Legal guide for cryptocurrencies in Serbia
Legal regulation of digital assets and cryptocurrencies in Serbia
At the end of last year and the beginning of this year, the cryptocurrency market, in terms of the volume of trade and the jump in prices of these digital assets, continued to grow and prosper, and gained increasing local and global importance.
In this regard, Bitcoin, for example, as the most famous cryptocurrency, recorded a historic jump in value this month to the amount of USD 58.000,00 for one Bitcoin.
Besides Bitcoin, some of the most famous cryptocurrencies whose value is growing these days are Ethereum, Litecoin, Tether, Bitcoin Cash, etc.
On the other hand, in the previous period, the Republic of Serbia correctly decided to follow the step of these modern trends and thus become one of the countries that, among other things, legally regulated cryptocurrencies and transactions with cryptocurrencies.
In light of the above, the National Assembly of the Republic of Serbia, at its session held on 17 December 2020, adopted the Law on Digital Assets (“Official Gazette of the RS” No. 153/2020, the „Law“).
However, in order to allow sufficient time for digital asset service providers (“Service Provider“) to harmonize their operations and general acts with the provisions of the Law, it is envisaged that the Law will apply after 6 months from the date of entry into force.
Constitutional basis and reasons for passing the Law
By the way, the constitutional basis for the adoption of the Law is contained in Article 97, paragraph 1, items 6 and 7 of the Constitution of the Republic of Serbia, which stipulates that the Republic of Serbia regulates and provides, inter alia, a single market, legal status of economic entities, economic and other activities, as well as property and obligation relations and protection of all forms of property.
Also, the most important reasons for passing this Law are:
- regulating the digital assets market, in order to improve and develop it, on the one hand, and prevent the misuse of digital assets for criminal purposes, on the other hand;
- enabling financing with investment tokens;
- improvement and development of the capital market using digital technology;
- strengthening the framework for combating abuse in the digital assets market, as well as money laundering and terrorist financing.
What is a digital asset?
Digital assets, i.e. virtual assets as defined by the Law, means a digital record of value that can be digitally bought, sold, exchanged or transferred and which can be used as a means of exchange or for investment purposes.
From the notion of digital assets, the legislator excludes those digital currency records that are legal tender, as well as other financial assets that are regulated by other laws.
Digital assets come in 2 basic forms:
- virtual currency is defined as a type of digital asset that is not issued and whose value is not guaranteed by the central bank or other public authority, which is not necessarily tied to legal tender and has no legal status of money or currency, but is accepted by individuals or legal entities. as a means of exchange and may be bought, sold, exchanged, transmitted and stored electronically;
- digital token is a type of digital asset and means any intangible property right that in digital form represents one or more other property rights, which may include the right of the user of the digital token to be provided with certain services.
- Issuance of digital assets
The issuer of digital assets can be a domestic or foreign natural person, legal entity or entrepreneur.
The issuance of digital assets is in principle free, because there is no special license issued by state authorities, but it is only necessary to respect the provisions and restrictions prescribed by Law.
However, if the digital asset has the characteristics of a financial instrument, the Law on Capital Market (“Official Gazette of the RS”, No. 31/2011, 112/2015, 108/2016, 9/2020 and 153/2020) will apply, with the exception that the regulation will not apply (the Law on Digital Assets will apply), if the following conditions are cumulatively met:
- digital assets have no characteristics of shares;
- digital assets are not fungible with shares;
- the total value of digital assets issued by a single issuer during a period of 12 months does not exceed EUR 3,000,000 in the dinar equivalent at the official middle exchange rate of the dinar against the euro determined by the National Bank of Serbia on the day of the issue, i.e. during the primary sale.
It is important to note that when issuing digital assets, a document called a white paper is published, which contains information on the issuer of digital assets, digital assets and risks associated with digital assets, in order to enable investors to make investment decisions and assess investment risks into digital assets.
However, the Law explicitly prescribes that the issuing of digital assets in the Republic of Serbia, regardless of whether the relevant white paper has been produced and/or approved, is allowed.
2.1. Advertising of the initial offering of digital assets without an approved white paper
Advertising an initial offering of digital assets without an approved white paper is forbidden, except in line with a bylaw adopted by competent authority (NBS or SEC).
Exceptionally, an issuer may advertise the initial offering of digital assets without an approved white paper in the following cases:
- the initial offering is addressed to fewer than 20 natural and/or legal persons;
- the total number of digital tokens issued does not exceed 20;
- the initial offering is addressed to buyers/investors buying/investing in digital assets no less than EUR 50,000 in the dinar equivalent at the official middle exchange rate of the dinar against the euro determined by the National Bank of Serbia on the date of purchase/investment, per buyer/investor;
- the total value of digital assets issued by a single issuer during a period of 12 months does not exceed EUR 100,000 in the dinar equivalent at the official middle exchange rate of the dinar against the euro determined by the National Bank of Serbia.
2.2. Advertising of the initial offering of digital assets with an approved white paper
In this case, the issuer is obliged to state during the advertising that the white paper has been published or will be published, with information on where and in what way investors can get it.
The application for a white paper publishing approval shall be submitted to the supervisory authority by the issuer or an authorised person in the name of the issuer.
The supervisory authority shall issue a decision on the approval of a white paper publishing within 30 days following the receipt of a duly completed application and shall submit the decision to the applicant.
The law prescribes the reasons for rejecting the application for white paper publication.
If the publication of a white paper has been approved for the initial offer of digital assets, the start of registration and payment of digital assets shall begin no later than 30 days from when the publication of the white paper was approved.
What is the initial bid outcome report?
If the publication of a white paper is approved for the initial offer of assets, the issuer is obliged to publish a report on the outcome of that initial offer on its website no later than 3 working days after the end of the initial offer. The legislator leaves the form and content of this notification to be regulated by bylaws.
- Secondary trading in digital assets
3.1 What is secondary trading in digital assets and how does it take place
Secondary trading in digital assets involves the sale, purchase of digital assets, as well as exchange for other digital assets.
In the Republic of Serbia, secondary trading in digital assets is allowed, regardless of whether it was issued in the Republic or abroad, as well as regardless of whether a white paper was approved for its issuance or not.
Secondary trading in digital assets takes place through the Digital Asset Trading Platform (the “Platform“).
Otherwise, the Platform can be organized only by a company that has a license issued by the supervisory authority for that purpose.
Companies licensed by the supervisory authority for the provision of digital asset services and all other legal persons, entrepreneurs and natural persons may trade via Platform.
- Digital asset service providers
The service provider must have the legal form of a company in accordance with the Law on Companies (“Official Gazette of the RS” No. 36/2011, 99/2011, 83/2014 – other law, 5/2015, 44/2018, 95 / 2018 and 91/2019).
According to the Law on Companies, the legal forms of a company are:
- limited partnership;
- limited liability company;
- joint stock company.
The law states which services are related to digital assets (“Services“):
- reception, transmission and execution of orders relating to the purchase and sale of digital assets on behalf of third parties;
- purchase and sale of digital assets for cash and/or scriptural money and/or e-money;
- exchange of digital assets for other digital assets;
- custody (safekeeping) and administration of digital assets on behalf of digital asset users and the related services;
- services pertaining to the issuing, offering and placing of digital assets on a firm commitment basis (underwriting) or without a firm commitment basis (uncommitted placement/agent services);
- maintaining a register of pledges on digital assets;
- digital assets acceptance/transfer services;
- digital asset portfolio management;
- operation of a digital assets trading platform.
The minimum founding stake for Service Providers is:
- EUR 20,000 in dinar equivalent against the official middle exchange rate of the dinar against the euro determined by the National Bank of Serbia – if the company intends to provide services related to digital assets referred to in paragraphs 1-6;
- EUR 50,000 in dinar equivalent against the official middle exchange rate of the dinar against the euro determined by the National Bank of Serbia – if the company intends to provide services related to digital assets referred to in paragraphs 7 and 8;
- EUR 125,000 in dinar equivalent against the official middle exchange rate of the dinar against the euro determined by the National Bank of Serbia – if the company intends to provide services related to digital assets referred to in paragraph 9.
Exceptionally, if a company intends to organize a platform for trading digital tokens of only one issuer, the minimum capital of that company cannot be less than 20,000 euros in dinar equivalent according to the official middle exchange rate of the dinar against the euro determined by the National Bank of Serbia.
What is important to note is that the minimum founding contribution can be monetary and non-monetary, but the Law introduces the rule that at least half must be registered and paid in cash.
4.1. Issuance of a license for Services providing
The law stipulates that companies that intend to provide Services are required to first obtain a license from the supervisory authority.
In addition to the Services, the Service Provider may perform only those tasks and services that are directly related to the Services.
Exceptionally legal entities licensed by the Securities Commission to perform the activities of a broker-dealer company or market organizer in accordance with the Law on Capital Market may provide Services in accordance with this Law upon obtaining license from the supervisory authority.
Whether it will be the National Bank of the Republic of Serbia or the Securities Commission or their combined competence depends on the type of Services, i.e. whether the service is related to virtual currencies or digital tokens as forms of digital assets.
The law prescribes the documentation which is submitted with the request for the issuance of a license, and the supervisory authority decides within 60 days of receiving the proper documentation. In case of submitting an irregular request, the supervisory authority will give the applicant a period of 20 days to edit it, in which case it will be considered that it has been submitted from the day of submitting an orderly request. The law prohibits the applicant from submitting new applications within one year from the decision to reject the application by the supervisory authority.
The license to provide the Services is issued without a predetermined period of time, and may be terminated in one of the following ways:
- when the supervisory authority makes a decision on revoking that license;
- when the Service Provider has been deleted from the register of economic entities due to a change in status;
- when bankruptcy proceedings have been opened or compulsory liquidation proceedings have been initiated against the Service Provider.
There are also cases in which the license may be revoked by the supervisory authority:
- if it determines that the Service Provider has not started providing those services within six months from the day of making the decision on granting the license for providing Services or that it has not provided those services for a period longer than six months;
- if the Service Provider notifies the supervisory authority in writing that it no longer intends to provide those services or that it intends to carry out the liquidation procedure;
- if it finds serious violations of regulations governing the prevention of money laundering and terrorist financing;
- if the Service Provider does not enable him to supervise his business.
The supervisory authority may issue a decision on revocation of the license for the provision of Services, in the following cases:
- if it determines that the Service Provider no longer meets the conditions prescribed by Law;
- if it determines that the decision on granting the license for the provision of Services was made on the basis of untrue data;
- if it determines that the activities of the Service Provider are related to money laundering or terrorist financing;
- if it determines that the Service Provider has not executed the orders and measures referred to in Article 135 of the Law within the deadline;
- if it determines that the Service Provider does not maintain the minimum capital in accordance with the provisions of the Law;
- if it determines that the Service Provider has seriously violated the provisions of the Law or regulations adopted on the basis of the Law.
- Pledge and fiduciary rights on digital assets
In financial terms, an asset has its value not only depending on how valuable it is in itself but also how much it can be used as collateral.
In this regard, the Law provides for 2 ways to ensure the collection of claims through digital assets:
Constitutive effect of registration – pledge on digital assets is acquired by registration in the Pledge register (“Register“) maintained by the Service Provider who has a license from the supervisory authority issued for that purpose.
The Register contains:
- data about the pledgor and debtor, where these are different persons, as well as data about the pledgee or the authorised person;
- data identifying in more detail the digital assets which are the object of the pledge right;
- data about the amount of the secured claim, or data about the maximum amount of future or conditional claims;
- data about the existence of any dispute in connection with the right of pledge or the object of pledge.
As a precondition for the entry of a pledge on digital assets in the Register, it is set that the digital assets that is the subject of the pledge is entrusted for safekeeping and administration to the Service Provider who has a license to keep the Register.
Pledges can be used to secure both monetary claims in domestic and foreign currency, as well as non-monetary claims expressed in digital assets.
In addition, future and contingent claims can be secured.
Unless otherwise stipulated by the pledge agreement, the Service Provider is obliged to prevent further disposal of the pledged digital assets at the same time with the registration of the pledge right, as well as to ensure that the pledged digital assets cannot be disposed of until the secured claim is settled.
In that way, it is impossible for the pledgor to prevent the collection of claims by transferring the pledged digital assets to some inaccessible address of the digital assets.
A pledgor shall have the right to use the pledged digital assets in accordance with their usual purpose, as well as the right to enjoy the fruits of those digital assets, if such digital assets which are the object of the pledge right are giving fruits. It has also been established that this right may be modified by the provisions of the pledge agreement on digital assets.
In the case of bankruptcy procedure against the property of the pledgor, the provisions of the Bankruptcy Law apply, and the pledgee has the position of a separate creditor.
The lien may terminate together with the termination of the pledge creditor’s claim, i.e. the payment of the debt or in another way, if the digital assets ceases to exist, or if there is a public sale or other sale of the pledged digital assets.
It is also envisaged that the deletion of the pledge right from the register of pledge rights on digital assets may be requested when the pledge creditor waives the pledge right in writing, when the pledge creditor is acquired in the same person as the debtor, and when the pledge creditor acquires the property right. on pledged digital assets.
5.2 Fiduciary law
A fiduciary agreement is a means of security by which the right of ownership of digital assets is transferred from a fiduciary debtor to a fiduciary creditor (“Fiduciary“) for the purpose of securing a claim, while the Fiduciary, in accordance with such agreement, shall return the received or equivalent assets to the fiduciary debtor upon the execution of the secured claim, or concurrently with the execution.
Unless otherwise agreed, the Fiduciary shall have the right to use the digital assets which are the subject of the fiduciary agreement and shall have the right to dispose of those assets, including the right to sell the assets.
A fiduciary agreement on digital assets may be concluded for purposes other than to secure the claim, in which case, the other purpose must be defined in the fiduciary agreement.
Status of fiduciary debtor in bankruptcy
It is envisaged that the provisions of the Bankruptcy Law apply to the position of the Fiduciary in bankruptcy, so that if the fiduciary agreement is concluded for the purpose of securing the claim, it will have the position of a separate creditor, and if it is concluded for any purpose other than securing – the exclusive creditor.
- Tax treatment of digital assets in Serbia
The most common questions from previous practice in this new legal and business area are certainly:
- taxation of capital gains from the sale of digital assets, and
- taxation of inherited and donated digital assets.
6.1. How is capital gain from the sale of digital assets taxed?
What should be kept in mind is that from 29 June 2021, Article 72, paragraph 1, item 6 of the Law on Personal Income Tax will come into force (“Official Gazette of RS”, No. 24/2001, 80/2002 , 80/2002, 135/2004, 62/2006, 65/2006, 31/2009, 44/2009, 18/2010, 50/2011, 91/2011, 7/2012, 93/2012, 114/2012, 8/2013, 47/2013, 48/2013, 108/2013, 6/2014, 57/2014, 68/2014, 5/2015, 112/2015, 5/2016, 7/2017, 113 / 2017, 7/2018, 95/2018, 4/2019, 86/2019, 5/2020, 153/2020, 156/2020 and 6/2021) according to which the capital gain or loss is considered to be the difference between the sale price of rights, shares and securities and their purchase price, realized by the transfer of digital assets.
The tax base is the capital gain determined in the manner prescribed by the aforementioned Law on Personal Income Tax. The tax rate is 15% on the basis thus obtained.
- Reduction of tax to be paid
A taxpayer who invests funds generated by the sale of digital assets within 90 days from the date of sale in the share capital of a company resident in the Republic of Serbia, i.e. in the capital of an investment fund, and whose center of business and investment activities is located in the Republic of Serbia, is released 50% capital gains tax.
- Refund of paid tax
Also, a taxpayer who, within 12 months from the day of the sale of digital assets, invests the funds generated by that sale for the above-mentioned purposes, will be refunded 50% of the paid capital gains tax.
Exceptionally, in the event that a company in whose share capital funds are invested from the sale of digital assets, in the calendar year in which the investment is registered and in the next two calendar years conducts a share capital reduction procedure, the taxpayer loses the right to previously obtained exemption and is obliged to file a tax return.
Law on Corporate Income Tax (“Official Gazette of RS”, No. 25/2001, 80/2002, 80/2002 – other law, 43/2003, 84/2004, 18/2010, 101/2011, 119 / 2012, 47/2013, 108/2013, 68/2014 – other law, 142/2014, 91/2015 – authentic interpretation, 112/2015, 113/2017, 95/2018, 86/2019 and 153/2020) it is envisaged that the capital gain is realized by selling digital assets, unless the taxpayer, in terms of the Law governing digital assets, has a license to provide services related to digital assets and who acquired digital assets solely for resale within the provision of services related to digital assets in accordance with that law.
The tax rate is 15%.
Capital gains realized from the sale of digital assets are not included in the tax base, if the funds from that sale were invested in that tax period in the share capital of a resident taxpayer, ie an investment fund established in accordance with regulations governing investment funds. that is, investment activities located on the territory of the Republic.
Capital losses arising from the sale of digital assets cannot be offset against capital gains if the proceeds of the sale are invested for the aforementioned purposes.
6.2 Tax on donated and inherited digital assets
Rates are proportional, but differentiated depending on the degree of kinship between the testator, i.e. the donor and the taxpayer, so:
- taxpayers who, in relation to the testator or donor, are in the second line of inheritance according to the legal order of inheritance, pay inheritance tax and gift at the rate of 1.5%;
- taxpayers who are in the third and further hereditary order in relation to the testator or donor, i.e. taxpayers who are not related to the testator or donor, pay inheritance tax and gift at the rate of 2.5%.
The tax base is:
- in the case of inheritance tax, the market value of the inherited property on the day the tax liability arises, reduced by the amount of debts, costs and other encumbrances that the taxpayer was obliged to settle from it.
- in the case of a gift tax, the market value of the property received as a gift on the day of the occurrence of the tax liability determined by the Tax Administration.
If the value of inherited or received as a gift digital assets from the same person in one calendar year is higher than RSD 100.000,00 the taxpayer is exempt from paying taxes in the amount of up to RSD 100.000,00.
The heir of the first hereditary order, the spouse and parent of the testator, i.e. the gift recipient of the first hereditary order and the spouse of the donor are released from the obligations to pay inheritance and gift taxes.
The National Bank of the Republic of Serbia and the Securities Commission are established as supervisory authorities.
The line of division of their competence is the type of digital assets, i.e. whether it is about virtual currencies or digital tokens.
They supervise the operations of Service Providers, digital assets issuers, as well as persons who are or have been owners of digital assets. (“Subject of Supervision“)
The subject of supervision is the verification of compliance of the business of the Subject of Supervision with this Law as well as by-laws adopted on the basis of it.
Supervision can be direct or indirect.
- indirectly – by collecting and analizing reports and other documentation and data submitted by the supervised entity to the supervisory body in accordance with this Law, as well as other documentation or other data on the operations of the Supervised Entity available to the supervisory body;
- directly – by inspecting the business books and other documentation and data of the Subject of supervision
If deficiencies or irregularities in the operations of the Subject of Supervision are established in the supervision procedure, i.e. if it is determined that that entity acted contrary to this Law or regulations adopted on the basis of this Law, the supervisory body shall take one of the following measures against that entity:
- make a recommendation;
- send a written warning;
- issue orders and measures for elimination of established irregularities;
- make a decision on revoking the license for the provision of services related to digital assets.