Bitcoin’s Future in Asia
By Edward Barbour-Lacey
Posted: 22nd January 2014 09:21Created in 2009, Bitcoins are a peer-to-peer virtual form of currency able to be bought or sold on online exchanges. Additionally, the coins can be “mined” using high-performance computers and complex algorithms. While the value of a single Bitcoin can be very volatile (the price often swings wildly), the total value of Bitcoins in the world is estimated to be around US$7.5-10 billion.
Bitcoin was originally seen as a low-cost way of sending money electronically. It essentially removed the need to use third parties, such as banks, in order to move funds. A key differentiator from other currencies for Bitcoin is that it is not regulated by a central bank.
The currency has been both praised and disparaged by the likes of US Federal Reserve Chairmen Ben Bernanke and Alan Greenspan respectively.
Bitcoin’s attractiveness has also not been lost on the world’s criminal element who have used it as an untraceable method to buy and sell drugs and other illegal goods. This side of Bitcoin came to particular prominence when the U.S. Federal Bureau of Investigation shut down the controversial Silkroad website, notorious for shady deals.
With Bitcoin still in its infancy it could be argued that as countries like Singapore begin to create regulatory frameworks governing Bitcoin services and transactions, that these states could become more attractive for Bitcoin traders seeking a degree of safety and uncertainty in this new financial system. However, while financial regulations may help to legitimize Bitcoins, they also take away many of the attractions that led to the currency’s popularity in the first place.
For those fearful of buying Bitcoins directly, but don’t want to be left out of a potentially lucrative financial area, another option could be to follow the move of China’s richest man, Li Ka-shing and invest into firms that provide the services that Bitcoins users need. Li Ka-shing has invested into BitPay, a financial service for Bitcoins similar to PayPal. BitPay reportedly handles transactions for around 14,000 companies in over 200 countries.
Bitcoin has now become so legitimate in many countries that there are now ATMs specifically designed to allow for the purchase and withdrawal of the virtual currency into the “real” currency of your choice.
What follows below is a snapshot of a number of countries in Asia and how they are choosing to deal with the rise of Bitcoin.
Singapore has recently begun recognizing Bitcoin trading and laying out taxation rules which will govern transactions made in the new currency. The country has promulgated perhaps one of the clearest sets of regulations on Bitcoin in the world.
These rules will only apply to Bitcoin services that are located within Singapore. The country’s tax authorities have stated that companies that buy and sell Bitcoins will be taxed based on the gains from their sales. However, “if Bitcoins form part of a company’s investment portfolio for long-term investment purposes, any gains would be capital in nature and therefore won’t be subject to taxation.”
In the case of goods and services taxes (GST), the sale or exchange of Bitcoins in return for cash or in kind is a “taxable supply of services.” Thus, when Bitcoins are accepted for goods or services, if both parties are GST-registered, taxes will be imposed. Virtual goods and services, such as apps, will not be taxed.
Middlemen involved in Bitcoin trading will also find themselves subject to GST tax on their commission fees and on the sale of Bitcoins.
Businesses in Singapore must be GST registered once their annual turnover exceeds SGD1 million, and the IRAS has stated that such companies must charge GST to a customer if payment is by Bitcoin. This is not unlike the current situation where a café in Singapore sells a coffee to a customer with 7 percent GST added to the bill.
However, in the case of Bitcoins, this becomes doubly taxing when the business tries to cash in the Bitcoin used as payment – it too must render 7 percent in GST, there being no offset for Bitcoin usage. This differs from exchanging foreign currency into Singapore dollars, which only attracts GST on any agent commission payments.
The ruling is likely to restrict the trading of Bitcoins in Singapore, as users will have to seek overseas buyers to avoid the GST burden.
Bitcoin has become particularly popular in China due to its ability to allow citizens on the mainland to circumvent the government’s regulations on the movement of capital across its national borders. Many believe that it has been this Chinese need to move money across borders that drove the previous price of Bitcoins so high.
China’s central bank has reacted to these developments by demanding that third-party payment platforms stop providing clearing services to Bitcoin and other virtual currencies. As a result, China’s biggest Bitcoin Exchange, BTCChina, stopped accepting deposits in RMB.
In addition, China’s largest e-commerce website, Taobao, has banned online Bitcoin trading on its site. However, smaller sites are still continuing to accept Bitcoins for payment.
Bitcoins can still be traded as investments in China.
The Hong Kong government has also expressed concern about Bitcoins. Hong Kong Secretary for Financial Services and Treasury Professor, Chan Ka-keung, said of Bitcoin that “it is not qualified to become an electronic currency. Citizens should be wary of it.”
However, this has not stopped Bitcoins from being popular and they continue to be unregulated by the government or central bank.
Hong Kong is set to soon receive its first Bitcoin ATM (and Asia’s first Bitcoin ATM) courtesy of Robocoin.
Taiwan’s Financial Supervisory Commission has stated that it will not allow Bitcoin ATMs into the country because it does not recognize Bitcoins as a legitimate currency.
The Reserve Bank of India has warned users about the security and financial risks it sees in the Bitcoin currency. However, the RBI has stated that as of now it has no official plans to regulate Bitcoins.
As a result of the perceived risks, periodically, all Bitcoin exchanges in the country have been shut down for short periods of time. The country’s largest Bitcoin exchange Buysellbitco.in was recently raided by the Indian police, although no charges have been filed.
The Indian Tax Authority has also stated that it is currently looking into how it can tax Bitcoin. Many Bitcoin enthusiasts are looking to India to replace China as the largest Bitcoin market.
Currently, Indonesia only makes up around one percent of total world Bitcoin usage. However, there has been much reported interest in virtual currencies from the Indonesian people. While it has expressed concerns, Bitcoin is not regulated by the country’s central bank.
Many websites in Indonesia are already accepting Bitcoin as a form of payment.
As of yet the Japanese government has not stated that it has any plans to regulate Bitcoin. The country is host to a well-known Bitcoin exchange: Mt. Gox.
While there are no regulations yet on Bitcoin, the country is rumored to be considering applying regulations that are similar to how other currencies and digital goods are regulated. Interestingly, it appears that the Philippines government is attempting to craft its regulations in a way that will not adversely affect the country’s burgeoning tech industry.
Bitcoins have been banned for some time in Thailand. However, the country’s central bank has been working with the Ministry of ICT and the Securities and Exchange Commission to determine if a system could be put into place to regulate Bitcoins like other currency exchange services. These services require a license from the Bank of Thailand. It is thus possible that in the near future Bitcoin may see its ban lifted.
Bitcoin is not currently a recognized currency in Malaysia. The country’s central bank has stated that it does not regulate the currency and therefore can offer no protection to those engaging in Bitcoin trading.
Vietnam has a growing Bitcoin community and there has been much interest, particularly among the country’s youth, about how to make money through the currency. As of now, there is reportedly only one company in Vietnam that accepts payment in Bitcoin.
It is not yet clear what stance the government will take in regulating the currency.
This article was first published on Asia Briefing.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
For further details or to contact the firm, please email email@example.com or visit www.dezshira.com.