Binance Tax Watch: Q1 2023 Crypto Tax Developments in APAC and the Americas
Main Takeaways
This edition of Binance Tax Watch covers the developments in Asia-Pacific and the Americas over the first quarter of 2023.
From tax breaks for investment token issuers to the first-time introduction of crypto-related definitions into national tax codes, learn how various jurisdictions are creating and implementing new crypto tax policies and rules.
Tax rules are complex, and for the emerging frameworks that regulate the taxation of innovative asset classes like crypto it is especially true. At the same time, being aware of these policies and regulations is essential for everyone who transacts in digital assets. To help our users navigate the intersection of blockchain and tax law, we have recently launched Binance Tax Watch, a blog series powered by our expert tax policy team.
Another major update on this front is the recent launch of Binance Tax, our free crypto tax calculator.
In this installment of Binance Tax Watch, we explore new rules and proposals introduced between January and April 2023 in Asia-Pacific and the Americas.
New Zealand: Draft rulings on tax treatment of crypto payments to employees
In March 2023, New Zealand’s Inland Revenue issued four draft rulings for public comment on the income tax treatment of cryptoassets paid, issued, or provided to employees under the following circumstances:
Income tax - salary and wages paid in cryptoassets – the draft ruling provides that the cash equivalent of such salary and wages is taxable as earnings under pay-as-you-earn (PAYE).
Income tax - bonuses paid in cryptoassets – similarly to salary and wages paid in crypto, the draft ruling provides that the cash equivalent of such bonuses is taxable as earnings under pay-as-you-earn (PAYE).
Income tax - employer-issued cryptoassets provided to an employee – according to the draft ruling, these cryptoassets constitute a taxable fringe benefit.
Income tax – application of the employee share scheme rules to employer-issued cryptoassets provided to an employee – the draft ruling holds that an employee token scheme can fall within the definition of an employee share scheme, with the tax consequences following accordingly.
Thailand: Tax breaks to token issuers
Thailand’s Cabinet has approved a draft decree to waive corporate income tax and value-added tax (VAT) for companies that issue digital tokens to the public for investment purposes. Secondary transfers of such tokens will also be exempt from VAT.
Digital tokens for investments, as defined under the draft decree, are tokens issued for the purpose of fundraising for a specific project, and so far, there are only two tokens issued under that definition in Thailand.
The draft decree will need to be reviewed and approved by the national legislative assembly and announced in the royal gazette before it becomes law but, if approved, it will apply retrospectively to 14 May 2018.
U.S.: Crypto tax proposals in the 2024 Greenbook
The Biden administration’s revenue proposals for fiscal year 2024 (the "Greenbook"), released on March 9, included several items proposing to revise the Internal Revenue Code as it relates to digital assets.
For the first time, the 2024 Greenbook introduces into US law a broad definition of digital assets as "any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary."
The proposals include an excise tax equal to 30% of the cost of the electricity used in mining digital assets. It is also proposed that the “wash sale” rules that have long existed for securities trading — which disallow losses on the sale of assets when the same or a substantially similar asset is purchased within 30 days — be extended to digital assets.
Another proposal is to extend securities lending rules to digital assets. These rules are intended to disregard for tax purposes the disposal or reacquisition (or the acquisition and subsequent disposal) of securities that meet certain criteria.
The Greenbook further proposes the imposition of mark-to-market accounting for digital assets and the extension of reporting obligations under the Foreign Account Tax Compliance Act (FATCA) to include digital assets held outside the US by US persons.
Puerto Rico: Circular on tax-exempt blockchain activities
Puerto Rico offers an “export tax incentive” to certain providers of digital-asset and blockchain activities, which allows businesses that export a service from Puerto Rico to benefit from a 4% corporate tax rate.
On February 22, 2023, Puerto Rico’s Secretary of the Department of Economic Development and Commerce (DEDC) issued Circular Letter DDEC-2023-002, providing a regulatory definition to the terms "blockchain technology," "digital assets based on blockchain technology," "blockchain validation," "proof of stake and proof of work consensus mechanisms," and "digital asset," among others, for the purposes of assisting in the determination of the eligibility of related activities for the incentive.
The Circular confirmed that export services related to blockchain technology, digital assets based on blockchain technology, and blockchain validation are considered eligible activities for the purposes of the incentive.
Canada: Crypto mining outside the scope of GST under proposed rules
On February 3, 2023, Canada’s Revenue Authority proposed rules that will not require a person receiving remuneration for performing a mining activity to charge any Goods and Services Tax (GST) or Harmonized Sales Tax (HST) in respect of this activity.
The proposed rules apply to activites carried out from February 5, 2022. The notice also clarified the GST/HST rules on cryptoasset mining activities before this date. Specifically, the notice provided that there is no GST/HST applicable in respect of the taxable supply made by solo miners that engaged in mining activities and received payment before February 5, 2022. For persons involved in mining alongside others before February 5, 2022, the nature of the arrangements determines the GST/HST application.
El Salvador: Wide-reaching tax exemption for tech innovation
On March 31, El Salvador’s National Assembly passed a bill eliminating all taxes on technology innovation in the country.
The bill — proposed by President Nayib Bukele, a known proponent of digital assets — coincides with the establishment of El Salvador’s National Bitcoin Office (ONBTC).
The law eliminates all taxes (income, property, capital gains, and import tariffs) on technology innovations, including software programming, coding, apps, and AI development, as well as computing and communications hardware manufacturing.
In September 2021, El Salvador became the first country to recognize a cryptocurrency as legal tender. Following the introduction of this regime, residents have been able to discharge debts, buy goods and services, and pay taxes in bitcoin (BTC).
Further Reading
Binance Tax Watch: Q1 2023 Crypto Tax Developments in Europe and CIS
Paying Your Crypto Taxes Helps You and the Entire Web3 Industry – Here’s How
Crypto Myths – Debunked! Part 3: The Myth of Crypto Being Used For Tax Evasion
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