In 2021, Serbia’s “Law on Digital Assets” (LDA) became effective. The law legalizes cryptocurrency trading and mining. Additionally, the LDA encourages cryptocurrency service providers to obtain licenses and authorization from Serbian authorities to operate within the country. Although acquiring a proper license is encouraged, licensing is not always required to provide advisory services relating to cryptocurrency in Serbia. Nevertheless, cryptocurrency service providers are provided six months to comply with the LDA.
The government agencies charged with overseeing the cryptocurrency industry within Serbia are the Serbian Securities Commission (SSC) and the National Bank of Serbia (NBS). Financial institutions supervised by the NBS are prohibited from investing in digital assets, providing services related to digital assets, and recognizing digital assets as a security. However, the following are exempt from the LDA: cryptocurrency mining operations, electronic money transactions, and digital transactions accepted “as a form of loyalty or reward without possibilities of its transfer or sale.”
The statute defines “digital assets” as “a digital record of value that can be digitally bought, sold, exchanged, or transferred and that can be used as a medium of exchange or for investment purposes (with some exceptions).” Under the LDA, there are two types of digital assets: (1) virtual currencies and (2) digital tokens. Virtual currencies are “a type of digital asset that is not issued and whose value is not guaranteed by the central bank or other public authority; it is not necessarily tied to a legal tender, has no legal status of money or currency, but is accepted by individuals or legal entities and can be bought, sold, exchanged, transmitted and stored electronically.”
In contrast, digital tokens do not have a precise definition because they vary in form. Specifically, a digital token “can serve as an access key to a service (often referred to as utility tokens), can be designed to facilitate payments (often referred to as payments tokens), and can be designed as financial instruments, such as transferable securities.” Virtual tokens, often used as a means of payment, are supervised by the National Bank of Serbia, while digital tokens, a digital form of property rights, are supervised by the Serbian Securities Commission (SCC).
The LDA affects various types of cryptocurrency companies operating within Serbia. First, the LDA affects digital asset providers, such as cryptocurrency exchanges, by implementing three significant requirements:
- These companies must have a physical presence in Serbia, and they will be subject to prior authorization from a competent national authority (National Bank of Serbia) before operating in Serbia;
- These companies will be subject to capital requirements, governance standards, and an obligation to segregate their clients’ assets from their own; and
- These companies will also be subject to IT requirements to avoid the risks of cyber thefts and hacks.
Under the LDA, cryptocurrency issuers must satisfy four requirements:
- The issuers must publish a white paper, including: a detailed description of the issuer, the project, and planned use of funds, conditions, rights, obligations, and risks;
- The issuer’s management body must meet probity standards;
- Issuers must refrain from providing misleading market communications on their digital assets; and
- Issuers must submit to the supervision of Serbian authorities.
Furthermore, the LDA affects digital asset providers by subjecting them to prudential requirements, organizational requirements, rules on safekeeping of clients’ funds, and mandatory complaint handling procedures and conflicts of interest. To become a registered digital asset provider in Serbia, the financial firm applying for registration must have a minimum registered capital of EUR 20,000 to EUR 125,000, depending on the type of service it will be providing.
Unregistered companies are prohibited from acting as digital asset service providers in Serbia. Registration requires firms to provide: (1) A list of services the company plans to provide; (2) Company bylaws; (3) An activities program; (4) An internal control plan; (5) A description of AML/CFT measures; (6) A description of the organization; (7) Information on qualified owners; (8) Information on related persons; (9) Proof of necessary capital amount; and (10) An authority’s fee proof of payments. Once registered, digital asset service providers are authorized to market their services to the public of Serbia.
- Scorechain Serbia: New Law on Digital Assets to be applied in June 2021 – How to comply with the new requirements, (February 5, 2021) Scorechain.
- Welcome to Serbia, New Crypto Law in Serbia: Start a Cryptocurrency Business in Serbia (2020, November 9). Welcome to Serbia.
- Kevin Helms, Crypto Regulation Commences in Serbia: Trading, Mining Legalized – Regulation Bitcoin News. (2021, January 6). Bitcoin News.
In Serbia, there are four different taxes that may govern cryptocurrency: (1) Value Added Taxes (VATs); (2) Corporate income taxes; (3) Personal income taxes; and (4) Property taxes. Recently, the Serbian government amended its existing tax law to specifically address cryptocurrency. These amendments discussed below become effective on July 1st, 2021.
Concerning VATs, transferring cryptocurrency into cash will be exempt from VAT burdens under Serbian law. Indeed, Serbia’s Ministry of Finance confirmed this principle in Opinion no. 413-00-168/2017-04 on November 26th, 2017. The Ministry of Finance reiterated that Article 25 of the Act on Value Added Tax does not apply to cryptocurrencies. The Minister’s opinion indicates that cryptocurrencies are classified as commodities instead of money or currency for which VATs apply.
Specifically, the Ministry of Finance reasoned that VATs do not apply to Bitcoin in particular because it is not a legal form of payment in Serbia. Likewise, the National Bank of Serbia agreed that cryptocurrencies are defaults viewed as commodities. Since virtual currencies are generally commodities, cryptocurrency transactions are exempt from VATs because they are not a legal form of payment in Serbia. However, if Serbia recognizes cryptocurrency as a legal form of payment like El Salvador, then virtual currencies could potentially be subject to VATs within the country.
Regarding corporate income taxes, the amendments declare that corporations facilitating cryptocurrency transactions must pay a 15% capital gains tax. However, companies can take advantage of a Serbian tax law that exempts 50% of capital gain taxes for corporations that invest their gains in another Serbian company within 90 days. Companies that invest their gains into another Serbian company will receive a 50% refund within twelve months after the original sale. In contrast, non-resident corporations are subject to a 20% tax rate on capital gains unless an applicable double taxation treaty exempts such gains from taxation.
Furthermore, Serbia’s personal income tax law requires individuals to pay a 15% tax on their capital gains. Under Serbian law, capital gains are determined by calculating the difference between the market value of the cryptocurrency at the time sold and the “acquisition value” of the digital asset. The acquisition value is generally documented as the price paid. Thus, it is imperative that Serbians record the price at which they paid and sold their cryptocurrencies. Like corporations, individuals may utilize a tax exemption for 50% of their realized capital gains if the profits are reinvested into Serbian legal entities or investment funds.
Finally, individuals that inherit cryptocurrency or receive cryptocurrency as a gift must pay property taxes. Specifically, the inheritance and gift tax rate in Serbia is 2.5%. The tax base is equal to the market value of digital assets when they are inherited or received. As of this writing, the price of one bitcoin is approximately $36,000. Thus, an individual that inherits or receives a single bitcoin as a gift must pay a property tax of approximately $900. However, cryptocurrencies are not subject to any other property taxes other than the inheritance and gift tax rate of 2.5%. Therefore, an individual that inherits or receives cryptocurrency as a gift pays a total of 2.5% in taxes unless the cryptocurrency is sold for a profit.
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:
Is cryptocurrency legal in Serbia?
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.
- International legal business solutions – Global Legal Insights. (2021). GLI – Global Legal InsightsInternational Legal Business Solutions.
- Welcome to Serbia, The Taxation of Cryptocurrency – Serbia 2021. (2021, March 31). Welcome to Serbia.