Georgia has joined the elite list of countries to have exempted Value Added Tax (VAT) on Bitcoin. A bill regarding the same was recently passed and made into a law after it was signed by Georgia’s Finance Minister, Nodar Khaduri. Georgia will be exempting all traders of the digital coin, be it a company or an individual from any kind of VAT on cryptocurrencies. The bill signed by the Finance Minister also provides a definition for decentralized digital currencies. It says,
“Cryptocurrencies are digital assets that are exchanged electronically and based on a decentralized network. Their exchange does not require a reliable intermediary and they are managed using distributed ledger technology.”
The revenue generated from VAT collection forms a major chunk of the tax collected by governments around the globe, as the tax is applicable on a majority of goods and services. Thus, the decision by the Georgian government to do away with VAT on Bitcoin transactions shows the bullish attitude of the Tbilisi government towards cryptocurrencies.
However, the Finance Minister has emphasized that the national currency, Georgian lari, will still be the only legal tender of use. Bitcoin or any other form of the digital token cannot be used as a medium of exchange.
European countries making way for decentralized regulation for digital assets
No referral document presently exists for European countries, in terms of taxing the use or trade of cryptocurrencies. Despite that, many countries in Europe are slowly paving a way for decentralized regulations on digital assets. Germany sees cryptocurrencies as an investment, but the capital gain tax is only levied if those assets are kept for less than a year. The UK has put cryptocurrencies under the foreign currency category, while the Swiss have to pay income and profit tax on their digital holdings.
While there is no VAT for holding or trading cryptocurrencies in Georgia, the same does not hold true for mining companies. The law says that these mining companies need to pay VAT, if their headquarters are located in the country. Georgia has an abundance of cheap and clean electrical energy through its hydro power plants, making it a hotspot for various mining operations. In order to avoid paying VAT to the government, these mining firms might relocate their headquarters and register offshore, while continuing their mining operations in the state.
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