How are cryptocurrencies regulated in Liechtenstein? 🇱🇮
The fourth-smallest country in Europe might be easily overlooked on a map, but Liechtenstein’s way of dealing with crypto-based activities do stand out on an international level. Even prince Alois said that cryptocurrencies are ‘something to look into more into the future’ and believes that blockchain technology can help the country’s government work more efficiently.
Legal Status of Cryptocurrencies in Liechtenstein
The FMA, Liechtenstein’s financial authority, has defined virtual currencies as “digital monetary units, which can be exchanged for legal tender, used to purchase goods or services or to preserve value and thus assume the function of legal tender.” It is important to note that Liechtenstein does not consider virtual currencies legal tender but only acknowledges the fact that they function like legal tender. Conveniently, the FMA has also published factsheets on virtual currencies and ICOs on their website, which are currently only available in German.
The FMA also points out the similarity to fiat currencies when used as means of payment or on exchanges, and sees them as a digital representation of a cash-equivalent value that is simply not issued by a central bank or public authority.
In the latest amendment to the micro-country’s Due Diligence Act virtual currencies are included for the first time and the category of bureau de change (exchange office) is applied to any “natural or legal person whose activities consist in the exchange […] of virtual currencies against legal tender and vice versa.” The Due Diligence Act also aims towards dealing with AML and CFT in a progressive way.
As of now, a license for using and producing virtual currencies is not required by the government. Depending on the specific design of the business model though, certain requirements may apply.
Taxation of Cryptocurrencies in Liechtenstein
Liechtenstein distinguishes between natural and legal entities using cryptocurrencies. In the following paragraphs, the regulatory framework and taxation of both parties will be examined.
General Taxation of Natural Persons
For natural persons, whose permanent or habitual residence is in Liechtenstein, all of their worldwide income and all of their movable or immovable property are subject to taxation in the country. One thing that makes this tiny country stand out internationally is the way they deal with wealth and income tax: wealth tax is already integrated into income tax. The source of income is then either subject to wealth or income tax (which already includes wealth tax). This means that double-taxation is avoided entirely. The income tax can range between 3,5% to 28%, whereas the wealth tax is between 0,8% to 0,96%. Aside from that, any natural person has to declare their crypto-portfolio annually and convert it to Swiss Franks for bureaucratic reasons.
Gains from speculation are considered tax-exempt and do not have to be declared separately. This is not only because Liechtenstein aims to be a progressive example of crypto-regulations, but also because they simply want to avoid a high amount of paperwork.
The government of Liechtenstein considers mining to be a source of income and it is therefore subject to income tax. On the other hand, the expenses, like the electricity bill and other IT-costs, are tax-deductible.
Taxation of ICOs and Token Generation Events
The legal situation of Liechtenstein puts coins and tokens into four different categories, depending on their specific characteristics. In order to properly categorize them, the FMA considers the company’s whitepaper and the company’s founder’s personal tax situation to be central indicators. However, the FMA assesses ICOs on a case-by-case basis, meaning that it is highly advisable to contact them for a thorough consultation.
In the following, the four officially acknowledged categories will be examined in terms of their specific characteristics and applicable taxation.
- Utility Token: They are considered a service and any gains produced by them are applicable to taxation in the category of Special Purpose Vehicle.
- Equity/Security Token: The are subject to issue tax. Also, Swiss Stamp Duty may apply because of the customs treaty with Switzerland. It very much depends on the legal form of the company.
- Currency Token: They are tokens that have the function of currency, e.g. Bitcoin. Different tax rates apply depending on who uses them and how they are being used.
- Contributions: Donation-like tokens belong to this category and are tax-exempt. This only applies to donations from Liechtenstein residents though. For example, any donations made from a natural person residing in Germany are applicable to German donation-tax, which can vary between 30% to 50%.
Taxation of Legal Entities in Liechtenstein
Low corporate tax in combination with being part of the European Economic Area (but not part of the European Union!) have been earning Liechtenstein a reputation as a tax haven for a while now. However, the taxation of legal entities is more complex than that of natural persons.
Profits made from investments in cryptocurrency are unfortunately not tax-exempt. Any realized changes in value have to be declared and are subject to a profit tax of 12,5%. However, this rate can be reduced by deducting the equity capital return, which currently is at a 4% rate and changes annually. Effectively, this means that the tax rate of 12,5% can be reduced to 8,5%.
The biggest challenge a company faces in Liechtenstein is the accounting of any crypto-related activities. The micro-country currently requires all accounting to be in either Swiss Franks, Euro or US-Dollar. Event though Liechtenstein is very progressive considering their attitude towards any crypto-related issues, their current accounting software fails to recognize transactions made in virtual currencies. Considering the fact that this makes any crypto-related business and enormously large amount of paperwork, the practice of using crypto-exchange sites is currently the most convenient way of solving the issue.
Recent Developments Concerning Crypto-Regulations in Liechtenstein
Liechtenstein works towards creating a crypto-friendly environment by imposing convenient regulations and the introduction of developmental institutions. The House of Blockchain in the nation’s capital Vaduz offers a great co-working space and aims to become a global hub for crypto-based companies.
Since early 2019 even the country’s university (Yes, they have their own university!) has also jumped on the bandwagon and now offers a certificate course on ‘Blockchain in Finance and FinTech’ in collaboration with Bank Frick, who also funded a blockchain research center.
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Sources
https://www.fma-li.li/de/finanzplatz/fintech-in-liechtenstein/geschaftsmodelle.html
FMA Finanzmarktaufsicht Liechtenstein (2919). Factsheets. https://www.fma-li.li/files/fma/fma-faktenblatt-ico.pdf
https://cryptoresearch.report/crypto-research/taxation-cryptocurrencies-europe/
https://crushcrypto.com/cryptocurrency-regulations-in-liechtenstein/
https://www.escapeartist.com/blog/liechtenstein-a-small-country-with-a-huge-crypto-market/
Bitcoin Exchange Guide (2019). https://bitcoinexchangeguide.com/bank-frick-funds-a-blockchain-research-center-at-the-university-of-liechtenstein/
The Law Library of Congress (2019). https://www.loc.gov/law/help/cryptocurrency/world-survey.php#liechtenstein
University of Liechtenstein (2019). https://www.uni.li/de/weiterbildung/themen/banking-und-finance/zertifikatsstudiengang-blockchain
House of Blockchain (2019). https://www.hob.li/
Hanselmann, H. & Sozzi, E. (2016). http://www.confida.li/fileadmin/user_upload/confida/documents/news/Attraktive_Besteuerung_in_FL.pdf
Langer, M. & Nägele T. (2018) https://isistax.ch/wp-content/uploads/2018/11/Pr%C3%A4sentation-Tax-Talks-2018_20.11.2018_Beilage.pdf
Disclaimer
The information provided in this blog post is for general information purposes only. The information was completed to the best of our knowledge and does not claim either correctness or accuracy. We highly recommend contacting a certified legal advisor in the country.
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Originally published at blog.blockpit.io
