Setting the Stage: Taiwan’s Bill Redefines Virtual Assets and Exchange Operations

[TL; DR]

Legislators in Taiwan have drafted the virtual asset management bill which has gone through the first reading in the Legislative Yuan.

Currently, Taiwan uses the anti-money laundering (AML) provisions to govern crypto activities in the country.

The digital asset bill will undergo the second reading in January 2024.

Introduction

It is now evident that many countries realize the transformative power of cryptocurrencies for their economies, something that has influenced most of them to be proactive by enacting crypto friendly regulations.

Taiwan is one of the first nations to take a bold step of establishing crypto legislation. For this reason, we are going to focus on Taiwan’s new crypto bill and its expected effect on cryptocurrency use and adoption in the country.

Taiwan’s Digital Asset Bill

Taiwan has taken its first bold step to regulate digital assets, particularly cryptocurrency, in the country as it has presented an inaugural Virtual Asset Management Bill in the Legislative Yuan, its elected body responsible for assessing future laws. Nevertheless, the proposed Taiwan crypto regulation will undergo further review in the future.

According to the Taiwanese parliamentary records, the “Virtual Asset Management Ordinance Draft, introduced in the legislative parliament on October 25, aims to establish a legal framework for digital assets in Taiwan.”

There are several objectives the crypto regulation in Taiwan will achieve. It will provide a clear definition of virtual assets, establish customer protection guidelines, and provide standards for virtual asset service providers as well as mandate industry players to join the relevant industrial association.

Key Provisions of the Virtual Asset Management Bill

The digital asset bill will establish various operational guidelines for virtual asset service providers and organizations in the financial sector.

For a long time Taiwan used a hands-off and permissive approach in overseeing crypto activities in the country. Mainly, the country used its anti-money laundering (AML) and know-your-customer (KYC) laws to govern crypto operations such as trading of digital assets.

However, after the collapse of FTX crypto exchange in October 2022, there was a need to regulate crypto in Taiwan to protect its citizens from fraudulent individuals and organizations. This is because the fall of FTX affected many Taiwanese as they used to trade cryptocurrencies on the exchange.

The digital asset bill stipulates that Virtual Asset Service Providers (VASPs) should get licence before operating in the country. Those that are already offering their services should seek licenses within 6 months after the crypto law is enacted. The VASPs that operate without authorization will pay fines that range between TWD 2 million (approximately $60,000) and TWD 20 million ($600,000).

Unlike crypto laws from other countries including the City of Hong Kong, the virtual asset management bill does not stipulate that stablecoin issuers should have a 1.1 reserves for their coins. Nonetheless, the relevant regulator has the right to establish asset ratio standards. Also, the bill remains silent on algorithmic stablecoins.

Another notable provision of the crypto legislation, if approved, is that the VASPs should segregate company reserves and customer funds to enhance transparency. They should also implement internal control measures and auditing s to create accountability that enable transparent financial reporting. Nevertheless, the bill has no stipulation of separate custodianship.

Further to this, any Taiwan crypto exchange will need to submit period financial reports to the relevant regulatory agency. Also, it will be the responsibility of the Financial Supervisory Commission (FSC) to conduct regular inspections of their internal procedures and audit s.

One interesting provision of the proposed crypto regulation is that all VASPs should join relevant industry associations before operating in the country. It is important to note that Taiwan’s legislative council also expects the Financial Supervisory Commission to create its own crypto legislation.

In addition, the bill does not have hard and fast rules on crypto derivatives. The reason is that each class of derivative has its unique characteristics. It is most likely that the country will create a specific regulatory framework for derivatives.

Interestingly, the proposed crypto regulation has no restrictions on trading of virtual assets. It leaves room for a diverse group of investors to participate in the digital asset market.

According to the official documents, the bill is now awaiting a second reading in the legislative parliament which may take place in early 2024.

Currently, though, VASPs and crypto investors should adhere to existing crypto guidelines like the know-your-customer and anti-money laundering laws.

Existing Crypto Regulation in Taiwan

Although we have described the proposed Taiwan crypto regulation the country has an existing regulatory framework based on its financial laws. Currently, there is no specific legislation that governs cryptocurrencies and other digital assets. However, all crypto operations should comply with the anti-money laundering (AML) provisions.

In the past the Financial Supervisory Commission (FSC) made it clear that Bitcoin was not under its authority since it has no issuer. This line of reasoning currently applies to most cryptocurrencies. In 2013 the Central Bank and the FSC said that digital assets like bitcoin were not legal tender in the country.

Nevertheless, with effect from 1 July 2021 the country said that Regulations Governing Anti-Money Laundering and Countering the Financing of Terrorism for Enterprises Handling Virtual Currency Platform or Transaction also apply to cryptocurrencies and other digital assets. That meant that all firms and platforms that provide digital currencies should abide by them.

In 2014 the central bank and FSC provided more enlightenment on cryptocurrencies. For instance the FSC ordered all local banks not to accept cryptocurrencies like bitcoin or offer related services. It also forbade the use of credit/debit cards from making payments for crypto services.

However, the FSC allows individuals and firms to buy and sell bitcoin which it deems to be a virtual commodity, not a currency. The regulatory authority’s view is that credit/debit cards are not designed for wealthy management and investment for highly leveraged and risk assets like cryptocurrencies.

Cryptocurrency and Taxation in Taiwan

It is important to stress that the country considers trading of cryptocurrencies as a sale of services liable for Taiwan crypto tax. Therefore, both Taiwanese businesses and other sellers should pay VAT on revenue generated. Also, crypto businesses and the Taiwanese crypto sellers should apply for tax registration.

In addition to value added tax (VAT), crypto businesses in the country should pay income tax. This applies to crypto traders. They should declare the income they generate from trading and remit the right amount of income tax payable.

Read also: G7 sets Out to Strengthen Crypto Regulations

Self-regulation in the Taiwanese Crypto Industry

An important existing practice is self-regulation within the Taiwan crypto industry. A group of major cryptocurrency exchanges in the country formed the Taiwan Virtual Asset Platform and Transaction Business Association.

The aim of this consortium, which comprises Hoya Bit, Bitgin, Rybit, Maicoin, BitstreetX, Xrex, and Shangbito, is to work hard to support the entire crypto sector. It also cooperates with regulatory agencies to ensure there is mutual cooperation and understanding.

How the Bill Impacts the Cryptocurrency Industry

The major reason why legislators in Taiwan have crafted the digital asset regulation is to protect customers, support crypto businesses and promote innovation in the blockchain sector.

At the same time, the country wants to benefit from the emerging industry. Therefore,it aims to align its regulatory framework with the rest of the world. By doing this it will collaborate with leading blockchain firms and increase investment in digital assets.

The implementation of crypto regulation in Taiwan will create a reliable investment climate which will attract many investors into the sector. Both the investors and crypto businesses will no longer view digital assets as risky and a threat to the community.

Moreso, the regulation is likely to stabilize the digital asset market since it will reduce incidences of market manipulation and fraudulent activities. Generally, crypto law will result in the expansion of the industry. It will also enhance confidence in cryptocurrency exchanges, other blockchain firms and the rest of the sector.

Read also: Asia’s Victory: US Crypto Crackdown Benefits Asia

Possible Changes in Taiwan’s Crypto Regulation

At the moment the crypto regulation framework in Taiwan is not yet complete. There are other areas that will need improvements in the future. For instance, the Financial Supervisory Commission (FSC) is likely to introduce its own suggestions covering aspects like crypto securities, stablecoins and derivatives.

The country may also incorporate other aspects it notes from other countries like the United States and economic blocks such as the European Union.

Conclusion

Taiwanese legislators have drafted a crypto regulation framework for the country which has gone through the first reading. The next reading is likely to take place in January 2024. Taiwan has always taken a soft stance on crypto activities in the country as it is willing to see the industry expanding. If the virtual asset management bill is approved many countries will learn from Taiwan’s proactive approach to digital assets.

FAQs about Crypto in Taiwan

Is bitcoin accepted in Taiwan?

Although Taiwan allows people to trade bitcoin and other cryptocurrencies, it is not a legal tender in the country. The country views bitcoin as a commodity not a security. Currently, Taiwan is reviewing its crypto regulations after it introduced the Virtual Asset Management Bill in the Legislative Yuan.

How to buy bitcoin in Taiwan?

People can buy Bitcoin at various cryptocurrency exchanges such as Bit2Me and Paxful. They can use Perfect Money, Advcash, SEPA Skrill, Neteller, Payeer, and Bank Transfer to pay for bitcoin and other cryptocurrencies.

How is crypto taxed in Taiwan?

Taiwan has a tax on cryptocurrency trading since it considers it as a sale of services. Crypto businesses and sellers should pay value added tax and income tax.

Are there regulations in cryptocurrency?

Currently, Taiwan uses its anti-money laundering (AML) provisions to regulate crypto activities in the country. However, it has recently introduced the Virtual Asset Management Bill which the Legislative Yuan will further review in 2024.