Legal Protections for Bitcoin
As by this year, Bitcoin is a legal currency in most developed countries, such as the United States, Japan, and the United Kingdom. In most emerging markets, the legality of Bitcoin vary significantly, whereby most markets like China have restricted its use without criminalizing its holders. Some countries like India banned its use; however, the legal status of Bitcoin still remains unclear in many countries.
In the United States Bitcoin is legal and it is protected by laws that protect other assets. However, tax laws give Bitcoin holders a challenge because bitcoin are not treated like currency for tax purposes, but rather property. Therefore, bitcoin is not part of the legal tender. Bitcoin also lacks a centralized issuing authority because it is part of the deregulated market. Recently, IRS created a new tax form demanding that all tax payers should declare their engagement in virtual currency transactions because it wanted to created guidance regarding the use of bitcoin in the United States (IRS, 2020).
Some countries under the European Union, such as Germany have exempted bitcoin users from taxation. Two years ago, the Germany Federal Ministry of Finance published a guide regarding the application of value-added-tax (VAT) on bitcoin. The rules determined that all transactions that involve the exchange of traditional currency for bitcoin and vice versa are exempted from VAT, but tax for other services apply. However, when bitcoin is used to pay for roducts and services, then it is treated like traditional currency. Using bitcoin for other purposes apart from means of payment is not taxable in Germany. The guidance is based on the decision made by the European Court of Justice regarding the use of virtual currency (ac cited in Federal Ministry if Finance, 2015).
Reference
Federal Ministry of Finance. (2015). BMF-Letter. VAT Treatment of Bitcoin and Other So
Called Virtual Currencies; ECJ Decision of October, 2015, C-264/14.
http://www.bundesfinanzministerium.
Internal Revenue Service. (2020). Schedule 1 (Form 1040 or 1040-SR).
https://www.irs.gov/pub/irs-pdf/f1040s1.pdf