Not everyone is thrilled about the idea of bitcoin. And I do not refer here to folks who don’t understand it. Initial skepticism was expected. But we are a few years down the road now, and advantages of suing bitcoin are a bit more clear. One other thing is becoming more clear. There is a group of folks — powerful folks — who really don’t want bitcoin to succeed.
Who are they? They are big banks and financial institutions. Why? Because big banks make lots of money on transaction fees. Bitcoin threatens that revenue flow. In fact, avoiding or at least reducing transaction fees is a major motivator for using bitcoin. So you can expect the big banks to try to protect the status quo. How will the banks do this? The easiest way is to block sensible regulation of bitcoin transactions. And that is today’s battleground.
Now you are ready for some good news — Finland just announced that it will exempt bitcoin services from VAT. Here is the broader picture
Good news for Bitcoin users in Finland. The Finnish Central Board of taxes recently declared that bitcoin exchanges in Finland were providing “banking services,” and were, therefore, VAT exempt. Belgium has also declared that domestic digital currency transactions are VAT exempt. The UK’s HMRC has exempted VAT on fees charged on bitcoin trading, but not on goods and services. However, some European countries such as Poland has not been as bitcoin-friendly. Poland currently charges a 23% tax on bitcoin trades. Bitcoin’s legality and tax status are hotly debated and still in a grey area in some countries. How governments regulate (or at least, attempt to regulate) bitcoin is still an issue for bitcoin adoption.
What does this mean? Well, where bitcoin services are subject to VAT, using it means getting subject to one more level of tax – the VAT on exchanging bitcoins in and out of currencies. Where bitcoin exchanges are not subject to VAT, you can go those exchanges without this worry or cost.
To give you an idea of how messy the regulatory picture is, the EU is just about to change the VAT regime for digital services. See my post below. As of January 1, 2015 VAT will be imposed depending on where the buyer is. So what about buyers of bitcoin physically located in Poland, using a Finnish exchange? Yikes!