Crypto Regulations in the Philippines 2024 – A Government Regulated Crypto Space

Crypto regulation in the Philippines is in a quasi-legal state as of now. It is not yet accepted completely, nor has been completely outlawed. Cryptocurrency transactions are legal in the Philippines , however, the crypto coins are not considered “legal tender”. The country has a progressive and pragmatic outlook on cryptocurrency, allowing its usage as a payment method and issuing licenses to crypto exchanges and service providers. It has a vibrant crypto community with events, meetups and initiatives in favour of digital assets. 

This report by Coinpedia outlines a brief analysis of the state of cryptocurrency in the Philippines in 2024.

Introduction

Banko Sentral ng Pilipinas or BSP is the governing body in the Philippines, which has issued guidelines concerning virtual currencies (VCs). In recent years, the crypto world has grown immensely with a lot of people using digital currencies. This has led to the government’s development of a regulatory framework for Cryptocurrency.  The Securities and Exchange Commission (SEC) is the government agency which looks after regulating the Philippines’ securities, investments and financial instruments. 

Regulatory Framework

Individuals or businesses that operate VC exchanges are required to register with the BSP and adhere to operational mandates, including risk management practices and customer identification processes. These regulations aim at protecting the financial system from potential abuse.

The SEC has also issued rules concerning ICOs and the use of crypto in investment schemes. To operate a crypto exchange, one must obtain a VASP license and for additional services, other licenses are required, including Electronic Money Issuer (EMI) and a Remittance and Transfer Company (RTC). 

The central bank of the Philippines, BSP, is expanding its cryptocurrency regulations to meet changing market demands. It recently issued its first Advanced Electronic Payments and Financial Services (EPFS) license to Coins, a credential previously reserved for traditional banks.

As in any regulated sector, anti-money laundering (AML) is a major compliance issue in the cryptocurrency industry. Significant progress has been made in Know Your Customer (KYC) processes. Since the Philippines does not have a unified national ID card, companies must have systems that can recognize valid ID documents from all 82 provinces.

Timeline of Crypto Regulations In Philippines

May 09, 2024: The Bangko Sentral ng Pilipinas (BSP) approved a pilot for PHPC, a stablecoin backed by the Philippine peso, in collaboration with Coins.ph. This grant was sanctioned under BSP’s Regulatory Sandbox Framework.

March 25, 2024: The Philippines National Telecommunications Commission (NTC) blocked websites of crypto companies offering investment products without the necessary licenses.

January 31, 2023: There are 19 registered VASPs in the country. In early 2023, the SEC partnered with the University of the Philippines Law Center to work together on guidelines for digital assets. 

January 25, 2023 : The SEC drafted IRR(Implementing Rules and Regulations) for Republic Act No. 11765, covering digital products and cryptocurrencies, to protect financial consumers and strengthen regulators with rule-making, surveillance, inspection, market monitoring, and enforcement powers.

January 1, 2024: Philippines tightens Travel Rule requirements for crypto

December 22, 2022: SEC cautioned the public against using unregistered exchanges within the country.

January 26, 2021: BSP introduced the guidelines for Virtual Asset Service Providers (VASPs) where they were mandated to obtain a license from the BSP before commencing operations in the country.

January 8, 2018 : SEC issued an advisory on Initial Coin Offerings (ICOs) and crypto investments. 

February 6, 2017: BSP issued a circular no. 944 in 2017 which acknowledged virtual currencies as a valid payment method.

Crypto Tax In Philippines

The Philippines government has implemented a capital gains tax of up to 15% on cryptocurrency transactions to regulate and tax the growing crypto market. The tax applies to profits made from selling or exchanging cryptocurrencies and purchases made using crypto.

Filipinos who own or trade cryptocurrency need to report their capital gains during their annual tax filings. 

For individuals or businesses actively trading cryptocurrency with the intent of short-term resale, these digital assets could be classified as inventory. Thus, any income generated from the sale or exchange of cryptocurrency could potentially be subject to value-added tax (VAT) if it meets the applicable threshold, usually set at 12% in the Philippines.

In contrast, cryptocurrency held for investment purposes, such as capital appreciation over an extended period, is more likely to be considered an intangible asset. Under this classification, cryptocurrency becomes a capital asset for tax purposes. Gains resulting from the sale or exchange of such assets would then be subject to ordinary income tax.

Conclusion

Regulators in the Philippines have operated a sensible framework based on good knowledge of the crypto space for years now! The country remains an attractive destination for crypto as it is one of the fastest-growing economies around the world with 11.6 million Filipinos owning digital assets. It keeps adapting itself to the evolving crypto environment !

The regulator, the Securities and Exchange Commission (SEC), has demonstrated its commitment to a well-thought-out approach by partnering with the University of the Philippines Law Center (UPLC) to develop guidelines for digital assets. This collaboration indicates a collaborative effort to ensure that regulations are not only robust but also well-informed. The fact that the Implementing Rules and Regulations of Republic Act No. 11765 were opened for public comment shows a commitment to transparency and stakeholder involvement in shaping regulations. This inclusive approach is likely to continue in the future, ensuring that the crypto community and businesses have an involvement in the development of the regulatory framework in the Philippines.