The number of entrepreneurs whose business includes virtual currencies is growing. In Slovakia, we register more than 150 such entities, which at the same time face complex and often completely absent regulation by the state. Although the global adaptation of blockchain technology and digital currencies has increased by more than 900% in the past period, the Slovak market is still struggling with an unfavorable business environment in terms of cryptocurrencies. BDO therefore enters the market with a new kind of consulting services.
The business potential of blockchain applications is truly extraordinary and brings with it optimization of processes and new products. The use of a secure and transparent blockchain network can have a significant social and consumer benefit, for example, in managing pharmaceutical information, tracking shipments or verifying the origin of food. Blockchain technology has a significant impact not only on processes as we know them, but also on the way transactions will be processed in the future.
Global adoption of cryptocurrency has grown at a breakneck pace in the past year. At the same time, the use of blockchain technology, on the basis of which these digital currencies work, also grew.
„International experience confirms to us that the interest of entrepreneurs in the implementation of blockchain solutions is growing. The approach of individual state governments is also beginning to change positively, which is also confirmed by our assistance to the Maltese government with the creation of a new regulation making blockchain accessible to entrepreneurs. By introducing the Virtual Financial Assets Act, Malta has managed to create a progressive business environment where many new investors are attracted by the fact that digital currency transactions are treated by the government in the same way as ordinary transactions.,“ says Peter Gunda.
Example from abroad
Within the EU, there are a number of countries that have created a favorable business environment for cryptocurrencies. In addition to Malta, Portugal is a good example in this area, for example, where cryptocurrency trading is associated with zero tax, as such income is not considered investment here. Also, since 2018, all transactions related to the sale of cryptocurrencies are considered non-taxable income. It is also worth mentioning, for example, Germany and Austria, where income from cryptocurrencies is not subject to tax if these funds are held for at least one year.
However, the legislation of many countries in the field of cryptocurrencies, not excluding Slovakia, still contains a huge number of ambiguities and questions. "Since only selected jurisdictions have suitable and well-established legislation, it is really important to carefully consider the decision on the allocation of crypto-assets and thus eliminate the possible consequences of the so-called gray zone and insufficient regulation in selected jurisdictions." Adds Tibor Vincze, manager in the business consulting department.
Situation in Slovakia
The Slovak market currently registers approximately 150 companies that have registered their business activities in ORSR (Business register of the Slovak Republic). However, it is necessary to draw attention to the fact that only a certain percentage of these companies will become a real unicorn. For example, only about 10% of Slovak start-ups achieve exponential growth.
A barrier in the form of Slovak tax policy
Slovak entrepreneurs with the ambition to use digital currencies are currently encountering a barrier in the form of unfavorable Slovak legislation. According to David Stancel, co-founder of the civil association Blockchain Slovakia and CIO of the company Fumbi, the development of the local use of the blockchain is especially necessary to amend the tax laws.
„It would certainly help to amend the cryptocurrency tax legislation, which is one of the worst in the EU and hinders the adoption of these digital currencies and blockchain,“ adds David Stancel.
- Slovak tax legislation is currently set up in a way that taxes every cryptocurrency transaction. Not declaring cryptocurrency assets is also a tax offense.
- Several active companies in this area operate in Slovakia, but precisely because of the disproportionate administrative burden, they often decide to have their domicile in another country.
"When entrepreneurs in Slovakia want to use blockchain technology assets, they must first obtain a number of permits and licenses related to both Slovak and European regulation. At BDO, we therefore want to transform our global experience with the introduction of this technology in Slovakia as well and thus help entrepreneurs with its implementation." Peter Gunda commented on the difficulty of implementing blockchain solutions.
Decentralized finance (DeFi) is based on the fact that there is no institution or person or government that could simply influence the functioning of decentralized currencies through their actions. Also for this reason, supporters of DeFi often take the side of opponents of regulations, as they are contrary to the basic principles of this industry and, according to them, can limit its innovativeness and further technological development. The problem with regulation also arises in the case of law enforceability. By the fact that network nodes, or computers involved in the decentralized management of the transaction verification chain are spread across many jurisdictions, the issue of identification of affected parties and overarching jurisprudence arises in litigation.
The situation surrounding the regulatory framework could be clarified by the upcoming European MiCA regulation. Its aim is to provide legal clarity and uniformity of rules for service providers or currency issuers at the European level. MiCA also defines specific rules for the so-called stablecoins – cryptocurrencies whose value is linked, for example, to assets traded on the stock exchange.
"The addition of DAC8 is also being prepared, which is intended to expand the exchange of information between tax authorities within the EU regarding profits arising from investments in cryptocurrencies and payments with crypto-assets," adds tax expert from BDO, Radovan Ihnát.
A new type of service will help you navigate the crypto world
Many entrepreneurs are literally drowning in the confusing legislation surrounding cryptocurrencies and blockchain. BDO has therefore decided to launch a new kind of service covering the entire range of services from workshops, market opportunity research, feasibility studies, regulatory compliance, custom blockchain application development to MiCA implementation and the "BDO Approved" service.
"The goal is to improve our clients' business processes, support innovation and increase their efficiency. Last but not least, we want to help our clients get ahead of the competition and prepare them for a profitable future. It is especially important to look at possible risks and opportunities with a holistic lens," explained Vincze.