Cryptocurrencies are digital assets which are traded electronically and grounded on a decentralized network. Their exchange does not entail a reliable middle-man and they are managed using distributed ledger technology. As cryptocurrency begins to gain global recognition and acceptance, Cryptocurrency taxation is a topic that affects an increasing number of users, traders and stakeholders. One subject that generates a lot of misunderstanding among taxpayers is the usage of VAT, or the value-added tax most countries charge on the sales of goods and services.

Concept of Value Added Tax

It is worthy of note that Georgia has become the newest nation to exempt crypto-fiat transactions from value-added tax, a verdict that upholds Bitcoin’s standing as a currency. The move has already happened in many other states, in spite of the dearth of all-inclusive regulations. According to a report, Ivane Matchavariani -Georgia’s finance minister- of late, signed a bill pointing towards regulating the taxation of bodies that trade or mine cryptocurrencies. The bill was signed recently and entered into force at the end of June.

What is Value Added Tax?

Value added tax is tax assessed at different stages of production. Unlike Sales Tax which is paid once, Value added Tax abides by an “Invoice based system” where its accumulated at several different stages. Applying Value Added Tax to Crypto would essentially dissuade people from earning it since it would yield an extra tax component. With Georgia exempting crypto from value added tax, it may have a favorable outlook on the tech long term and incorporate framework that would encourage people to use cryptocurrency on a daily basis.

Crypto Tax Reporting 

Traders of digital coins, both companies and individuals, will not be obliged to pay VAT to the government. This is according to a directive intended to illustrate certain aspects of the taxation of entities trading or mining cryptocurrencies.  In an attempt to define the concept of the digital currency, the document describes cryptocurrencies as digital assets that are exchanged electronically and based on a decentralized network. Furthermore, it added that their exchange does not require a reliable intermediary and they are managed using distributed ledger technology.

According to reports made by Forbes Georgia, Inhabitants of Georgia trading coins to local or foreign fiat currency will not be necessitated to pay the value-added tax. Additionally, private citizens who carry out such transactions will also be spared from income tax. Bitcoin, however, will not become legal tender in the country, as the Georgian Lari will remain the legal tender in Georgia and using cryptocurrencies for payments will not be allowed. But that’s in force for just about any foreign currency as well.

Georgia, which provides plentiful and low-priced electrical energy produced by its many hydropower plants, and has morphed into a regional mining hotspot over the past few years will now be a safe haven as many regions require mining companies to pay VAT unless they are registered abroad. Therefore, now, many businesses from the crypto sphere are likely to move their official HQs to offshore zones while keeping their operations in the Georgian region.

Stefano Capaccioli-a lawyer specializing in gold and cryptocurrencies revealed in a public report that this decision by Georgia is of significant importance,  as it simplifies all doubts and eliminates the confusion often associated with the applicability of consumption taxes to bitcoin, considering cryptocurrencies as a simple means of payment and, in a VAT viewpoint, similar to a foreign currency. He added that the Judgment is a real-world evidence that bitcoin does not need a specific regulation, rather, the clarification of prevailing rules because it does not fall in any legal void.

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