Serbia has adopted the Law on Digital Assets!
Serbia has adopted the Law on Digital Assets (“Law”) applicable as of 30 June 2021, and hereby positioned itself as one of the first states with a detailed regulated substantive and tax issues pertaining to this hot topic in the digitalization era.
Serbian authorities and lawmakers have shown desired understanding for developments at the global digital assets market and took advantage of it in the manner that regulation shall enable development of innovations, attract foreign know-how and private equity, and especially enable small and medium enterprises collection of venture capital and crowdfunding for start-ups.
The Law provides a broad definition of digital assets being the digital representation of value that can be digitally bought, sold, exchanged, or transferred and used as a means of exchange or for investment purposes, whereby digital assets shall not include digital representation of fiat currencies and other financial assets.
It is noteworthy that the definition does not include reference to a blockchain technology or distributed databases, which means that it is technologically neutral, and that encompasses all digital assets regardless of which technology specific digital property is based on. This „technology neutral” definition might cause certain ambiguities in the practice pertaining to the question which all assets are a digital one.
The Law further distinguishes two types of digital assets: (i) virtual currencies (i.e. cryptocurrencies) and (ii) digital tokens.
For this brief analysis we will focus on virtual currencies which are defined as a digital asset that is not issued or guaranteed by a central bank or public authority, that is not necessarily attached to a legal tender and that does not have the legal status of money or a currency, but is accepted by natural or legal persons as a means of exchange and that can be bought, sold, exchanged, transferred, and stored electronically.
In this article, we will tackle several legal questions pertaining to cryptocurrencies which are most frequently subject of interest of businesspeople and potential entrepreneurs interested in these commercial activities in Serbia:
- Is it allowed for both natural persons and legal entities to possess and trade with cryptocurrencies in Serbia?
Both natural persons and legal entities are legally permitted to own and trade with digital assets without the need to prior obtain any permits or licenses.
According to the Law, the cryptocurrencies can be acquired via:
- mining (sole mining process is not subject of the Law),
- initial offering of digital assets (with or without approved „white paper“),
- secondary trading in digital assets (via trading platforms operated by digital assets service provider or on the OTC (over the counter) market); it may be performed also by using crypto ATM’s i.e. „cryptomats“.
All payments connected with trading in cryptocurrencies should be made either in accordance with laws regulating payment services when disbursed in RSD and according to the provisions of the Serbian FX regulations if in foreign currencies.
The use of cryptocurrencies as a mean of payment is generally prohibited, and for a consumer to be able to make payments in virtual currencies, it is necessary for the seller to hire a specialized service provider that deals with service of virtual currency acceptance. In such case, the licensed service provider, transfers only dinars to the merchant, and not virtual currencies since legal entities and entrepreneurs are obliged to operate through bank accounts in dinars.
Unlike the cryptocurrencies, which may not be subject to an in-kind contribution to a company, certain digital tokenswhich are listed by Serbian Securities Commission may be contributed as a capital contribution to a company. Furthermore, a forced collection of creditors’ receivables towards a company can be settled from the digital assets the company owns.
- Which conditions a legal entity must fulfill to provide services related to cryptocurrencies?
Services related to digital assets designated by the Law („Services“) can be provided only by the digital assets service provider, which is licensed for provision of the Services the Securities’ Commission or the National Bank of Serbia, depending on the Services it intends to provide.
In order to be able to become the licensed digital assets service provider, the applicant should fulfill certain requirements explicitly stipulated under the Law. For example, it needs to ensure and maintain the minimum basic share capital from EUR 20,000 to EUR 125,000, depending on the Services it intends to provide.
On the other hand, advisory services related to the digital assets can be provided by licensed digital assets service provider or by other non-licensed person (company, entrepreneur or individual registered to perform activity in accordance with special regulations). However, non-licensed advisory service provider is obliged to communicate to its clients that it is providing services without any license, and to put this information on its website.
Notably, the financial institutions under the supervision of the National Bank of Serbia cannot provide Services, nor can be users of those services. Such prohibition shall serve to preserve the stability of financial institutions and the financial system in Serbia, due to the potential risks that digital assets and businesses dealing with digital assets carry.
- Which taxes are applicable to possessing and trading with cryptocurrencies?
Considering the relevant pieces of Serbian legislation, the following taxes may be applicable to the activities related to digital assets:
- capital gains tax at the rate of 15% for legal entities – for gains derived by a legal entity from the sale or other transfer for consideration of digital assets (digital assets service providers are tax exempted if acquired the digital assets solely for the purpose of resale while providing relevant services);
- tax incentives exist i.e. exclusion of gains in the tax base if the stated capital gains are in the same tax period invested in the basic share capital of another resident company or an investment fund whose center of business or investment activities is in Serbia;
- capital gains tax at the rate of 15% for natural persons – for gains derived by an individual from the sale or other transfer for consideration of digital assets;
- tax incentives exist i.e. tax refund of 50% of paid capital gains tax if an individual within 90 days from the sale of his/her digital assets, invests the funds from such sale in the share capital of a resident company in accordance with the CIT Law, or in the capital of an investment fund headquartered in Serbia;
- inheritance and gift tax for inherited and gifted digital assets at the tax rate from 0% (free of the tax) to 2,5%, depending on the degree of kinship between the testator, or the donor and the taxpayer.
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