Everything you need to know about South African crypto regulation
01 Feb 2018
The South African government is looking into regulating the cryptocurrency industry. Is there anything you need to know about cryptocurrency regulations in South Africa? This article will focus on the South African Reserve Bank’s (SARB) whitepaper issued in 2014 about virtual currencies and Decentralized Convertible Virtual Currencies (DCVCs).
To assess this matter, we will try to expound on four key issues relating to the acquisition and use of cryptocurrencies in South Africa.
- Are cryptocurrencies legal in South Africa?
- How do taxation laws affect cryptocurrency in South Africa?
- Can one get recourse within the justice system on matters relating to cryptocurrency?
- Are there plans to regulate cryptocurrencies in South Africa?
Is the use of cryptocurrency legal in South Africa?
The simple answer is YES.
The complicated part would be to ask you: is whatever you are doing with the cryptocurrency legal? For most of us, the answer is also yes, it is legal. If that is the case, what is the position of the authorities?
The cryptocurrency landscape in South Africa is, at the moment, largely unregulated. However, the South African Reserve Bank issued a whitepaper in 2014 outlining its position on what it called virtual currencies (VCs) and Decentralized Convertible Virtual Currencies (DCVCs).
Here are some points to note about cryptocurrencies in general from that whitepaper:
1. Cryptocurrencies are not legal tender – according to the SARB’s definition, legal tender is simply the notes and coins that are officially issued by a bank (read section 3.2.3 of the whitepaper).
- Since cryptocurrencies do not exist in physical form, they fall outside the realms of the above definition.
- According to the SARB Act, 1989, the Reserve Bank governs and has sole right in the issuance and management of all currency in the form of coins and notes. These are legal tender, unlike cryptocurrency.
- Therefore, the use of Bitcoin (and other cryptocurrencies) to make payments is not recognized by law. In addition, a merchant is allowed by law to refuse payment made in Bitcoin.
2. The SARB does not have any objection to the use of DCVC’s (cryptocurrencies) – a clause in section 2.1 of the whitepaper authorizes that DCVCs can be used for the purposes of trading and in exchanges. For a cryptocurrency enthusiast, this means that we are free to trade and exchange bitcoin and other cryptocurrencies in South Africa.
3. When we look at the comments in section 3.1.1 of the whitepaper, we note that DCVCs are recognized as a store of value. This means that Bitcoin or ETH could be converted to legal tender, just in the same way we use tokens or gift vouchers, but not as a legal form of payment.
How do Taxation laws affect cryptocurrencies in South Africa?
Firstly, taxation laws and principles apply to all income under South African revenue regulations. According to an advisory comment from Luno, a reputable trading platform in South Africa, all Bitcoin (cryptocurrency) earnings are subject to taxation and therefore the public is advised to always consult a registered tax professional to ensure he/she remains tax compliant.
Simply put, all transactions involving cryptocurrency, including income you may get from trading cryptocurrency, is subject to the general taxation laws and are therefore taxed.
Although the South African Revenue Service (SARS) does not specify how cryptocurrency transactions are to be dealt with, it is clear that all asset transactions attract some form of tax. When trading cryptocurrency, taxation laws do apply. This includes a possible capital gains tax, such as when you buy a bitcoin as an investment and then sell it at a profit, or alternatively, an income tax, where the transactions form part of your ordinary business activities. Ultimately, when deciding whether your crypto transactions will incur CGT or income tax, certain considerations will be taken into account, such as intent, the duration for which the asset is held, and how it was financed, along with a multitude of case law.
However, the Financial Markets Act of 2012 excludes virtual currencies (and this could include cryptocurrencies) from the definition of securities. They, therefore, do not fall under the regulatory standards applicable to trading securities.
Can you get legal recourse?
The Reserve Bank has previously warned the public against cryptocurrency (it was mainly Bitcoin then) saying that such DCs have neither a legal status nor a regulatory framework. As such, transactions that involve them could pose several risks to the user including a lack of security guarantees and challenges of convertibility.
The Reserve Banks stated that it does not regulate virtual currencies and that using them was at the user’s own risk. You may not have recourse. Basically the authorities have distanced themselves, indicating that it is upon the individual to decide whether or not they want to use cryptocurrencies. So, if you choose to trade in Bitcoin, for example, do not run to the authorities seeking help if things go wrong.
However, this position is not cast in stone and it may still be possible to get legal recourse. The justice system may be persuaded to look at cases involving theft of cryptocurrency in the same way other digital assets are viewed. Or consider for instance that someone steals a casino token/chip from you before you cash it out – the courts would handle that. Likewise, if someone else is culpable for the loss of your Bitcoin, then you should be able to seek legal recourse.
Are there any plans for regulating cryptocurrencies in South Africa in the future?
According to the then Finance Minister, Mr.Gigaba, the position of the government was that cryptocurrencies were unregulated and operated without any authority from the central banks. However, SARB has indicated that it will commence testing of several regulations that relate to Bitcoin and cryptocurrency in general.
Furthermore, the authorities constituted a working group in December 2016 to work with the private sector in monitoring developments. This may result in industry regulations for cryptocurrencies in the near future.
In February 2017, the central bank issued a statement to the effect that it would conduct research about the feasibility of cryptocurrency technology in South Africa. More interestingly, it said that there was a possibility of it developing a digital currency, more likely using Distributed Ledger Technology (DLT) or Blockchain technology.
What else should you know about the regulations landscape?
You are currently not mandated to report foreign trade-related payments made using cryptocurrency. This applies to any amount of money paid, even when it exceeds R50, 000.
The SARB 2014 whitepaper also states that when it comes to regulations, residents have been allowed up to R4 million in foreign capital transfers every calendar year. This simply means that an investor can use any cryptocurrency to transfer money overseas as long as the transfer doesn’t exceed the annual maximum limit per person.
The Cryptocurrency industry is legal, and to a large extent, unregulated around the world. However, many governments are increasingly looking into ways of establishing some regulations regarding its use. What’s important is that you find out everything there is about the country’s taxation laws.
To learn more about bitcoin and how you can buy it, click here.
This article is provided for informational purposes only and not for the purpose of legal advice.
See also: Is Bitcoin legal in South Africa?(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)