Cryptocurrency in its most broad definition is a virtual currency which is digitally created in an encrypted way without any connection to central authorities or any intermediary institutions and is used via internet. Bitcoin is the first cryptocurrency released on crypto market. The term "Bitcoin" is a combination of the words byte (data size) and coin. Apart from Bitcoin, hundreds of altcoins other cryptocurrencies have been launched such as Ethereum, Bitcoin Cash, Ripple, Litecoin, Dash, Neo, Iota, Monero, Nem and Zcash.
The main benefits of use of cryptocurrencies in business transactions are;
- Low inflation risk due to the limited production and independence from governments
- Low transaction fees, since there is no intermediary fee
- Ease of use and high processing speed
Cryptocurrencies are mostly used as an investment tool by governments and consumers rather than its intended use and benefit due to their vulnerability to cyber-attacks; the possibility of being used as a payment mechanism for illegal transactions since users and producers/miners of cryptocurrency transaction remain anonymous and due to the probable impact of this technology on commercial life.
In light of above mentioned advantages and its solid technological structure, cryptocurrencies are deemed as the next step to future and therefore they are accepted by several companies and governments.
- Certain countries including USA, Canada, UK, and South Korea have accepted Bitcoin as a payment model under their legislation while some countries have accepted it as a payment model without a legal basis.
- Microsoft allows payments to be made with Bitcoin.
- Facebook, as a founding member of LibraCoin project, plans to launch its own cryptocurrency to global use in 2020.
There is no specific Turkish legislation regulating the production or use of cryptocurrencies at the moment. The legal interpretation of cryptocurrency results in different liabilities and therefore legal consequences vary based on its classification whether as a commodity, security or a real currency.
Under The Law on Payment and Securities Settlement Systems, Payment Services and Electronic Money Institutions numbered 6493, cryptocurrency which is not released by government or by a licensed private institution, can't be considered as an electronic money. Accordingly, Banking Regulation and Supervision Agency has confirmed that cryptocurrency is not subject to its supervision.
The dispute on the nature of cryptocurrency, whether it is a commodity or a security, is particularly important in terms of tax legislation. Payments made via cryptocurrency are indeed made with an equivalent national currency therefore within the scope of general view, cryptocurrency should be treated as an economic asset just like gold or silver. Since cryptocurrencies do not grant their owners an ownership/partnership right or a right to claim, they cannot be considered as security.
In light of above mentioned reasons, there is no legal obstacle for releasing, producing cryptocurrency or using it to as a payment method. However use of cryptocurrencies, which we consider as an economic asset, has some consequences under the tax legislation.
- If a profit is obtained by buying and selling cryptocurrency, it will be considered as business profit in terms of tax legislation and will be subject to income tax.
- Trading of cryptocurrency is subject to VAT according to article 1 of the VAT Law.
Profits made through cryptocurrency transactions by the corporations will be subject to corporate tax.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.