Taxation Authorities in Costa Rica Develop Proposal To Tax Crypto Assets Such As Bitcoin

    The collecting body sent for consultation a resolution to charge 13% VAT on the purchase of this type of assets, in addition to income taxes

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    The General Directorate of Taxation of Costa Rica consulted the Union of Chambers and Associations of the Private Business Sector (Uccaep) a resolution in which it proposes to tax the purchase of crypto assets with 13% of the value added tax (VAT), and with 15% to capital gains, which are obtained by buying them at one price and selling them at another.

    Digital assets include crypto assets, as the Central Bank calls them, or cryptocurrencies, as they are commonly called. Taxation bases its claims on the issuer defining crypto assets as intangible assets and not as currencies used to pay for goods and services.

    According to the Technical Note of the Central Bank of Costa Rica 01-2019, it details Taxation among the recitals of the resolution, cryptocurrencies can be understood as an asset that does not have physical representation, they are put into circulation by private agents using a global platform, in the which there is no participation of a central authority as guarantor of the legality of the transactions that are carried out and that have a unit of account of their own, different from any fiduciary currency issued by any government or central bank.

    “In addition, it details that cryptocurrencies cannot be considered numeraire (currency) in the strict legal sense, because they do not comply with the characteristics of legal tender”, explained the Tax authorities.

    Taxed like any other asset

    If they are assets, then they must be taxed like any other asset, explained the general director of Taxation, Carlos Vargas. “What we are trying to clarify is what is the tax treatment that, according to current regulations, this type of assets will have, understanding that they are not currencies, because that is how the Central Bank has defined it by denying them the character of currency, since it has to define precisely what we are talking about,” said Vargas.

    In addition, since they are assets that can be bought at one price and sold at another then they would be subject to the 15% capital gains tax. Vargas explained that this tax would be paid at the time they are sold. It could also be, added Vargas, that the taxpayer has a lucrative activity with crypto assets and then has to pay the tax on profits.

    Francisco Villalobos, former Director General of Taxation and managing partner of ICS explained that the Ministry of Finance follows the recommendation of the Organization for Economic Cooperation and Development (OECD) to provide guidance to taxpayers on the tax treatment of cryptocurrencies.

    In the document Taxes on Virtual Currencies, the OECD indicates that policy makers may consider providing guidance on how virtual currencies fit into the existing fiscal framework. “The framework can be helpful in promoting clarity and certainty for taxpayers,” says the organization.

    Doubts and criticism

    Villalobos considered that it could be criticized that VAT should be paid when acquiring currency of this type, because there Taxation assumes its illegality, but for the benefit of the treasury. “As they are not currencies, they are assets and they are not currency exchange but purchase of assets, ergo, we are not facing a currency exchange but rather the VAT-taxed acquisition of an asset,” said Villalobos. It would be like having to pay VAT to buy dollars, said the lawyer, who clarified that his comments are preliminary and subject to greater clarity by the tax authority.

    The Blockchain Association of Costa Rica indicated, in a statement, that the application of this double tax (VAT and income) is quite aggressive; For example, in the United States, the IRS (Internal Revenue Service) considers virtual assets as property and only assesses capital gains. It also considers that the resolution contains excessive reporting and record-keeping requirements for companies buying or selling digital assets.

    “The General Directorate of Taxation alleges that the services for the purchase and sale of digital assets, among others, are not subject to bank secrecy and establishes the obligation that all natural or legal persons described in the resolution are obliged to maintain a history full of those who bought or sold crypto assets “, indicated the Association. On the subject of the information to be supplied, Villalobos also expressed concern. “Via resolution they are asking the operators the same thing that a bank would be asked for on bank accounts. Under the assumption that it is not money, but assets, they seem to jump over the wall that the legislator put to the Taxation of accessing banking and financial information through the participation of a judge of the Republic”, he commented.

    The Association also considered that such an early regulation on taxes on crypto assets puts Costa Rica at a disadvantage and may discourage foreign investment and the establishment of cryptocurrency companies.

    For his part, José Álvaro Jenkins, president of the Uccaep, reported that they do not know the substance of the proposals made by the General Directorate of Taxation and like any other they must be subjected to analysis.

    “However, Uccaep is against the approval of more taxes that limit the economic recovery of a productive sector that needs urgent reactivation measures to generate employment,” said the president.

    Vargas explained that this is a first consultation, but that once they receive the observations of the Uccaep, they will present another public consultation. Carlos Vargas: “We are trying to clarify what is the tax treatment of this type of assets”

    The general director of Taxation, Carlos Vargas, explained what are the criteria they used to make the proposal to tax crypto assets:

    Reading the resolution, what is intended is to tax transactions made with cryptocurrencies, or crypto assets as the Central Bank calls them, with VAT and a 15% tax on capital gains. “It is not that we intend to tax.” What we are trying to clarify is what is the tax treatment that, in accordance with current regulations, this type of assets will have, understanding that they are not currencies, because that is how the Central Bank has defined it by denying them the character of currency, since there are Defining exactly what we are talking about is a first clarification. “Certainly what we are trying to do is to clarify what is the tax treatment that, according to the current law, this type of assets has”.

    If a person uses this asset to pay, they would have to pay VAT on the good or service and the person who receives the payment would also have to pay VAT when receiving the cryptoasset. “More or less there.” It’s like going back to the barter era.

    In the capital gains part if a person has one of these crypto assets, would they have to register as an income tax payer and declare they have that crypto asset? How would the capital gain be calculated? What if the price drops and the person has losses and has nothing to compensate for them?

    There you have to first see what type of activity is being carried out to determine whether or not there is an impact on a lucrative activity that means that it has to be registered in the income tax, everything will depend on how the person is working.

    “If you are not developing any activity and nothing else has it (the crypto asset), what you really have to do is, according to the law, calculate the difference between the value at which you acquired it and the value at which you are selling it and on that applies the tax on capital gains ”.

    How does Taxation control who has crypto assets?

    Here we start from a principle of self-liquidation. The law establishes the obligation for individuals and citizens to self-assess their taxes. As they are virtual assets they have to keep an accounting record of those virtual assets they own, and within their accounting keep control of this type of property. The first call to have control of this type of property is the same company or person that has them.

    Is this a discussion that leads Taxation or is it part of a country discussion? A regulation is created on something that is not clearly defined in the country, or in the world.

    I think it is already clear that, for Costa Rican purposes, it is not currency, it is not money. So what follows is what is the tax treatment. This is what we are raising in this consultation. This is a prior consultation that was made to Uccaep, which brings together almost all the economic interest groups in the country, prior to the public consultation that we have to do ”.

    The Ministry of Finance would charge VAT and the tax on capital gains on cryptocurrencies, however, it would not receive it as a means of payment.

    It’s not a coin. It is an asset, it is a good, which is not tangible, but it is a good.

    That definition was given by the Central Bank and is it the definition that we should accept as a country? I ask him why there is still discussion in the world.

    In other countries they will have their regulations for that. I do not define the means of payment, the means of payment are defined in the law and as indicated by the Central Bank, crypto assets are not currency.


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