On Monday March 21st, The Ministry of Finance submitted their proposal in La Gaceta, Costa Rica’s official newspaper for government affairs. Now, the public has 10 days to review, send comments or any feedback to the Ministry.
The Ministry of Finance has defended taxing cryptocurrencies such as ‘bitcoin’ and has been working on a proposal to do so for quite a while. For the Minister of Finance, Elián Villegas, cryptocurrencies are an exchange mechanism, which generate profits for those who use them, meaning they should be subject to Value Added Tax (VAT) and income tax.
In general, Cryptocurrencies are digital means of exchange; they fulfill the functions of a currency, but their use is purely digital. In addition, they use cryptographic methods as a way of securing transactions.
According to the Treasury chief, taxes are collected regardless of the type of currency, which is why the plan has been proposed.
Carlos Vargas, General Director of Taxation, mentioned “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.”
The Ministry of Finance obeys the recommendation of the Organization for Economic Cooperation and Development (OECD) to provide guidance to taxpayers on the tax treatment of cryptocurrencies.
The official document stated that once the new rules proposed by the Tax Directorate become effective, individuals and companies would have to pay value-added tax when they purchase cryptocurrencies and related services. In addition, any capital gains earned from trading cryptocurrencies would be subject to personal and corporate income tax.
Rodrigo Cubero, President of the Costa Rican Central Bank, had previously mentioned that “the Central Bank’s approach is thus one of vigilant tolerance: the existence and circulation of cryptoassets is tolerated, and space is given to technological innovation to enable the emergence of the Fintech industry, while continuously monitoring its evolution.”
In Costa Rica cryptocurrencies do not fulfill the functions of money, but they are not illegal. Although their use is permitted in the country, whoever wishes to acquire these assets does so at their own risk.