Philippines Sets Government-Regulated Crypto Space for Cryptocurrency Regulations in 2024
Crypto regulation in the Philippines is currently in a state of ambiguity. It has not been fully accepted nor completely outlawed. While cryptocurrency transactions are legal, the crypto coins themselves are not considered “legal tender.” The country takes a progressive and pragmatic approach to cryptocurrency, allowing its use as a payment method and granting licenses to crypto exchanges and service providers. The Philippines has a thriving crypto community with various events, meetups, and initiatives in support of digital assets.
Banko Sentral ng Pilipinas (BSP), the governing body in the Philippines, has issued guidelines for virtual currencies (VCs). With the growing popularity of digital currencies, the government has developed a regulatory framework for cryptocurrency. The Securities and Exchange Commission (SEC) is responsible for regulating securities, investments, and financial instruments in the Philippines.
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 abuse. The SEC has also issued rules regarding Initial Coin Offerings (ICOs) and the use of crypto in investment schemes. To operate a crypto exchange, a VASP license is required, and additional licenses may be necessary for additional services, such as Electronic Money Issuer (EMI) and Remittance and Transfer Company (RTC).
Recently, the central bank (BSP) has issued the first Advanced Electronic Payments and Financial Services (EPFS) license for digital coins, a credential previously reserved for traditional banks. However, due to the absence of a unified ID card in the Philippines, company tech systems must be capable of validating ID documents from all over the country.
In terms of timeline, the BSP recognized virtual currencies as a valid payment method in 2017. The SEC issued an advisory on ICOs and crypto investments in 2018. In 2021, the BSP introduced guidelines for Virtual Asset Service Providers (VASPs), requiring them to obtain a license before operating in the country. The SEC cautioned the public against using unregistered exchanges in 2022 and presented draft rules for public review regarding cryptocurrencies and digital financial products in 2023. By early 2023, there were already 19 registered VASPs in the country, and the SEC partnered with the University of the Philippines Law Center to develop guidelines for digital assets.
To regulate and tax the growing crypto market, the Philippines government has implemented a capital gains tax of up to 15% on cryptocurrency transactions. This tax applies to profits from selling or exchanging cryptocurrencies and purchases made using crypto. Individuals or businesses engaged in active cryptocurrency trading for short-term resale may be subject to value-added tax (VAT) if the applicable threshold is met. On the other hand, cryptocurrency held for investment purposes is more likely to be considered an intangible asset, subject to ordinary income tax.
In conclusion, regulators in the Philippines have established a sensible framework for cryptocurrency based on a solid understanding of the crypto space. The country remains an attractive destination for crypto, with a rapidly growing economy and a significant number of Filipinos owning digital assets. The SEC’s collaboration with the University of the Philippines Law Center demonstrates a commitment to well-informed regulations. The inclusive approach to stakeholder involvement in shaping regulations is expected 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.