Tax exemption for bitcoiners

The legal adviser to the president of EL Salvador, Javier Argueta, said in an interview with the French news agency AFP that foreign investors do not have to pay taxes on bitcoin profits.

If a person makes a profit from holding bitcoin, he does not have to pay taxes on it Javier Argueta

This tax advantage makes El Salvador attractive to foreign bitcoiners, he explains.

The country located in Central America is the first country ever to recognize bitcoin as legal tender. This gives El Salvador a so-called ‘first mover advantage’ . After all, the country is the first to enter the market, and by exempting capital gains over bitcoin, El Salvador could attract investment from bitcoiners around the world.

Relocating bitcoin investors could cause countries that do levy taxes on bitcoin (profits) to miss out on money. By embracing bitcoin, El Salvador has taken the first step in the global game theory of bitcoin.

On average, 20% of El Salvador ‘s ‘gross domestic product (GDP)’ consists of international remittances. One-fifth of national income therefore consists of transaction costs that Salvadorans have to pay when sending or receiving money. Bitcoin gives El Salvadorans the opportunity to send value without an intermediary who charges high transaction costs. With a bitcoin transaction, the distance or origin of the sender and recipient does not matter. The ‘bitcoin protocol’ is completely neutral and accessible to everyone.

Not everyone is happy with this. It is estimated that financial services company Western Union earns about $400 million a year from transaction fees from people in El Salvador. Each year, El Salvadorans spend about $6 billion on transaction costs. The more Salvadorans start using bitcoin for transactions, the more businesses miss out on money and save Salvadorans. Sending money with bitcoin is a lot cheaper than using traditional financial service providers.

Chivo wallet

Furthermore, President Bukele has announced that the problems with the bitcoin wallet Chivo have been resolved for 95%. In the wallet published by the government, every Salvadoran could receive $30 worth of bitcoin. Due to various technical problems, the president announced via Twitter last Monday that new registrations are temporarily not possible. The app, which has already been downloaded about 500,000 times, should be available again in various app stores within a few days.

According to Bukele, the reason for the difficult process is the short preparation time of the wallet. The entire launch had to be organized within 3 months. Currently, hundreds of thousands of El Salvadorans can already use the Chivo wallet without any problems.

Want to read more about the bitcoin adoption in El Salvador? Read our article about the Chivo wallet here, or our previous article here.

Footage: Nayib Bukele, The World Bank, MacKenzie Sigalos

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