Government Regulated Crypto Space: Philippines Introduces Crypto Regulations for 2024
Crypto regulation in the Philippines currently exists in a state of quasi-legality. It has not yet been fully accepted, nor has it been completely banned. While cryptocurrency transactions are legal, the crypto coins themselves are not considered “legal tender.” The country takes a progressive and practical stance on cryptocurrency, allowing it to be used as a payment method and issuing licenses to crypto exchanges and service providers. The Philippines has a vibrant crypto community with events, meetups, and initiatives that support digital assets.
This report by Coinpedia provides a brief analysis of the state of cryptocurrency in the Philippines in 2024.
Introduction
The governing body in the Philippines, Banko Sentral ng Pilipinas or BSP, has issued guidelines regarding virtual currencies (VCs). In recent years, the crypto world has experienced significant growth, with many people using digital currencies. This has prompted the government to develop a regulatory framework for cryptocurrency. The Securities and Exchange Commission (SEC) is the government agency responsible for regulating securities, investments, and financial instruments in the Philippines.
Regulatory Framework
Individuals or businesses operating VC exchanges must register with the BSP and comply with operational mandates, including risk management practices and customer identification processes. These regulations aim to protect the financial system from potential misuse.
The SEC has also established rules regarding initial coin offerings (ICOs) and the use of crypto in investment schemes. To operate a crypto exchange, one must obtain a Virtual Asset Service Provider (VASP) license, and additional licenses such as an Electronic Money Issuer (EMI) and a Remittance and Transfer Company (RTC) license may be required for additional services.
The central bank, BSP, has recently issued Coins with the first Advanced Electronic Payments and Financial Services (EPFS) license, a credential that was previously reserved for traditional banks.
Since the Philippines does not have a unified ID card, company tech systems must be capable of identifying valid ID documents from across the country.
Timeline
February 6, 2017: BSP issued circular no. 944, acknowledging virtual currencies as a valid payment method.
February 8, 2018: SEC issued an advisory on ICOs and crypto investments.
January 25, 2021: BSP introduced guidelines for Virtual Asset Service Providers (VASPs), requiring them to obtain a license before operating in the country.
December 22, 2022: SEC cautioned the public against using unregistered exchanges within the country.
January 25, 2023: SEC presented draft rules for public review, covering cryptocurrencies and digital financial products.
January 31, 2023: There are 19 registered VASPs in the country. The SEC partnered with the University of the Philippines Law Center to develop guidelines for digital assets.
January 1, 2024: The Philippines tightened Travel Rule requirements for crypto.
Taxation
The Philippine government has implemented a capital gains tax of up to 15% on cryptocurrency transactions to regulate and tax the growing crypto market. This tax applies to profits from selling or exchanging cryptocurrencies and purchases made using crypto.
Filipinos who own or trade cryptocurrency must report their capital gains during their annual tax filings.
For individuals or businesses actively trading cryptocurrency for short-term resale, these digital assets could be classified as inventory. In such cases, any income generated from the sale or exchange of cryptocurrency may be subject to value-added tax (VAT) if it meets the applicable threshold, typically set at 12% in the Philippines.
On the other hand, cryptocurrency held for investment purposes, such as long-term capital appreciation, is more likely to be considered an intangible asset. Under this classification, cryptocurrency becomes a capital asset for tax purposes, and gains from the sale or exchange of such assets would be subject to ordinary income tax.
Conclusion
Regulators in the Philippines have implemented a sensible framework based on a good understanding of the crypto space. The country remains an attractive destination for crypto, as it is one of the fastest-growing economies worldwide, with 11.6 million Filipinos owning digital assets. The Philippines continues to adapt to the evolving crypto environment.
The Securities and Exchange Commission (SEC) has shown its commitment to a well-thought-out approach by partnering with the University of the Philippines Law Center (UPLC) to develop guidelines for digital assets. This collaboration demonstrates a joint effort to ensure that regulations are not only robust but also well-informed. The fact that the Implementing Rules and Regulations of Republic Act No. 11765 were open for public comment indicates a commitment to transparency and stakeholder involvement in shaping regulations. This inclusive approach is likely to continue in the future, ensuring that the crypto community and businesses have a say in the development of the regulatory framework in the Philippines.