Tax Implications of Cryptocurrencies in the Philippines (August 16 2018)
May a transaction involving virtual currencies be subject to tax?
As discussed in the previous article, while the Bangko Sentral ng Pilipinas (BSP) and Securities and Exchange Commission (SEC) have issued guidelines on cryptocurrencies, the Bureau of Internal Revenue has remained silent on the matter.
Yet, despite the lack of BIR guidelines specifically pertaining to cryptocurrencies, persons dealing with digital currencies like Bitcoin are not exactly exempt from taxes.
To explain this, let’s take a look at the nature of taxation.
In the case of Film Development Council of the Philippines vs. Colon Heritage Realty Corporation, G.R. 203754, 16 June 2015, the Supreme Court held that the power of taxation, being an essential and inherent attribute of sovereignty, belongs, as a matter of right, to every independent government, and needs no express conferment by the people before it can be exercised. It has even been described as the “power to destroy”. Such is the power of taxation that nobody can escape it, even after death!
Thus, it’s safe to say that spending or investing in Bitcoin may be subject to taxes. However, the tax treatment of a virtual currency transaction will depend on its usage.
Buying a dozen cheeseburgers using Bitcoin would entail income on the part of the burger chain, which may be subject to income tax (and if you eat all twelve yourself you might end up paying your doctor with Bitcoin, in which case a similar situation would arise!) Value Added Tax (VAT) may also be charged, as there was an exchange of goods.
Now, if the burger chain’s cook receives his or her wages in Bitcoin, their income may also be taxable (should their wages go beyond the compensation threshold under the TRAIN law).
Backtracking for a second, it’s also pertinent to ask how you, the purchaser, obtained the Bitcoins in the first place. Should you be a ‘miner’ then you’ll have earned them by solving a mathematical puzzle then adding a block to a blockchain.* If you subsequently sell or use the bitcoins you mined, the value received after deducting expenses may be treated as income.
On the other hand, if the Bitcoins you have were purchased from someone, this may be treated as an investment or property subject to capital gains tax.
As a final note, in the advisories issued in January and April 2018, the SEC advised that violators to the registration and disclosure requirements—where the virtual currencies offered are in the nature of a security—would be reported to the BIR so that the appropriate penalties and/or taxes can be assessed. This further solidifies the BIR’s authority on the taxation of cryptocurrencies. We’ll just have to wait for specific memoranda from the BIR.
We’ll keep you posted!
*If you’re feeling a little lost here, you might want to take a look at my previous article on Blockchain: http://mfbr.com.ph/2018/06/17/youve-heard-name-attorney-stephanie-tible-answers-faqs-blockchain-mallari-fiel-brillante-ronquillo/
Living in a country comprised of over seven thousand beautiful, sun-kissed islands, it is not surprising that many foreign nationals who retire to the Philippines feel as if they are on permanent vacation. Good quality of living at an affordable price make it an ideal retirement haven, with housing, food and labor costs all substantially lower than in many other countries. But these are not all the country has to offer.
Filipinos are renowned throughout the world for their hospitality, and retirees will find a warm welcome waiting for them. They will also find communication very easy, since almost every Filipino can understand and speak some English, and the language is widely used on signs and official forms. In fact, in terms of population, the Philippines is one of the largest English-speaking nations in the world.
The country is also rightly proud of its world-class medical and health services, and in recent years has become a popular destination for medical tourism. Our highly trained medical personnel and caregivers are esteemed throughout the world, not only for their competence and expertise but most especially for the care and compassion they show to their wards.
To make it easier for expat retirees to settle here in the Philippines, the government, through the Philippine Retirement Authority (PRA), has taken the initiative and produced the Special Resident Retirees Visa (SRRV), which has various packages available to foreign retirees.
The Special Resident Retiree’s Visa (SRRV) is a special non-immigrant visa separate and distinct from the existing visa categories defined by the Philippine Immigration Act of 1940, as amended, and allied laws. (Sec. 1, Rule II of LOI 1470).
It has the following benefits:
Option to Reside Permanently – foreign nationals may live, retire and invest in the Philippines.
Multiple Entry Privileges – retirees may travel outside the Philippines, and re-enter anytime.
Holders of the visa are exempt from:
Exit clearance and re-entry permits of the Bureau of Immigration.
Annual registration requirement of the Bureau of Immigration.
Customs Duties and Taxes for the importation of personal effects and household goods up to US$7,000.00.
Travel tax, if stay in the Philippines is less than one year from the last entry date.
Special Study Permit.
Assistance in securing/obtaining documents from other Government Agencies such as:
Department of Labor & Employment (DOLE)- Alien Employment Permit
Land and Transportation Office (LTO) – Driver’s License
National Bureau of Investigation (NBI)
Department of Foreign Affairs (DOF)- Tax Exemption/ Extension Certificate
Bureau of Internal Revenue (BIR) – Tax Identification Number
Tax-Free remittance of Annuities and Pensions
Guaranteed Repatriation of the Requisite Time Deposit