El Salvador’s Crypto Regulations 2024: Pioneers Bitcoin as Official Currency
El-Salvador made history in 2021 by becoming the first country to officially adopt Bitcoin as legal tender. President Nayib Bukele championed the move, believing that it would enhance the country’s banking system and attract international investment. However, the adoption faced challenges due to the volatile nature of Bitcoin and concerns about the government’s budget strategy. In December 2023, El Salvador further solidified its crypto-friendly reputation by offering citizenship to individuals with $1 million worth of Bitcoin or Tether investments.
El Salvador has continued to embrace Bitcoin by investing $120 million of its own funds into the cryptocurrency. In this article, we will explore the various laws and regulations related to crypto and Bitcoin in El Salvador in 2024.
Introduction
In June 2021, El Salvador made history by becoming the first country in the world to recognize Bitcoin as legal tender. This meant that businesses were required to accept Bitcoin as a form of payment alongside the US dollar. The government also invested in Bitcoin and added it to the national treasury, attracting both attention and scrutiny from the international community.
Since then, El Salvador has been adapting to the world of cryptocurrencies, introducing several initiatives to support their use within the country.
Is Bitcoin legal in El Salvador?
Bitcoin became legal tender in El Salvador in June 2021. In September 2021, El Salvador further established Bitcoin as legal cash, alongside the US dollar, with the passing of the Bitcoin Act. The Development Bank of El Salvador (BANDESAL) is responsible for handling the conversion between USD and Bitcoin.
According to the Bitcoin law in El Salvador, any company or individual providing Bitcoin services to third parties is considered a Bitcoin service provider. This includes exchanges and other similar entities. These service providers are required to register with the central bank of El Salvador within 20 days of commencing their business.
Regulation of the Law
One notable aspect of El Salvador’s embrace of Bitcoin is the “volcano bond.” This initiative, announced by President Nayib in late 2021, involves issuing $1 billion in Bitcoin-backed bonds to fund Bitcoin mining activities using geothermal energy from volcanoes. The profits from this venture would be allocated to support the “Bitcoin city” project. While the plans for this project have yet to be implemented, we may see progress in the coming years.
El Salvador has demonstrated a welcoming and accommodating approach to cryptocurrencies. In January 2023, the country passed a new law regarding cryptocurrency transfers. This law regulates the issuance of digital assets by both state and private entities. Its aim is to attract national and foreign investors while creating new opportunities for citizens.
The 47-article law establishes a legal framework that provides certainty for transfer operations involving digital assets used in public offerings. The law also proposes the creation of the National Commission for Digital Assets and the Bitcoin Funds Administration Agency, which would be responsible for managing, safeguarding, and investing funds from government-led public offerings. Additionally, the law paves the way for El Salvador to raise funds through the issuance of the world’s first sovereign blockchain bond. It should be noted that the law does not apply to digital currencies issued by central banks or digital assets that are already legal tender, such as Bitcoin and NFTs.
In December 2023, the El Salvador government announced a joint initiative with Tether called “Adopting El Salvador Freedom.” This initiative allows foreigners to obtain a Salvadoran passport in exchange for a $1 million Bitcoin investment.
Taxation Rules
To establish a presence in El Salvador’s crypto sector, one must register a company, develop a business plan, establish AML/KYC policies, apply for a crypto license, and comply with local laws. The country offers tax incentives and exemptions for companies with a crypto license, including exemptions from fees, taxes, and duties on digital assets, including capital gains and ordinary income.
Other taxes and government fees can be paid using cryptocurrencies. The process of obtaining a crypto license in El Salvador is straightforward and can be completed within three months.
Why Choose El Salvador for Cryptocurrency?
El Salvador’s crypto-friendly environment has made it a favorite among crypto investors and traders. Here are some reasons why:
1. Early adopter advantage: Being one of the first countries in Latin America to establish a regulatory framework for cryptocurrencies, El Salvador presents an opportunity for companies to position themselves as early adopters in a potentially lucrative market.
2. Clarity and compliance: Operating within a regulated framework provides companies with clarity and allows them to navigate the crypto landscape in El Salvador. Obtaining a crypto license enables companies to stay ahead in the crypto world.
3. Government initiatives: The supportive stance of the government makes it easier for crypto companies to operate in El Salvador.
4. International opportunities: El Salvador’s clear regulatory policies attract international companies looking to expand their operations. Obtaining a license allows companies to enter the market and explore opportunities in South and Central America.
5. Tax exemption: El Salvador offers tax benefits for crypto-related businesses, including exemptions on capital gains and ordinary income from the buying and selling of digital assets.
Conclusion
El Salvador continues to make headlines with its progressive approach to cryptocurrency. In 2023, the country introduced significant laws and regulations to facilitate the use of cryptocurrencies within its market. We anticipate further positive developments in the field of cryptocurrency in El Salvador in the future.
Tags: Crypto Regulations, Cryptocurrency