate was selected for this source of income.

There is no need to pay tax on cryptocurrencies throughout the year, in particular sales related taxes. Taxes related to cryptocurrency are settled only at the end of the year as shown in the annual declaration and only the annual tax on all settlements is paid.

Tax on civil law transactions

The contract for the sale and exchange of cryptocurrency, constitutes as property law, thus is subject to tax on civil law transactions. In conformity with article 7 of the PCC act, as regards sales contract, the obligation to pay this tax in the amount of 1% of the market value of the property right acquired in the cryptocurrency sold – applies to the buyer. In the case of an exchange agreement, the obligation to pay tax – in the amount of 1% of the market value of the property right, on which the higher tax is due – applies jointly and severally to the parties to the transaction.

Pursuant to art. 2 point 4 of the PCC Act, contracts for the sale or exchange of cryptocurrencies subject to value added tax (hereinafter:- “VAT”) are excluded from taxation of civil law transactions – to the extent that it is subject to VAT or if at least one of the parties to the transaction is exempt from VAT for this activity.

Value Added Tax

In line with article 8 of the Act on tax on goods and services, activities in the field of purchase and sale of virtual currencies are subject to VAT as a paid provision of services classified as electronic services, and therefore should be subject to VAT at the rate of 23%. However, for VAT purposes, the concept of currencies used as legal tender also includes the so-called cryptocurrency consistent with the norm Art. 43 sec. 1 point 7 of the VAT Act and CJEU judgment in Hedqvist C-264/14 case from October 2015. Meaning that, trading in virtual currency is exempt from this tax – in practice, anyone who receives income from trading in cryptocurrencies does not have to pay VAT, provided that the transaction is made in Poland.

This means that the sale and exchange of a cryptocurrency for traditional currency and vice versa, as well as the exchange of one cryptocurrency for another, as long as it is subject to VAT, benefits from a VAT exemption. Therefore, it should be remembered that, as a rule, the taxpayer does not have the right to deduct VAT on the purchased goods and services related to the mining and purchase / sale of cryptocurrencies. Tax liability in terms of VAT arises when the cryptocurrency is sold / exchanged for traditional currency, as well as when one cryptocurrency is exchanged for another.

The tax base (in accordance with the general rules on receiving remuneration from Article 29a (1) of the VAT Act) in the case of trading cryptocurrencies, both in terms of purchase / sale for traditional currency and for another cryptocurrency, is to be expressed in zlotys (PLN ).

Tax-deductible cost

Tax deductible costs are costs incurred in order to generate income or to maintain or secure a source of income. Such costs are therefore any expenditure which, collectively, meets the following conditions:

  1. they were actually incurred in order to achieve income or to preserve or secure the source of income, i.e. they remain in a cause-and-effect relationship with the generated income;
  2. have not been mentioned in Art. 23 of the PIT Act, containing a catalog of expenses not recognized as tax deductible costs;
  3. are properly documented.

At the same time, it should be emphasized that in the case of cryptocurrency trading as part of business activities, the method of accounting and tax recording of the revenues and costs incurred depends on the type of tax books kept by the taxpayer (tax revenue and expense ledger or accounting books). It is worth noting that the tax revenue and expense ledger is a simplified and formalized form of recording economic events, therefore the taxpayer:

  • can make entries in it only on the basis of strictly defined documents listed in the Regulation of the Minister of Finance of August 26, 2003 on keeping the tax book of revenues and expenses, such as invoices or bills. Therefore, documents in the form of statements with the history of stock exchange transactions from the Internet cryptocurrency exchange, or bank statements with the history of transactions, do not constitute accounting evidence within the meaning of the provisions, and revenues and tax deductible costs documented only in this way cannot be recorded in the tax revenue and expense ledger.

Inability to record given revenues or expenses in the tax book of revenues and expenses – due to the fact that the taxpayer does not have the form of documenting them required in the regulation – does not automatically mean that they cannot be recognized as revenue and tax deductible costs, respectively, within the meaning of the PIT Act. Hence, if the taxpayer otherwise reliably documents the emergence of tax revenue or incurring the tax cost, it should be taken into account during the current tax year, as well as in the annual income tax settlement:

  • expenses for the purchase of cryptocurrencies are recognized in tax deductible costs at the time of incurring the expenditure, i.e. “on a regular basis”, i.e. on the date of purchase and according to the purchase price;
  • when settling the costs of obtaining revenues from cryptocurrency trading, there are no legal grounds for using the FIFO method (“first in – first out”) as referred to in Art. 30a paragraph. 3 of the PIT Act.

Other principles of accounting and documenting tax deductible costs apply to taxpayers who keep accounting books, in accordance with the provisions of the Accounting Act, because:

  • the provisions of the act do not contain a catalog of accounting documents that may constitute the basis for entries in the books of accounts, but only define its basic elements. For these reasons, e.g. bank statements confirming the cryptocurrency purchase or sale transactions along with the attached printout of the transaction made from the stock exchange profile of the unit, supplemented with the signature of the person who made the transaction on behalf of the unit, may be considered accounting evidence within the meaning of the Act;
  • there is a division of costs into indirect (deducted on the date they are incurred) and direct (deducted at the moment when the closely related revenue arises);
  • the provisions of the Accounting act allow the taxpayer to choose the FIFO method (“first in – first out”) to determine the value of the issue of certain goods.

Concluding remarks

Crypto assets are becoming a recognized participant in the contemporary financial market. Their increasing value ignites the interests of many investors. Although cryptocurrencies are not yet considered legal means of payment in Poland, officials already established sound regimes to tax transactions carried out using these currencies. Currently, acquisition and possession of digital currencies and keeping cryptocurrency accounts are not taxed, while the incomes derived from cryptocurrency trade are subject to taxation in Poland. Moreover, individuals must submit annual tax statements to declare revenues received from these assets. However, there are still some loopholes in the regulation of taxation, specifically: part of the employees salaries can be paid in virtual tokens, while the legislation doesn’t specify percentage of remuneration to be paid in cryptocurrencies and fiat currencies. The regulatory updates clearly confirm that the government endorses the usage of digital assets as substitutes of traditional banknotes, but the truth of the matter is that their use is not yet comprehensively regulated.

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.


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