Blockchain and Cryptocurrency Laws and Regulations in Taiwan

Author: Robin Chang, Eddie Hsiung; Compiler: TaxDAO

1. Government attitude and definition

Cryptocurrencies are not currently accepted as currency by the Central Bank of Taiwan (“CBC”).

On December 30, 2013, the CBC and Taiwan's Financial Supervisory Commission ("FSC") first issued a joint press release (the "2013 Press Release") expressing the government's stance on Bitcoin. According to a 2013 press release, authorities argued that bitcoin should not be considered a "currency," but rather a highly speculative digital "virtual commodity." In another press release from the FSC in 2014 (“2014 Press Release”), the FSC ordered local banks not to accept Bitcoin or provide any other services related to Bitcoin (such as exchanging Bitcoin for fiat currency). On July 4, 2022, the FSC sent a letter to the local bankers association, requesting the association to forward the FSC’s instructions prohibiting credit card acquirers from providing credit card services for purchasing encrypted assets in the Taiwan market. Options and other related transactions prohibit credit card services in a similar position. As of the date of publication, the FSC has not formally issued any further rules or regulations related to the proposed new requirements beyond this letter. FSC issued further press releases on 19 December 2017 and 4 March 2022, in which FSC reiterated the government's position expressed in the 2013 and 2014 press releases.

Other than the foregoing, no laws, regulations or rulings have been formally promulgated, promulgated or amended to specifically address the rise of cryptocurrencies, except for any securities of a security nature (commonly referred to as Tokens”, the offerings of which are commonly referred to as “Security Token Offerings”, “STOs”) are outside the regulations governing the offering and issuance of tokens.

2 Sales Supervision

means the sale of Bitcoin or any other virtual currency/cryptocurrency of the same nature and characteristics. So far, there are no laws or regulations specifically dealing with virtual currency/cryptocurrency sales, other than the STO regulations discussed below. At present, the sale of Bitcoin is regarded by the FSC as a sale of digital "virtual goods" rather than "currency". From the perspective of Taiwan's supervision, generally speaking, there should be no problem. If the consideration is cash, the "Civil Code" applies. General principles and rules governing "buying and selling". Furthermore, we tend to think that the above also applies to the sale of other virtual currencies/cryptocurrencies having the same nature and characteristics as Bitcoin.

Please note that the above is subject to the "ICO and Token Offering" as described below.

ICO and Token Offering

In response to the increasing number of initial coin offerings (“ICOs”) and other investment activity in virtual currencies/cryptocurrencies, the FSC also expresses the following views on ICOs through the above-mentioned 2017 edition:

a) ICO refers to the issuance and sale of "virtual goods" (such as digital rights, digital assets or digital virtual currency) to investors. The classification of an ICO should be determined on a case-by-case basis. For example, if an ICO involves the offering and issuance of "securities," the Taiwan Securities Exchange Act ("SEA") should apply. The question of whether tokens in an ICO are considered “securities” under the SEA will depend on the facts of each individual case.

b) If a virtual currency or ICO issuer utilizes any false representations about the technology or its achievements and/or promises unreasonably high returns to attract investors, the issuer will be considered fraudulent or illegal to raise funds.

In summary, in an ICO (or other types of token offerings, such as a private token pre-sale prior to the ICO stage), the central question is whether the ICO will be considered a “securities” offering under Taiwan’s securities regulations. Under current Taiwanese law, the offering and sale of "securities" in Taiwan, whether through public offerings or private placements, is a regulated activity and shall be governed by the SEA and its related regulations, as well as relevant rulings issued by the FSC from time to time.

Security Tokens and STOs

On July 3, 2019, the FSC issued a ruling formally designating cryptocurrencies that are securities in nature (ie, security tokens) as “securities” under the SEA (“2019 Ruling”). According to the 2019 Ruling, security tokens are:

• Utilize cryptography, distributed ledger technology, or other similar technologies to represent its value that can be stored, exchanged, or transferred through digital mechanisms;
• transferable;
• Covers all of the following attributes of an investment:
• Funding provided by investors;
• Funding of joint ventures or projects;
• Investors who wish to make a profit;
• Profits are primarily due to the efforts of the issuer or third parties.

In addition to the 2019 ruling, the FSC issued a press release on June 27, 2019, setting out the main points of the FSC's policy on STOs. Since then, the FSC and the Taipei Exchange (“TPEx”) have developed a set of STO regulatory rules and finalized the STO rules in January 2020. Specifically, the FSC has regulated STOs with a threshold of 30 million New Taiwan Dollars (“NT$”). STOs below NT$30 million can be handled in accordance with STO regulations; STOs above NT$30 million must first apply for entry into the "Financial Regulatory Sandbox" test in accordance with the Sandbox Law. If the test results are good, they should be tested in accordance with the SEA . Please see below for a summary of some key provisions of the STO regulations (i.e. STOs under NT$30 million):

· Issuer Eligibility – The issuer must be a company limited by shares established under the laws of Taiwan and not listed on the Taiwan Stock Exchange, TPEx or traded on an emerging stock market.

· Types of security tokens that can be issued - Issuers can only issue profit-sharing or debt tokens with no shareholder rights.

· Qualified investors and amount restrictions - currently, only "professional investors" are eligible to participate in STO; for professional investors who are natural persons, the maximum purchase amount for each STO is NT$300,000.

STO Platform Operator

· Platform Operator Qualifications——Platform operators should obtain a securities firm license, have a minimum paid-in capital of NT$100 million, and provide an operating deposit of NT$10 million.

· Total issuance capacity - the total issuance of all STOs on a single platform shall not exceed NT$200 million. Only six months after the first STO's security tokens were traded on the platform, the platform is ready to accept the second STO for processing.

· Transfer and record keeping—the platform operator should sign an agreement with Taiwan Securities Depository and Clearing Corporation (“TDCC”) to transmit transaction information such as balance changes and balance sheets to TDCC for future reference. TDCC should provide investors with STO balance inquiry services.

According to STO regulations, there are other requirements and restrictions, including trading (secondary market), real-name system, NTD only, etc.

3 Taxes

There are currently no regulations specifically governing the taxation of cryptocurrencies; however, combined with tax laws and tax rulings on the taxation of cross-border e-commerce transactions and online service sales, tax authorities may take the following positions.

Sales Tax (also known as Value Added Tax or "VAT")

Trading cryptocurrencies on a platform in Taiwan may be considered a sale of services in Taiwan and therefore subject to Taiwan sales tax, as follows:

· If the seller is a Taiwanese business entity, the seller will be subject to 5% VAT on revenue.

· If the seller is a Taiwanese individual, the individual should apply for tax registration and pay 5% VAT on income unless the monthly sales are below NT$40,000 (approximately US$1,300).

· If the seller is a foreign entity with a fixed place of business in Taiwan (such as a Taiwan branch), the Taiwan branch is subject to 5% VAT on that income.

· If the seller is a foreign entity that does not have a fixed place of business in Taiwan, and the buyers of cryptocurrency are all Taiwanese entities, the seller will not have sales tax issues; instead, the buyers will become taxpayers.

· If the seller is a foreign entity without a fixed place of business in Taiwan, and the purchasers of the cryptocurrency include Taiwanese individuals, the foreign seller shall apply for tax registration and pay 5 % VAT, unless monthly sales to Taiwanese individuals are below NT$40,000 (approximately US$1,300).

Income tax

Any income derived from cryptocurrency transactions on domestic platforms (“Transaction Income”) may be considered Taiwan-sourced income and therefore subject to Taiwan income tax, as follows:

· If the seller is a commercial entity in Taiwan, the seller shall incorporate the operating income into other taxable income to calculate the payable Taiwan income tax. (The current income tax rate is generally 20% of taxable net income.)

· If the seller is an individual in Taiwan, the individual should incorporate the business income into other taxable income to calculate the payable Taiwan income tax. (The current top progressive tax rate is 40% of taxable net income.)

· If the seller is a foreign entity with a fixed place of business in Taiwan (such as a Taiwan branch), the Taiwan branch shall include the operating income into other taxable income and pay income tax. (The current income tax rate is generally 20% of taxable net income.)

· If the seller is a foreign entity and has a business agent in Taiwan, the business agent will handle the income tax return on behalf of the foreign entity, declare business income, and pay income tax. (The current income tax rate is generally 20% of taxable net income.)

· If the seller is a foreign businessman and has no fixed place of business or business agent in Taiwan, he should apply for an income tax return (the seller can hire a tax accountant to declare on his behalf), declare his business income, and pay income tax. (The current income tax rate is generally 20% of taxable net income.)

4 Funds Transfer Law and Anti-Money Laundering Requirements

Currently in Taiwan, there are no required licenses to (a) operate virtual currency or exchange services between virtual currency and fiat currency, or (b) act as a "money transmitter", etc.

In terms of anti-money laundering, the newly revised "Taiwan Money Laundering Management Law" (hereinafter referred to as "Taiwan Anti-Money Laundering Law"), which came into effect on November 7, 2018, includes cryptocurrency platform operators in the anti-money laundering supervision system, and enterprises that meet the specified scope Relevant rules applicable to financial institutions under the Taiwan Anti-Money Laundering Act will apply. On April 7, 2021, Taiwan’s Executive Yuan issued a ruling (“Anti-Money Laundering Ruling”), explaining the business scope of “virtual currency platforms and trading businesses” in Taiwan’s Anti-Money Laundering Law. The scope of the Anti-Monopoly Law includes persons who engage in the following activities for others:

• Exchange between virtual currency and New Taiwan dollar, foreign currency, or currency issued in mainland China, Hong Kong, and Macau.
• Exchange between virtual currencies.
• Transfer of virtual currency.
• Custody and/or management of virtual currency or provision of tools capable of controlling virtual currency.
• Participate in and provide financial services related to the issuance or sale of virtual currency.

After the release of the "Anti-Money Laundering Regulations", the Financial Supervisory Commission further issued the "Administrative Regulations on Anti-Money Laundering and Anti-Terrorist Financing for Virtual Currency Platforms and Transaction Business Enterprises". According to the regulations, designated crypto asset operators and exchanges must establish internal control and audit mechanisms, suspicious transaction reporting procedures, know-your-customer procedures, etc. This regulation is effective from July 1, 2021, except for the regulation that requires both the transferor and the transferee to "transfer out" the cryptocurrency anonymously - the effective date of this regulation will be further determined and announced by the FSC.

5 Promotion and Testing

Taiwan's Fintech Regulatory Sandbox Law "Fintech Development Innovation and Experimentation Law" (hereinafter referred to as the "Sandbox Law") was promulgated on January 31, 2018 and came into effect on April 30, 2018. The sandbox law was created to allow fintech businesses to test their financial technology.

Under the Sandbox Act, applicants (which can be entities or individuals) need to obtain approval from the FSC before entering the sandbox. Experimental activities may be exempted from certain laws and regulations (eg FSC licensing requirements and certain exemptions from legal liability) once experiments have begun.

After the approved experiments are completed, the FSC will analyze the results of the experiments. If the outcome is positive, the FSC will actively review existing financial laws and regulations, exploring the possibility of amending them, after which business models or activities tested in the sandbox can become legally viable. Note, however, that sandbox entities or individuals may still need to apply for relevant licenses or approvals from the FSC to formally carry out activities previously tested in the sandbox.

As of this writing, none of them have anything to do with cryptocurrencies. However, please note that according to the aforementioned STO regulations, there will be a cap on the total amount of the STO program, and according to related news reports, the FSC mentioned that any STO that exceeds this cap may first need to be tested and experimented in a regulatory sandbox.

Even so, relevant STO market participants, as well as some controversial fintech business models and activities (such as ICOs), may wish to apply to the FSC to enter the sandbox. However, any experimental activity needs to be "innovative" under the Sandbox Act. Therefore, whether (a) common cryptocurrency-related activities (such as ICOs and/or STOs) will enter the sandbox, and (b) if so, whether the results of experiments will be considered "positive" will still depend on the FSC being in effect at the time policies and final decisions.

6 Ownership and Licensing Requirements

Apart from the aforementioned STO regulations, Taiwan has not enacted any laws or regulations specifically addressing "virtual currency" or "cryptocurrency." Therefore, there are no ownership or licensing requirements under Taiwanese law, except for STO platform operators (should obtain a securities dealer license) as suggested in the "Sales Regulation" above.

7 Mining

To date, Taiwan has not promulgated or amended any laws or regulations to regulate the “mining” of Bitcoin or any other type of cryptocurrency. Mining activities are generally permitted.

8 Border restrictions and declarations

To date, Taiwan has not specifically enacted or amended laws or regulations imposing any border restrictions or requirements on the declaration of cryptocurrency holdings.

9 Reporting Requirements

So far, Taiwan has not specifically enacted or amended laws or regulations imposing any reporting requirements on cryptocurrencies, other than the reporting obligations under the aforementioned STO regulations and cryptocurrency platform operators’ reporting obligations on suspicious transactions for anti-money laundering purposes .

10 Estate planning and testamentary succession

To date, Taiwan's laws and regulations have not addressed this topic. Because cryptocurrencies have value, we tend to think that they would be considered "property" or "assets" from the perspective of Taiwan's inheritance and succession laws, unless they are confiscated by the government, for example, due to a violation of the prohibition on "securities". "is a criminal offense for distribution without prior FSC approval or registration as required by the SEA (see advice under 'Sales regulation' above).