Cryptoasset trading

Fiat currency transactions

What rules and restrictions govern the exchange of fiat currency and cryptoassets?

Security tokensThe transactions (issuance and trading) of security tokens must comply with the security token offering (STO) regulations to be promulgated by the Financial Supervisory Commission (FSC) and the Taipei Exchange (TPEx); the transactions may be conducted in new Taiwan dollars only.

Other cryptoassetsThere are no rules or restrictions governing the exchange of fiat currency and other cryptoassets. However, the FSC issued a press release in 2014 in which it ordered local banks not to accept bitcoins (eg, as a payment means or deposits) or provide any services related to bitcoins (eg, exchange bitcoins for fiat currency). Although this release mentioned bitcoins only, it is generally understood as a general restriction on local banks’ involvement in all cryptoasset-related services.

Exchanges and secondary markets

Where are investors allowed to trade cryptoassets? How are exchanges, alternative trading systems and secondary markets for cryptoassets regulated?

Security tokensThe trading of security tokens must comply with the STO regulations to be promulgated by the FSC and TPEx; the trading of security tokens must be carried out at a platform operated by a FSC-licensed securities dealer.

Other cryptoassetsThere are no rules or restrictions governing the trading mechanism or secondary markets of other cryptoassets. Some anti-money laundering rules apply.

Custody

How are cryptoasset custodians regulated?

Security tokensIt is expected that the platform operator (ie, an FSC-licensed securities dealer) will be required to have relevant internal control mechanisms for custody of security tokens. The platform operator also needs to set up a security policy relating to some key information in order to ensure the security of the issuance and trading. The platform operator also has some record keeping obligations.

Other cryptoassetsThere are no rules or restrictions governing the custodians of other cryptoassets.

Broker-dealers

How are cryptoasset broker-dealers regulated?

Security tokensAs advised above, the trading of security tokens must comply with the STO regulations to be promulgated by the FSC and TPEx, and trading of security tokens must be carried out at a platform operated by an FSC-licensed securities dealer. It is expected that certain personnel of the platform operator will need to meet the relevant requirements regarding qualifications, registration and training to be further set out by the FSC and/or TPEx.

Other cryptoassetsThere are no rules or restrictions governing the broker-dealers of other cryptoassets.

Decentralised exchanges

What is the legal status of decentralised cryptoasset exchanges?

The status of decentralised cryptoasset exchanges is not legally defined. With respect to security tokens or STOs, platform operators must be securities dealers licensed by the FSC. 

Peer-to-peer exchanges

What is the legal status of peer-to-peer (person-to-person) transfers of cryptoassets?

Security tokensAs advised above, the trading of security tokens must comply with the STO regulations to be promulgated by the FSC and TPEx, and trading of security tokens must be carried out on a platform operated by an FSC-licensed securities dealer. With respect to trading of security tokens, the platform operator should be the counterparty to every transaction and should offer a reasonable reference quotation based on the market conditions. Accordingly, the pure peer-to-peer transfers of security tokens are not feasible under the proposed STO regulations.

Other cryptoassetsThere are no rules or restrictions governing the peer-to-peer transfers of other cryptoassets. According to a joint press release issued by the Central Bank of Republic of China (Taiwan) and the FSC in 2013, bitcoin is considered a digital ‘virtual commodity’ instead of a ‘currency’. The rules under the Taiwan Civil Code should generally apply to transfers of bitcoins and any other virtual cryptocurrencies whose nature and characteristics are similar to those of bitcoins.

Trading with anonymous parties

Trading with anonymous parties

Security tokensAs advised above, the trading of security tokens must comply with the STO regulations to be promulgated by the FSC and TPEx. Subscription and trading of security tokens should be conducted on a real name basis and the transactions must be conducted in new Taiwan dollars under the same name as the one featuring on the bank account. Accordingly, trading security tokens with anonymous parties is not permitted under the proposed STO regulations.

Other cryptoassetsThere are no specific rules or restrictions governing the trading of cryptoassets with anonymous parties. One of the requirements for a trade to become enforceable under the Taiwan Civil Code is that the contractual parties have to be identifiable. If anonymous parties in a cryptoassets trade are not identifiable, such trade may not be considered effective or enforceable under Taiwan law. Furthermore, it has been the FSC's policy since July 2018 that if a bank's client is a cryptocurrency platform operator and such operator provides a fiat-to-cryptocurrency exchange service, such operator should ensure that its service is provided on a real name basis. Also, Taiwan’s Anti-money Laundering Act was amended in November 2018 to bring cryptocurrency trading platform operators and transactions into its regime. Therefore, it is very likely that there will be a new requirement under the Anti-money Laundering Act that all cryptocurrency-related transactions should be carried out only on a real name basis.

Foreign exchanges

Are foreign cryptocurrency exchanges subject to your jurisdiction’s laws and regulations governing cryptoasset exchanges?

Security tokensThe offer and sale of ‘securities’ (including security tokens) in Taiwan, whether through public offering or private placement, are regulated activities and shall be governed by the Securities and Exchange Act, its related regulations, as well as relevant rulings issued from time to time by the FSC. A platform operator may not be a foreign entity under the proposed STO regulations.

Other cryptoassetsThere are no rules or restrictions specifically promulgated to govern the platform operators of other cryptoassets. The authors’ view is that, generally speaking, foreign cryptocurrency platform operators should be subject to the same laws and regulations as those applicable to domestic platform operators, in particular from the perspective of consumer protection and anti-money laundering.

Under what circumstances may a citizen of your jurisdiction lawfully exchange cryptoassets on a foreign exchange?

 

Under what circumstances may a citizen of your jurisdiction lawfully exchange cryptoassets on a foreign exchange?

No rules or restrictions have been specifically promulgated to govern Taiwanese citizens' exchange of cryptoassets on a foreign cryptocurrency platform operator.

If the cryptoassets on a foreign cryptocurrency exchange are not issued/created in Taiwan, and the exchange of such cryptoassets happens purely offshore on the foreign exchange, the authors are of the opinion that the exchange of such cryptoassets by a Taiwanese citizen would not fall within the jurisdiction of Taiwan. However, before the authorities expressly opine on this question, the authors cannot rule out the possibility that the cryptoassets exchanged on a foreign exchange may be regarded as security tokens issued and regulated in Taiwan.

As to other cryptoassets, there exist no restrictions on owning, holding or trading such assets on a foreign platform operator. However, it is possible that the trading of cryptoassets (other than security tokens) would be subject to Taiwan's Consumer Protection Act.

Taxes

Do any tax liabilities arise in the exchange of cryptoassets (for both other cryptoassets and fiat currencies)?

There are no laws and regulations specifically providing for taxation of trading in cryptoassets. The authors are of the views outlined below with regard to the application of the general rules of current tax laws.

Securities tokensAs ‘security tokens’ have been defined as securities by the FSC, it is possible that the tax authorities would view the trading of security tokens as securities transactions and, thus, impose on them the same taxation rules as on securities transactions. Additionally, although securities transactions are not subject to capital gain tax in Taiwan, any gain will be included into the calculation of basic income under the Income Basic Tax Act (ie, the law governing Taiwan’s alternative minimum tax). Moreover, the value added tax (VAT) is likely not to be imposed by the tax authorities under the future stipulations.

Other cryptoassetsSubject to future stipulations, so far as the authors understand the trading of other cryptoassets is likely to be exempted from VAT, while the income from such trading is likely to be taxed under the Income Tax Act.

Law stated date

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13 November 2019.