Latin America mobilized $353.8 billion in cryptocurrencies between July 2020 and June 2021 as the region’s tax authorities begin to take an interest.
The world of crypto is not only famous due to Google searches, where it achieved maximum popularity in 2021 according to the company’s data, but also for the amount of money it moves. Transactions have already surpassed the billions of dollars, making it more and more difficult for the world’s governments to ignore the burgeoning business.
And it is not only central banks that have started paying attention to the development of the sector, but also the region’s tax authorities.
The U.S. is an example of that. Together with Canada, the country mobilized $756 billion in cryptocurrency between July 2020 and June 2021, according to a report by Chainalysis. That represented 18% of the global value, and which is equivalent to 3% of the U.S. economy, as the authorities get round to the idea of regulating the sector.
In President Joe Biden’s infrastructure package, one of the flagship programs of his government, there is an article that obligates that all transactions carried out in digital assets with a value of over $10,000 be reported to the Internal Revenue Service (IRS). It is estimated that the requirement could bring in revenues of $28 billion over 10 years.
Latin America has also been part of this trend. The region, according to the Chainalysis report, mobilized $353.8 billion in cryptocurrencies between July 2020 and June 2021. Not only is that more than some economies of the region produce in one year, such as Colombia or Chile, but it represents approximately 9% of all crypto transactions globally.
That is why, if countries are trying to widen their tax base, these transactions in the region begin to appear on the radar. According to the Annual Global Crypto Tax Report drawn up by PwC, there are six Latin American countries on its index of evaluation of how tax has been imposed on cryptocurrencies, and which have begun to be considered as the patrimony of those who use them.
The Clearest Regulators
In Latin America, Colombia leads the ranking drawn up by PwC, and which measures the degree to which taxes on transactions of digital assets are clear, despite there not being specific legislation to impose taxes on crypto.
These tokens are considered intangible assets that form part of a person’s wealth, and when a transaction is carried out it is subject to tax on revenues, according to the PwC analysis. Something similar occurs with cryptocurrency mining, an activity that allows them to be obtained in exchange for resolving mathematical problems.
Colombia’s tax authority has established that this activity is a service and that cryptocurrencies are a payment in kind that should be subject to income tax.
An analysis by Amcham Colombia adds that activities related to the buying and selling of cryptocurrencies have no bearing on value-added tax, as “as it is not related to intellectual property and therefore does not comply with VAT”.
For Carlos Mesa, president of the Fundación Colombia Bitcoin, there has not been clarity with regards to the fiscal responsibilities of trading in these digital assets.
Colombia began a pilot project for handling crypto assets, regulated by the country’s financial watchdog and in which the country’s largest banks participate, although, as far as Mesa is concerned, there has been a lack of directives regarding taxes.
“At this time there is a lack of clarity, or a special bracket needs to be created for cryptocurrencies so that there are some specifics and to make tax payment easier. It would be much more interesting, we are keen for that to happen, and it would be a result of the pilot project”, Mesa added.
Another of the countries that comes out well in the ranking drawn up by PwC is El Salvador, which this year became the first country to accept crypto as legal tender. And it was precisely the law that allowed that which made it clear that it could be used for tax payments, and which establishes that transactions in cryptocurrencies are not subject to capital gains tax.
Furthermore, President Nayib Bukele announced at the end of November the first ‘Bitcoin City’, located in the coastal city of Conchagua, and which will be financed by funds based on crypto. Bukele promised that the city would not have to pay practically any taxes, except for VAT, while taxes on housing, income, capital and municipal rates would have a 0% tax rate.
“The only taxes that ‘Bitcoin City’ will have is VAT, half will be used to pay the municipality’s bonds and the rest will be used on public infrastructure,” Bukele said.
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