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Cryptocurrency Regulation in Georgia in 2023

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5/25/2023

In 2023, cryptocurrencies have become more popular than ever. Major companies and private investors are actively investing in blockchain, and despite the 2022 crisis, this is leading to the growth of cryptocurrencies. Virtual currencies are now more frequently used in various industries, such as online shopping, gambling, and real estate.

How do people make money with cryptocurrency?

The main operations with cryptocurrency can be considered the purchase of goods and services, trading on exchanges, investing, exchanging for other cryptocurrencies or money, storing and transferring, as well as production or mining.
In addition to this, there are modern ways of working with virtual currency that allow you to generate additional income, increase the liquidity of cryptocurrency, improve the security and stability of the blockchain network, and increase its popularity:

  • staking - freezing cryptocurrency to support the operation of the blockchain network in exchange for a reward;
  • forging - creating new blocks in the blockchain network using special algorithms, allowing participants to receive rewards for their work;
  • airdrop - free distribution of cryptocurrency or tokens as part of a marketing campaign, sometimes for completing certain tasks.

When using these tools, it is important to remember that cryptocurrency is not yet a fully regulated and stable financial instrument, and therefore investing in it can be associated with risks.

Legislative regulation of cryptocurrency in the world

The initial idea of cryptocurrency as free money, capable of decentralizing the global financial system, did not turn out as well as hoped, and has convinced digital market participants of the need for clear regulation.

In countries like China, India, Algeria, and Ecuador, there is a ban on the use of cryptocurrency. At the same time, many states see virtual currency as the future of the global economy and strive to integrate it into their financial system, assigning it the status of an official currency, as was done in El Salvador and the Central African Republic.

In most Western European countries and the United States, there is fairly transparent regulation of the digital currency market. In the United States, cryptocurrency is regulated by the Securities and Exchange Commission.

In Western Europe, cryptocurrency regulation may vary depending on the country. For example, Germany, France, and the United Kingdom have financial supervisory authorities that set strict rules for cryptocurrency exchanges. In Switzerland and the Netherlands, regulation is more liberal.

What is the situation with cryptocurrency in Georgia?

Georgia is considered one of the most loyal countries towards virtual currency. There are crypto ATMs on the streets, and mining is actively operating. Cryptocurrency here is not considered legal tender but is seen as a digital asset. To buy or sell, there is no need to obtain a special license. However, if some digital assets can be perceived by the National Bank as securities, in this case, a blockchain company must obtain a financial license in Georgia.

Interaction with cryptocurrency is not regulated at the legislative level, and all operations are carried out without a supervisory authority. The only regulatory act defining interaction with crypto assets is the public decision of the Minister of Finance of Georgia No. 201 of June 28, 2019. According to this document, taxation in the cryptocurrency market is carried out as follows:

  • individuals are exempt from paying personal income tax on income from the supply of crypto assets;
  • exchange of cryptocurrency for official currency (national or foreign) is exempt from VAT.

When buying cryptocurrency on a foreign exchange, it is important to consider the tax rules of the country in which the transaction takes place, as well as the rules of one's country of residence, as profits from the purchase and sale of cryptocurrency may be subject to taxes.

If you buy cryptocurrency using money located in an offshore zone and make a profit from the sale of this cryptocurrency, you are subject to a 15% profit tax in accordance with tax legislation.

Cryptocurrency mining in Georgia

The production of virtual currency is very popular here due to low electricity tariffs. To engage in mining within the framework of the law, it is necessary to register a company in the form of an individual entrepreneur or legal entity. During the production process, a commercial tariff for electricity must be used.

Cryptocurrency production activities are subject to the following taxes:

  • income tax - 20%
  • profit tax - 15%
  • dividend tax - 5%
  • VAT - 18% (if considering cryptocurrency as a product or service).

Given that the Tax Code of Georgia defines crypto assets as something identical to money and not being a product or service, following this logic, it can be assumed that the collection of VAT remains a controversial issue in the field of cryptocurrency mining.

Many virtual currency production enterprises are located in the free industrial zones of Georgia (Tbilisi, Kutaisi, and Poti). These companies enjoy a special tax regime, exempting them from paying profit tax, dividend tax, and VAT. Thus, this activity can be attributed to the production or processing of goods.

Risks in the field of cryptocurrency circulation

Cryptocurrency in Georgia is still in a gray area, and its use is not officially recognized as a means of payment. Tax authorities and banks consider it an unregulated financial instrument, which can be used for serious abuses, such as money laundering.

At the same time, the use of cryptocurrency is not illegal in Georgia. Business owners increasingly use cryptocurrency as a tool for developing their business.

However, one should be aware of the existence of certain risks associated with the possible blocking of accounts or company activities based on security and crime-fighting considerations.

As long as the legislative regulation of cryptocurrency in Georgia has not been finalized, its use in business requires special attention and caution.

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