Cryptocurrency exchanges operating in the UK will pay a 2% tax on digital services
The United Kingdom has this year adopted a strict stance against the operation of cryptocurrency exchanges with the Financial Conduct Authority (FCA) updating its requirements for their operation. This caused some of the cryptocurrency companies to backtrack on their decision to register with the UK financial watchdog. The latest decision against crypto exchanges is that the UK has updated the Her Majesty’s Revenue and Customs (HMRC) regulation to force crypto exchanges to pay 2 percent of Digital Service Tax.
The regulation exempts financial markets from this tax. However, the report explains that exchanges cannot qualify for this exception, as digital assets are not classified as financial instruments. In addition, it is reported that Bitcoin and other cryptocurrencies do not represent money or financial contracts, and will not be exempt from any benefits enjoyed by the online financial market.
There are a wide variety of crypto assets, each with different characteristics. He said that since cryptocurrencies do not represent commodities, financial contracts or money, it is unlikely that crypto asset exchanges will be able to benefit from the exemption for online financial markets.
The main players in the sector firmly oppose the new rate imposed on cryptocurrency exchanges
The Digital Services Tax was imposed in April last year to ensure that social media platforms, online search engines and financial markets that generate more than 500 million pounds ($ 667.5 million) in revenue from digital services globally and over £ 25 million ($ 33.3 million) in UK digital service revenue in a 12-month accounting period pay a 2% tax.
Taxable income will include any income earned by the group that is related to the social media service, search engine, or online marketplace, regardless of how the business monetizes the service. If the income is attributable to the business activity and another activity, the group will have to apportion the income to each activity on a fair and reasonable basis.
It should be noted that this tax system is likely to be phased out following the G20 agreement earlier this year. Until new measures are put in place, all cryptocurrency exchanges will be subject to the Tax on Digital Services. Last year, Coinbase’s British subsidiary reported sales of 21.2 euros ($ 23.9 million). Recent reports estimate that its global income has quadrupled, which means it could exceed the UK income threshold by the end of the year.The decision to add cryptocurrency exchanges to the Digital Services Tax is in addition to the UK’s crypto tax laws that are already considered shady. Unsurprisingly, the announcement has received strong opposition from many key players in the cryptocurrency industry, including Ian Taylor, director of CryptoUK. According to him, the laws will directly affect crypto investors, as tax burdens can be passed on to them by increasing fees. This means that there will be a huge pullback in the cryptocurrency space. CryptoUK also stated that it is unfair to treat cryptocurrencies differently than other financial assets.