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What are the tax and exchange control implications of Bitcoin?

20 September 2017   (0 Comments)
Posted by: Author: Robert Gad, Nicolette Smit, Megan McCormac
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Author: Robert Gad, Nicolette Smit, Megan McCormack, Jo-Paula Roman (ENSafrica)

With virtual currencies such as Bitcoin becoming ever more popular and accessible, it is important that South African taxpayers carefully consider the tax and exchange control uncertainties that accompany the incorporation of these relatively new systems into businesses and/or investment portfolios. We highlight below some of the tax and exchange control consequences arising from transactions involving Bitcoin. We have not considered the tax and exchange control consequences of the mining of Bitcoin, as this will be considered in a separate article.

On 3 December 2014, the South African Reserve Bank (“SARB”) issued a Position Paper on Virtual Currencies (the “Position Paper”) indicating that Bitcoin “is a digital representation of value that can be digitally traded and functions as a medium of exchange, a unit of account and/or a store of value, but does not have legal tender status” (our emphasis). It is therefore not, of itself, subject to regulation by the SARB. South African residents nevertheless remain subject to South Africa’s exchange control regulations in general, and should take care that they do not unwittingly contravene any of these regulations in their dealings with Bitcoin. It remains to be seen how the SARB’s approach to Bitcoin develops over time.

The South African Revenue Service (“SARS”) has not yet given any clear indication of its views regarding Bitcoin. It is therefore not yet clear whether SARS would consider Bitcoin to be a ”currency”, a term which is not defined in section 1 of the Income Tax Act, 1962.

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