South Africa Cryptocurrency Laws Regulation of Digital Currencies: Cryptocurrency, Bitcoins, Blockchain Technology
Even though there is no single piece of legislation that regulates crypto-assets in South Africa, there are various statutes that impose legal obligations on their holders, including the Income Tax Act of 1962 and the Exchange Control Regulations of 1961, which references the Currency and Exchanges Act of 1933. On April 6, 2018, the South African Revenue Services (SARS) clarified that it “will continue to apply normal income tax rules to cryptocurrencies and will expect taxpayers to declare all their cryptocurrency income and failure to do so could result in the imposition of interest and penalties.”
Recently, the South African legislature demonstrated a growing interest in broadening existing laws to extend their application to crypto assets. For example, on November 20, 2020, the South African Financial Sector Conduct Authority (FSCA) published a draft declaration proposing that crypto assets be considered “financial products” under the Financial Advisory and Intermediary Services Act (FAIS Act), much like shares, derivatives, and other financial products. In particular, the FSCA proposes the increased regulation of financial advisory and intermediary services with regards to crypto assets by requiring such providers to be licensed as financial services providers and comply with relevant FAIS requirements, such as the General Code of Conduct for Authorised Financial Services Providers and Representatives and the Determination of Fit and Proper Requirements. Comments from the public were to be submitted by January 28, 2021, and off-record conversations suggest that the declaration will be either amended or promulgated in 2021.
The South African Reserve Bank (SARB) is considering introducing a state-backed, or native, cryptocurrency, otherwise known as a “central bank digital currency,” or CBDC. For this reason, the SARB has allowed private companies to bid and experiment with cryptocurrency use cases under regulatory supervision.
Nonetheless, cryptocurrencies are not sufficiently regulated to protect market participants against bad actors. Put simply, there is no investor protection and no recourse available at this time. Furthermore, residents may purchase crypto assets, but they are not classified as legal tender and may be refused as means of payment by any merchant.
In 2016, members from the National Treasury, SARB, FSCA, and Financial Intelligence Centre came together to form the country’s Intergovernmental Fintech Working Group (IFWG) “to develop a common understanding among regulators and policymakers of financial technology (fintech) developments as well as policy and regulatory implications for the financial sector and economy.” Similarly in 2018, members of the IFWG and SARS came together to form the Crypto Assets Regulatory Working Group to review South Africa’s position on crypto assets specifically.
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: