With the increase of Bitcoin and cryptocurrency in the current trading market, it is easy for any potential investor to question their legal status, especially in the UK or EU and so it may be important to understand their position in law as we have explored below.
Are Bitcoin and Cryptocurrency legal in the EU?
At the time of writing, the EU has not implemented any legislative measures that define the status of Bitcoin as a currency. They however in the alternative have stated that Value Added Tax or Goods and Services Tax are not applicable to the conversion between traditional (fiat) currency and bitcoin. Value Added Tax, Goods and Services Tax and other relevant tax regimes will still apply to transactions made using bitcoins for goods and services as a result.
In October 2015, the Court of Justice of the European Union ruled that “The exchange of traditional currencies for units of the ‘bitcoin’ virtual currency is exempt from VAT” and that “Member States must exempt, inter alia, transactions relating to ‘currency, bank notes and coins used as legal tender’”, making bitcoin a currency as opposed to being a commodity. It was also held that additional tax shouldn’t be chargeable because Bitcoins or Cryptocurrency should be treated as a means of payment.
The European Central Bank has classified Bitcoin and Cryptocurrency as a convertible decentralised virtual currency. In July 2014, the European Banking Authority had initially advised European banks not to trade in virtual currencies i.e. Bitcoin and Cryptocurrency until a statutory regulatory regime was accordingly in place.
In 2016, the European Parliament proposed to set up a taskforce to monitor virtual currencies to combat potential money laundering. This passed by 542 votes to 51, with 11 abstentions, and has been sent to the European Commission for consideration.
Are Bitcoin and Cryptocurrency legal in the UK?
There has been no official statement by the Bank of England regarding its position towards Bitcoin and the UK Government has stated that Bitcoin and Cryptocurrency are unregulated. More information can be found on https://www.loc.gov/law/help/bitcoin-survey/#uk
It has however been reported that Her Majesty’s Revenue and Customs has classed bitcoins as “single purpose vouchers,” rendering any sales of them liable to a Value Added Tax of 10–20%.
In the alternative, where Bitcoin or Cryptocurrency is exchanged for the Pound Sterling or for other currencies i.e. Euros, US Dollars, then no VAT will be due on the value of the Bitcoins or Cryptocurrency themselves.
It must also be noted that profits and losses on cryptocurrencies are subject to Capital Gains Tax. (https://www.gov.uk/government/publications/revenue-and-customs-brief-9-2014-bitcoin-and-other-cryptocurrencies)