BIT4YOU – The first Belgian crypto-exchange: Legal or not?
A young entrepreneur from Brussels has recently launched the first Belgian crypto-exchange platform called BIT4YOU.
The platform facilitates transactions between buyers and sellers from around the world and deals in Bitcoin, Litecoin, Ripple, Ethereum, and six other mass-traded cryptocurrencies. It is a small-scale version of the bigger exchange platforms such as Coindex and Bitstamp.
The current exchange is in its beta-stage but the BIT4YOU team is working on putting together a fully functional and decentralized platform, which is mobile friendly and facilitates the use of smart-contracts and in-store purchases.
Denial of approval from the Belgian financial market watchdog (FSMA)
The developer claimed that his exchange platform was greenlit by the Belgian financial market watchdog (FSMA), however, the FSMA have denied it. The watchdog and the developer did discuss the platform, but an approval was never given.
This means that Belgium maintains its point of view on the trading of cryptocurrencies, which is currently inexistent. In other words, Belgium remains without a legal framework and a qualification, whilst other European countries do seem to understand the necessity thereof.
Interestingly enough, the Minister of Digitalization was present at the launch of the platform, which could imply that some steps are being taken in the Belgian Government towards regulation of these types of assets and platforms.
Much remains to be seen, but having a clear regulation is desirable as owners of such assets remain in a sphere of legal uncertainty and the transactions are not governed by AML (Anti-Money-Laundering) nor CFT (Combating the Financing of Terrorism) rules. This is because there is no qualification or definition of the asset, which means it’s impossible for them to fall under the scope of said regulations.
This, however, does not change the fact that the transactions are legal.
As there is no regulation, there are no rules that state the illegality of such transactions. The lack of a legal framework does not prohibit a Belgian citizen from trading cryptocurrencies and generating profits from it. In other countries, such as China and Thailand, such transactions are illegal, because they have been expressively prohibited.
Profits arising from cryptocurrencies, whether generated through mining or trading are often very high due to volatility of cryptocurrencies. The Belgian tax authority knows this and would like to tax these profits, but also lacks a specific legal framework to impose the taxation.
In 2017, a young entrepreneur created an application, which automatically traded cryptocurrencies for profits. The reason why he created the application was merely to test what he had learned during his ongoing higher education. Without knowing in the beginning that he would generate such profits, he made a considerable income.
Consequently, he asked the Belgian tax authority for a ruling on how these profits would be taxed.
In short, there were three possibilities:
1. Professional income (progressive rates)
If the profits arise from a professional activity, they will be taxed at up to 50%, depending on the amount of the profit.
2. Diverse income (33%)
If, from time to time, you generate an income from secondary activity (like a hobby or a second profession), the profits will be taxed at 33%. This is the case if one is trading with speculation, but has a full-time job as a primary activity/source of income.
3. Normal management of private capital (0%)
There is no taxation if you can prove that the transaction was “normal management of private capital”. For instance, if you bought 10,00 EUR worth of Bitcoin in 2009 and you sell them today, one could argue that this should not be taxed, taking into account the initial investment and the period of detention.
The Belgian tax authority decided that the profits which arose from the application were taxable as diverse income, because of the inherent speculative character of crypto trading. This means that every transaction with cryptocurrencies is taxable at minimum 33%.
This ruling is the only indication Belgium has given on the taxation of profits generated by crypto trading.
In conclusion, Belgium is falling behind on the regulation of a rapidly-growing market in which all sorts of players are active. The legal uncertainty that comes with it brings disquiet to the players and the banks.
Yet the disquiet is unfounded and caused gratuitously. The transactions are legal.
The only stumbling block is the compliance procedure with the bank. Your everyday (Belgian) bank will probably be reluctant to allow profits to be transferred to an account held at that bank, but there are other banks that are opening up to the crypto market, embracing its potential.
From a tax perspective, there has only been one ruling since December 2017. Since then, there has only been radio-silence from the tax administration and hypotheses from tax experts.
In short, there is still no certainty with regards to the taxation of crypto profits. There are a lot of variables that make every situation unique and require an individual approach and thorough assessment to determine in which of the abovementioned three categories the profits would fall under.
If you have a crypto related matter that you would like a professional legal advice on, you’ve come to the right place. At Vanbelle Law our experts in crypto currency related matter will be happy to assist you and offer you a tailor-made legal advice.
For more information on the subject, please feel free to contact us.