The law would allow bitcoin to be used as legal tender in El Salvador. It would establish rules for bitcoin exchanges and allow for the instantaneous conversion to the US dollar.
On 8 June 2021, El Salvador’s Legislative Assembly approved the Bitcoin Law, which would establish bitcoin as legal tender in El Salvador.
Once enacted, the law would require bitcoin to be accepted as legal tender in any transaction carried out by entities or individuals. Companies that do not have the technology to conduct Bitcoin transactions, however, would not be required to accept bitcoin.
The law would establish the US dollar as the reference currency for accounting purposes. Additionally, the exchange rate between bitcoin and the US dollar would be established by the open market. The law also would not subject bitcoin exchanges to capital gains tax. The law, however, does not elaborate on the specific tax treatment of bitcoin exchanges.
In addition, the law would allow:
- Any price to be expressed in bitcoin
- Tax contributions to be paid in bitcoin
- All monetary obligations expressed in US dollars existing before the law’s effective date to be paid in bitcoin
The law would authorize the Government to promote the use of bitcoin in transactions, and to allow the instantaneous conversion from bitcoin to the US dollar, which would be guaranteed by a trust created in the Development Bank of El Salvador (BANDESAL in Spanish) – a State-owned Bank.
The Central Reserve Bank and the Superintendence of the Financial System will issue the corresponding regulations before the law’s effective date. The regulations will establish the limitations and operation of the instantaneous bitcoin to US dollar conversion.
The Law would be effective 90 days after its publication in the Official Gazette.
For additional information with respect to this Alert, please contact the following:
Ernst & Young El Salvador
- Rafael Sayagués
- Héctor Mancía
- Carlos E Gaitan Cortez
- Daniela Vargas
Ernst & Young LLP (United States), Latin American Business Center, New York
- Ana Mingramm
- Enrique Perez Grovas
- Pablo Wejcman
For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.