Friday, 24 November 2023 17:29

Assessment of Cryptocurrency and Blockchain in the World with a Focus on Ireland

Ireland actively supports emerging technologies like blockchain for innovation. The "International Financial Services Strategy 2025" (IFS2025) commits Ireland to leadership in distributed ledger technology (DLT).

 

The Fintech Steering Group, part of IFS2025, shapes policies and boosts Ireland's fintech reputation. Despite caution, including the Ireland crypto license, virtual currencies and ICOs remain unregulated. Ireland aligns with EU Fifth Money Laundering Directive (MLD5) for certain crypto exchanges and wallets, but cryptocurrencies lack legal tender status or backing from the government or Central Bank.

Cryptocurrency Regulation

The Central Bank of Ireland has issued warnings regarding crypto-assets but hasn't imposed bans. There are no immediate plans for specific cryptocurrency regulations at the local level.

Cryptocurrency regulation in Ireland currently depends on existing EU directives and regulations. The Central Bank is adopting a cautious "wait and see" approach, closely monitoring European initiatives like the Digital Finance Package, which includes the proposal for the Regulation on Markets in Crypto-assets (MiCA).

Until MiCA comes into effect, cryptocurrencies in Ireland remain largely unregulated unless they fall under existing financial or anti-money laundering regulations.

The Central Bank supports EU-wide harmonization for crypto regulations and has concerns about stablecoins closely resembling traditional currencies. Utility tokens may not always be treated as financial products, but security tokens may be subject to regulation if they meet criteria under MiFID.

The European Commission's Digital Finance Package aims to clarify that financial instruments can be issued using distributed ledger technology (DLT).

Taxation

Ireland's cryptocurrency taxation adheres to general tax principles as specific regulations are lacking. The Irish Revenue's guidance, last updated in 2022, affirms this approach.

  • Cryptocurrency payments for goods or services don't alter tax treatment. They aren't considered functional currencies for tax purposes.

  • Transactions may be seen as trading or capital based on nature and frequency. Occasional ones are typically capital receipts, taxed at 33%, while regular trading varies.

  • Proper record-keeping and using accurate valuations are essential under tax laws.

  • VAT applies to goods and services exchanged for cryptocurrencies, excluding transfers. Income from cryptocurrency mining usually isn't subject to VAT.

  • Determining cryptocurrency location is vital, especially for non-Irish residents. Tax treatment depends on location, following residency rules for unresolved cases in Ireland.

AML Rules

  1. MLD5 mandates AML regulations for fiat-to-crypto exchanges and wallet providers.

  2. Ireland implemented these rules through the Criminal Justice Act in April 2021, extending coverage to Virtual Asset Service Providers (VASPs).

  3. VASPs must register with the Central Bank, adhere to AML/CFT standards, and report suspicious transactions.

  4. An AML Bulletin highlighted challenges in VASP registrations, and Gemini Digital Assets Limited was the first registered VASP.

  5. The EU is aligning the "Travel Rule" for crypto-asset transfers with MiCA.

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