Legal Article
Thai Law on Cryptocurrencies
As cryptoassets, which consist of cryptocurrencies (i.e. bitcoins), cryptotokens and cryptocommodities are developed as one asset class, Thai law has to catch up with this new development. From an outset, there are questions on legality of the cryptoassets in Thailand. Is a cryptocurrency legal? Does the government explicitly impose ban on cryptoasset? Many conclude that cryptocurrencies can be used in a money laundering or other illegal activities and that obviously a use of cryptocurrencies is not legal without any doubt. Other think cryptocurrencies are a digital age ponzi scheme. Some regulators even initially announced that a use of cryptocurrencies is outright illegal. In this article, we summarize the current progress on the cryptoassets legality as well as the tax consequence here in Thailand.
1. Warning from the Ministry of Finance
On January 26, 2018, the Ministry of Finance issued the Notification Re Warning on Buying-Selling Cryptocurrencies Might Amount to a Violation of the Emergency Decree on Fraudulent Borrowing Against the Public, B.E 2527 (1984). In this Notification, the Ministry of Finance pointed out the following issues.
1. Cryptocurrencies might confuse the public into believing that they are legal tender and have value like a currency. But in the reality cryptocurrencies such as bitcoin is an electronic unit is not legal tender under Thai law as announced by the Bank of Thailand.
2. Value of a cryptocurrency depends on demand and supply of the cryptocurrency, which make it more valuable or less valuable without any lawful business to support to create income to distribute the benefits.
3. Value of cryptocurrencies has increased significantly, which motivates the public to become interested in buying and selling cryptocurrencies, because the public believes that they yield a high return and have a tendency to go higher. This might result in convincing the public to invest in the cryptocurrency.
4. According to the Emergency Decree on Fraudulent Borrowing Against the Public, B.E 2527 (1984), anyone in Thailand who advertises or invites to invest in anything that has a circumstance to pay a high return without a lawful business to support might amount to a violation of this Emergency Decree, which shall result in a sentence from 5 to 10 years and a fine from Baht 500,000 to Baht 1 M and a daily fine of Baht 10,000 throughout a period of violation.
Based on this Notification, the authorities seemed to take a position that use of cryptoassets for that matter is potentially illegal under the Emergency Decree.
2. Government’s Change of Mind – the Digital Assets Business Supervision Emergency Decree
Later the government slightly shifts its position on cryptoassets. While not supporting cryptoassets, the government will not object the use of the cryptoassets either. Meanwhile, the Revenue Department will tax a cryptoasset transaction on a regular basis without offering any tax exemption. In implementing this policy change, the cabinet approves a draft for the Digital Assets Business Supervision Emergency Decree and a draft for the Emergency Decree Amending the Revenue Code (Taxation on Digital Assets); details of which are not disclosed to the public yet.
A. Income Tax on Capital Gain
First of all, any capital gain derived from a sale of a cryptoasset will be subject to income tax. An individual investor will be subject to personal income tax on a capital gain at progressive rates from 0% to 35%. And a corporate investor will be subject to corporate income tax on a capital gain at a rate of 20%. Due to this tax burden, investors must properly keep records of each purchase of a cryptoasset to compute a capital gain.
With a proposed amendment to the Revenue Code, the government plans to introduce withholding income tax at a rate of 15% on a gain derived from a sale of a cryptoasset by an individual investor. Note this is not the final withholding tax, but an individual investor still has to include this income a computation of one's annual tax return. Once this amendment becomes effective, any capital gain derived by a foreign company from selling a cryptoasset in Thailand will also be subject to 15% withholding tax.
B. VAT on Sale of Cryptoassets
As a cryptoasset is not a currency, any sale of cryptoasset in Thailand is subject to 7% VAT. Applying VAT to a cryptoasset sale creates some complications for both individual investor and corporate investor in Thailand as they need to follow the strict VAT rule.
C. SEC’s Supervision of Initial Coin Offering
The Securities and Exchange Commission (“SEC”) will be empowered to supervise an initial coin offering (“ICO”). It is understood that a white paper (prospectus) must be filed with the SEC. There will be mechanisms to prevent frauds and money laundering. It is expected that ICO, exchange operators and wallet operators will be regulated by the SEC.
3. Cryptocurrency Mining
There is no clear precedent yet. But cryptocurrency mining is likely to be a restricted activity of services, which a foreign owned company may not engage in under the FBA, unless it manages to obtain a foreign business license. Once a miner receives a cryptocurrency from mining and sells the cryptocurrency to any third party, the miner will be subject to either corporate income tax or personal income tax as well as 7% VAT.
4. Cryptocurrency Exchanges
Cryptocurrency exchanges business is not listed as a restricted activity under the FBA, but it's likely to be deemed a restricted activity of services under the FBA. A foreign owned company must obtain a foreign business license to operate this business. An exchange operator will have to charge 7% VAT on its fee just like any service provider.
5. Wallet
A wallet business is a restricted business of services under the FBA. A foreign owned company may not operate a wallet business unless it manages to obtain a foreign business license. A wallet operator will have to collect 7% VAT on its fee it charges an investor.
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Yours faithfully,
Narit Direkwattanachai, LLM (Cambridge)
Attorney at Law
T: 086 785 0793
E: narit@naritlaw.com
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