Cryptocurrencies such as Bitcoin and Ethereum have opened up a can of worms for the South African Reserve Bank (SARB) and the South African Revenue Service. Due to several crypto-related scams doing the rounds on social media and offline (think Mirror Trading International), it has become necessary for countries to regulate cryptocurrencies to protect their citizens from themselves.
Blockchain technology allows anyone to invest, transact and transfer cryptocurrency to any wallet in the world without restriction or questions. With increasing mainstream adoption, a clear regulatory framework has become crucial.
Whether you’re a crypto enthusiast, investor, or business owner, this article will provide you with valuable insights into navigating the crypto landscape in South Africa. – both the legal framework, as well as tax.
If you’re looking for places to buy cryptocurrencies in South Africa (legally), you can check them out here.
So, let’s dig into the legal status of crypto in South Africa.
Legal Status of Crypto in South Africa
South Africa has imposed laws over the last three years to regulate cryptocurrencies.
Is crypto money?
In South Africa, cryptocurrencies like Bitcoin, Ethereum, and others are not considered legal tender. The South African Reserve Bank (SARB) Act 90 of 1989, in Frugal terms, defines a currency as:
A tender… …which… …the Bank has assumed liability
SARB FAQs on Cryptocurrencies
Cryptocurrencies do not have any backing, and no one takes responsibility or liability and therefore cannot be seen as a currency in South Africa.
It is therefore seen and regulated as a ‘crypto-asset’ and is treated similarly to property, investing in stocks or coffee. Crypto assets are treated as financial products and fall under the jurisdiction of various regulatory bodies, depending on their use case.
The Primary Regulators
The primary regulators of cryptocurrencies/crypto assets are the SARB and the Financial Sector Conduct Authority (FSCA).
The South African Reserve Bank (SARB) is the primary regulator overseeing cryptocurrencies from a financial stability perspective. While the SARB doesn’t prohibit the use of cryptocurrencies, it has advised caution due to their inherent risks and volatility.
The Financial Sector Conduct Authority (FSCA) regulates the cryptocurrency asset management industry, including crypto asset providers (CAPs) that offer advisory or intermediary services related to crypto assets.
The licensing process for CASPs began in June 2023, with existing institutions rendering crypto-related financial services required to submit their applications by November 30, 2023.
In short, this means that any company that helps people invest/buy or sell cryptocurrencies has to be registered with the FSCA. As of April 23, 2024, the FSCA has approved 75 institutions to be licensed as Crypto Asset Service Providers (CASPs). Current CASPs include Luno, AltcoinTrader, VALR, and OVEX, among others. A full list can be found on the link above.
Crypto assets under the Financial Advisory and Intermediary Services (FAIS) Act.
Authorities in the crypto regulations space
Although we, as end consumers deal with the FSCA and FAIS regulations, there are other bodies that also have an interest in the regulations of cryptocurrencies. these include Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) Regulations. The Financial Intelligence Centre (FIC) has amended its regulations to include cryptoasset service providers under its AML/CFT oversight, aligning with international standards set by the Financial Action Task Force (FATF).
Taxation Guidelines: SARS has provided guidance on the taxation of cryptocurrency transactions, including capital gains tax, income tax, and Value-Added Tax (VAT) implications. Crypto investors and businesses must comply with these guidelines when reporting their transactions.
SARS and cryptocurrency tax
SARS sees crypto as an asset, similar to property and shares. Therefore, the tax regulations are similar too. SARS makes a distinction in the intent of the asset. If an asset is intended to be held for the long term, it is taxed with capital gains. If it is traded like forex (or geo arbitrage) are taxed at your income tax rate. Here are some examples:
- A person bought R 100 000 worth of Bitcoin in 2019. If the asset is disposed of (sold) at R 200 000, capital gains tax will be payable on the proceeds. For individuals, there is a R 40 000 exclusion rate, and 40% of the remainder is taxable at your normal tax rate.
- A person is actively trading cryptocurrency pairs on a daily or weekly basis and makes R 100 000 profit on the initial investment of R 100 000. The proceeds is taxable at the normal tax rate for individuals. For a company, this will be taxable at company tax rates which is 27%.
There are some challenges in the regulation of cryptocurrency. For example, when cryptocurrency is used to pay for your shopping at Pick n Pay, you’re technically disposing of your crypto assets. This is a taxable event – ouch! Tracking these types of transactions and the spot price is challenging to say the least!
Conclusion
Regulation of crypto assets goes against the philosophy of blockchain technology. Bitcoin was created to be decentralised and a tool to democratise digital currency. In other words, it should never be bound to a reserve bank or to regulatory authorities. It was meant to put the responsibility on the owner.
Nonetheless, people are people. They fall for scams and invest ruthlessly in assets that produce quasi-exponential returns. While South Africa has taken proactive steps, cryptocurrency regulations still have challenges and concerns. Current issues include a lack of a unified regulatory framework, investor protection and illegal cross-border transactions.
Even with cryptocurrency regulations in South Africa, we still find that people are not scared to invest in cryptocurrencies. Nothing will stop the craze!
Happy investing!
Sources consulted
- https://businesstech.co.za/news/finance/769032/these-are-the-75-crypto-services-approved-by-the-fsca-in-south-africa/
- https://www.finglobal.com/2021/07/23/new-cryptocurrency-regulations-in-south-africa/
- https://www.coindesk.com/policy/2023/05/25/south-africas-crypto-firms-will-soon-need-to-apply-for-registration-or-face-a-heavy-fine/
- https://www.masthead.co.za/crypto-asset-providers/