Costa Rica and Cryptocurrency
Costa Rica Cryptocurrency Laws
Regulation of Digital Currencies: Cryptocurrency, Bitcoins, Blockchain Technology
For several reasons, various commentators have called Costa Rica a “crypto haven.” First, Costa Rica is one of few jurisdictions worldwide where it is legal for employers to pay their employees in cryptocurrency. Technically, Costa Rica’s law permits employees to be paid in “commonly accepted assets” as a means of payment. Arguably, cryptocurrency is a “commonly accepted asset” in Costa Rica. However, there are still legal obstacles for employers that intend to pay their employees with cryptocurrency. First, employers must pay a portion of their social security based on the cryptocurrency’s value on the payment’s date. Calculating this daily value requires effort, and the volatility of cryptocurrency prices further complicates this issue. Second, the legal minimum wage must be paid in money, but employers may pay salaries in other goods that are not money, such as Bitcoins. Consequently, workers who only make minimum wage cannot be paid in cryptocurrencies, but employees who make more than minimum wage or paid in salary may be paid in cryptocurrency. However, the discretion to decide to receive payment in cryptocurrency lies in the workers’ hands, not the employers.
Digital Currency – Blockchains
The second reason Costa Rica is considered a crypto-haven is that its citizens widely accept cryptocurrencies. While the government does not regulate cryptocurrency as a means of payment and the Central Bank of Costa Rica (CBCR) declared that cryptocurrencies are outside of the national banking system, cryptocurrencies are nevertheless accepted at an abundance of stores. Even though cryptocurrency transactions cannot be made through the National System of Electronic Payment (SINPE), many businesses in Costa Rica nevertheless accept cryptocurrency as a medium of exchange. One challenge for cryptocurrency in Costa Rica is that the banks and escrow companies refuse to recognize the incomes resulting from virtual currencies as legal income. Consequently, the banks do not accept deposits resulting from cryptocurrency transactions, regardless if the deposit came from the United States. The CBCR also declared that cryptocurrency users assume the “associated financial risks.” Despite this warning, there is still a high demand for businesses to incorporate cryptocurrencies into their payment systems and accept them as payment.
Third, Costa Rica offers technology companies several competitive advantages that its neighboring countries in Latin America cannot offer. In comparison, Costa Rica has a stable political atmosphere and has one of the best online infrastructures in Latin America. In fact, a fiber-optic network connects the entire country, providing optimal internet connectivity for technology companies in Costa Rica. Specifically, Costa Rica offers cryptocurrency miners competitive advantages because the country has one of the highest renewable energy outputs worldwide. The abundance of electricity in Costa Rica is essential for miners since cryptocurrencies are notorious for high energy consumption. To illustrate, Bitcoin alone consumes 66.7 terawatt-hours, which is more than the entire Czech Republic.
Four, the policy of Costa Rica regarding cryptocurrency is to refrain from hindering the technology’s growth. This policy fosters a favorable legal environment for cryptocurrency enterprises. While the government once issued a warning about cryptocurrencies, they nevertheless see the potential in blockchain technology and do not plan on hindering the technology’s development. Instead, the government of Costa Rica has adopted a hands-off approach to “study the issue.” This policy has permitted cryptocurrency firms to thrive in Costa Rica, thereby making it a “crypto-haven.”
Classifications.
In sum, the government of Costa Rica has been hesitant to recognize cryptocurrency legally. Costa Rican agencies so far have declined to categorize cryptocurrency as a monetary currency. Specifically, the Central Bank of Costa Rica (CBCR) declared that cryptocurrencies are not “legal tender,” “monetary currency,” or “foreign currency.” Nevertheless, cryptocurrencies may be classified as “quasi-money” or as a “means of payment” under Costa Rican law.
Costa Rica’s classifications of cryptocurrency suggest that the government is taking a hands-off approach with the new technology. For example, the CBCR declared that Bitcoin and other similar cryptocurrencies are not recognized as legal tender within the country. Additionally, cryptocurrencies are not supported by the backing of the CBCR nor the government of Costa Rica. In Costa Rica, the authority to establish monetary currency lies in the hands of the CBCR. The only monetary currency that the CBCR recognizes is the colón. Since the CBCR has not established v, cryptocurrency has not yet been classified as a monetary currency in Costa Rica.
Furthermore, the CBCR mandated that cryptocurrencies are not “foreign currency” within Costa Rica since a foreign central bank does not issue them. Consequently, they are not protected by the free currency convertibility provisions of articles 48 and 49 of the Central Bank Organic Law. Therefore, converting foreign currency into cryptocurrency can be subject to transaction fees in Costa Rica.
However, cryptocurrency may be within the statutory bounds of “quasi-money” under Costa Rican law. According to Costa Rica’s legislature, the definition of “quasi-money” is “any asset that can be used as a means of payment and has been widely accepted as such in society.” Cryptocurrency opponents might argue that cryptocurrency is not “quasi-money” because it has not been widely accepted by the society of Costa Rica. However, that argument lacks merit for two reasons. First, cryptocurrencies are used in an abundance of stores throughout the country. Second, the state of Costa Rica authorizes employers to pay their employees with cryptocurrencies. Therefore, cryptocurrency can likely be classified as “quasi-money” since cryptocurrency is widely accepted by the citizens of Costa Rica, and also by the government to the extent that they authorize employers to pay salaries in cryptocurrency.
Second, cryptocurrencies can probably be classified as a “means of payment.” Article 166 of Costa Rica’s Labor Code mandates that commonly accepted assets can be used as a means of payment. Since cryptocurrencies are used throughout the country, and the government permits paying employees in cryptocurrency, virtual currencies may be defined as a “commonly accepted asset.” Accordingly, cryptocurrency can legally be classified as a “means of payment” in Costa Rica.
P.S. Insights on Cryptocurrency Legal Issues
Most jurisdictions and authorities have yet to enact laws governing cryptocurrencies, meaning that, for most countries, the legality of crypto mining remains unclear.
Under the Financial Crimes Enforcement Network (FinCEN), crypto miners are considered money transmitters, so they may be subject to the laws that govern that activity. In Israel, for instance, crypto mining is treated as a business and is subject to corporate income tax. In India and elsewhere, regulatory uncertainty persists, although Canada and the United States are relatively friendly to crypto mining.
However, apart from jurisdictions that have specifically banned cryptocurrency-related activities, very few countries prohibit crypto mining.
Our Freeman Law Cryptocurrency Law Resource page provides a summary of the legal status of cryptocurrency for each country across the globe with statutory or regulatory provisions governing cryptocurrency. The globe below provides links to country-by-country summaries:
Do you have questions about cryptocurrency, digital currencies, or blockchain technology? Freeman Law can help with digital currencies, tax planning, and tax compliance. Contact us now to schedule a consultation, or call (214) 984-3410 to discuss your cryptocurrency and blockchain technology concerns.
WORKS CITED
Regulation of Cryptocurrency Around the World. (2014). Library of Congress.
Guest Author. (2019, March 3). Costa Rica: A New Crypto Heaven. CryptoPotato.
Costa Rican Workers Can Be Legally Paid in Cryptocurrency – Bitcoin News. (2018, July 22). Bitcoin News.
Guest Author. (2019, March 3). Costa Rica: A New Crypto Heaven. CryptoPotato.
RE/MAX OCEAN SURF & SUN. (2017). Remax-Oceansurf-Cr.
Costa Rican Workers Can Be Legally Paid in Cryptocurrency – Bitcoin News. (2018, July 22). Bitcoin News.
Regulation of Cryptocurrency Around the World. (2014). Library of Congress.
Zúñiga, A. (2019, January 4). Costa Rican crypto: The Bitcoin economy in Costa Rica –. The Tico Times | Costa Rica News | Travel | Real Estate.
The Central Bank of Costa Rica and its decentralized agencies (órganos de desconcentración máxima) issued a statement in October 2017 to participants in the financial, stock, securities, insurance, and pension markets, and to exchange houses, remittance agencies, the economic sector, and the general public, warning them about the risks associated with the acquisition of cryptocurrencies with the intention of using them either as financial savings or as a means of payment in Costa Rica. The statement explained that articles 42-51 of the Organic Law of the Central Bank establishes the colón as the monetary currency in Cost Rica. The statement also asserted that the Law designates the Central Bank as the sole issuer of bills and coins and establishes the unlimited power of the colón to liquidate all kinds of pecuniary obligations, both public and private. Due to this, the statement said, Bitcoin and similar cryptocurrencies are not recognized as legal tender in the country and do not have the backing of the Central Bank or the state of Costa Rica. Moreover, cryptocurrencies’ effectiveness or use as a means of payment in the economy of the country cannot be guaranteed, nor can any person be forced to accept them as a means of payment for the transaction of goods and services.
The statement also asserted that because cryptocurrencies are not issued by a foreign central bank, they cannot be considered a foreign currency under the monetary exchange regime, and for this reason they do not have the security offered by the free currency convertibility provisions of articles 48 and 49 of the Organic Law of the Central Bank.
In the statement, the Central Bank and its decentralized agencies emphasized that they do not in any way regulate or supervise cryptocurrencies as a means of payment; moreover, they emphasized that transactions with cryptocurrencies cannot be made through the National System of Electronic Payment (SINPE) used in Costa Rica.
The statement warned that if any financial entity becomes directly or indirectly involved with its customers in the commercialization or use of any of these digital assets, such operation are undertaken at the financial entity’s own risk and responsibility, as well as that of its customers. The statement added that the foregoing is in accordance with the obligation established by prudential regulations on the prevention of money laundering and the financing of terrorism, which imposes a duty on financial entities to carry out the necessary risk analysis with respect to new technologies.
The statement reiterated that any person who acquires digital currencies, either as a form of savings or with the interest of using them as means of payment, and those who accept them with this function in commercial transactions, also do so at their own risk and responsibility, warning that they will be participating in operations not contemplated by the banking regulations or the payment mechanisms authorized by the Central Bank of Costa Rica. The statement concluded by saying that the warnings it contains are not limiting and do not exclude other risks inherent in the use of digital currency, and that the Central Bank will continue to study the issue.[45]
[45] Press Release, Banco Central de Costa Rica, Posición del Banco Central de Costa Rica (BCCR) y sus Órganos de Desconentración Máxima (ODM) con Respecto a las Criptomonedas (Oct. 9, 2017).
