Crypto Regulations in El-Salvador 2024 : First Country to Use Bitcoin as Legal Tender

El-Salvador became the first country to adopt Bitcoin as legal cash in 2021. Bitcoin was supported by El Salvador’s president, Nayib Bukele. It is believed that Bitcoin will improve the banking scenario in the country and support the economy by attracting international investment opportunities. The adoption became challenging due to Bitcoin’s volatile nature and lack of transparency surrounding the government’s budget strategy. By offering citizenship to those with $1 million Bitcoin or Tether investment plans , El-Salvador made its crypto-friendly tag more prominent in December 2023. 

El Salvador continues to expand its Bitcoin initiatives with its own Bitcoin investments amounting to $120 million. In this module by Coinpedia, we will explore the different laws pertaining to crypto and Bitcoin in El Salvador in 2024.

Introduction

Back in June 2021, El Salvador became the first country in the world to make Bitcoin legal tender. Every business model was asked to accept Bitcoin alongside the dollar. Government also took interest and invested in Bitcoin, holding it as a part of the national treasury. This move attracted international attention and scrutiny. 

Since then, El Salvador has been adapting to the crypto-centered world. We have seen a lot of crypto-friendly initiatives by the country in the recent past.

Is Bitcoin legal in El-Salvador?

Bitcoin is a legal tender in El Salvador in June, 2021. It also made the cryptocurrency Bitcoin legal cash in El Salvador after September, 2021. With the Bitcoin Act, Bitcoin in El Salvador now has a legal currency status in addition to the US dollar. The USD to Bitcoin conversions are handled by the Development Bank of El Salvador (BANDESAL). 

Bitcoin law in El Salvador states that any company or individual that provides Bitcoin services to third parties is referred to as a Bitcoin service provider. The list includes exchanges, etc. Under the Bitcoin law, service providers must register themselves with the central bank of El Salvador within 20 days of starting a business. 

Regulation Of the Law

One significant aspect of El Salvador’s Bitcoin affinity is “volcano bond”. So what is it?

In late 2021, President Nayib announced plans to issue $1 billion in Bitcoin-backed bonds to harness geothermal energy from volcanoes for the Bitcoin mining activity. The profits were to be set aside to help with the “Bitcoin city” project. The plans have yet to get into action. We might see something related to this project happening in the next few years.

However, El Salvador has been very easy and humble when it comes to cryptocurrency! In January 2023, El Salvador passed a new law on cryptocurrency transfers:

• It approved a law that regulates the issuance of digital assets by both the state and private entities.
• The bill aims to attract national and foreign investors while creating new opportunities for the citizens.
• The 47-article law is focussed to establish a legal framework that grants legal certainty to transfer operations to any title of digital sheets used in public issuance offers
• The law wants to establish the creation of the National Commission for Digital Assets and Bitcoin Funds Administration Agency to look after managing, safeguarding and investing the funds from public offerings carried out by the government
• The law would allow nation to raise funds through the world’s first sovereign blockchain bond
• The provisions are not applicable to digital currencies issued by central banks of any country.
• It would not apply to digital assets which are by law a legal tender, like Bitcoin and NFTs.
• In December 2023, the El Salvador government announced a joint initiative with Tether called “Adopting El Salvador Freedom” that allows foreigners to obtain a Salvadoran passport in exchange for paying $1 million in Bitcoin.
• On December 21, 2023, El Salvador’s Legislative Assembly approved a migration law granting expedited citizenship to foreigners donating Bitcoin (BTC) to government programs, following the launch of the Bitcoin Freedom Visa.

TimeLine of Top Crypto Events in 2024

May 15 2024 : El Salvador mined 474 Bitcoin using geothermal energy, totaling $29 million since 2021, accumulating 5,750 BTC worth $354 million.

May 13 2024 : El Salvador introduces a $360M Bitcoin treasury monitoring website, allowing tracking of Bitcoin holdings using on-chain data.

Mar, 12 2024 : The Legislative Assembly has approved a measure to eliminate income tax on foreign investments and remittances, reducing it from 30% to 0% with no limits on the amount.

Feb 05 2024 : Nayib Bukele, known for his pro-crypto stance, was re-elected as President of El Salvador. Bukele, credited with reducing gang violence, secured a second term with 83% of the votes, according to preliminary results released after 70% of votes were counted.

Crypto Tax in El-Salvador

El Salvador has eliminated income tax for international investments and money transfers, reducing the tax rate from 30% to 0%. Additionally, Bitcoin exchanges made in El Salvador will not be subject to capital gains tax. The other taxes and government fees can be paid by using cryptocurrencies.

In order to start out in El Salvador, one needs to register a company, develop a business plan  and AML/KYC policies, apply for a crypto license in El Salvador and comply with the local laws. The country supports the crypto sector by offering tax incentives and exemptions for companies with a crypto license in El Salvador. They are free from fees, taxes, and duties on digital assets , including capital gains and ordinary income.

How to obtain a crypto license in El Salvador?

The process of obtaining a license here is easy. To process a crypto license, applicants need to undergo authorization with local officials. Here are the three steps to pass:

Submission of documents ; registering a legal entity ; unfurling a corporate account

After this, the license can be obtained easily. It takes up to 3 months in the complete process.

Also Read : El Salvador Bitcoin Investment Pays Off with Millions in Profits!  

Why El Salvador for Cryptocurrency?

Due to its crypto-friendly regime, El Salvador is among the favorites of crypto investors and trades. Let us know why!

• Early adopter advantage

Being one of the first countries to establish a regulatory framework for crypto in Latin America, El Salvador presents an opportunity for companies to establish themselves as early adopters in a potential market.

• Clarity and compliance

Operating within a regulated framework provides companies with clarity to work with crypto in the El Salvador landscape. By getting a crypto license, companies can position themselves at the forefront of the crypto world.

• Government initiatives

Crypto companies can work seamlessly as the government here is very supportive. 

• International opportunities

The clear regulatory policies attract international companies to expand their operations. By obtaining a license, companies can enter the market and explore the opportunities in South and Central America. 

• Tax exemption

El Salvador offers tax benefits for crypto-related businesses.  Tax is not levied on capital gain or ordinary income from the purchase or sale of digital assets.

Conclusion

El Salvador is surprising the world every year with something new for fostering cryptocurrency usage. 2024 marked some great laws and regulatory clarity to function in the crypto market in El Salvador. We hope for such positive development in the field of cryptocurrency in future as well!