Author – Natalia Contreras – Associate Lawyer
With the latent growth of cryptocurrencies or cryptoassets, it has become an essential task for governments to develop and implement norms that regulate this type of currencies, which allow the safe trade of these assets by consumers and avoid harmful and illegal practices such as the financing of terrorism or money laundering. The purpose of this article is to review the Colombian legal framework applicable to cryptocurrencies.
In Colombia, there is no legislation issued by the Congress of the Republic which specifically regulates cryptocurrencies, although there have been general regulations, such as the Financing Law (Law 1943 of 2018) which provides certain tax benefits to companies involved in the development of technological added value. However, within the Congress, draft law 268 of 2019 is filed, through which the Cryptoasset Exchange Services offered through Cryptoasset Exchange Platforms are regulated, and will hopefully be debated and sanctioned as law in the near future.
Unlike the Congress of the Republic, different administrative and exchange entities have taken on the task of issuing concepts or circulars that regulate, in their areas of expertise, cryptocurrencies.
The first entity to issue a concept on the matter was the Superintendence of Finance, which through Circular Letter 29 of 2014, stated that virtual currencies (VC) are not regulated by law, nor are they subject to control, surveillance, and inspection of the Superintendence. Additionally, the same Superintendency through Circular Letter 52 of 2017, issued a much more restrictive concept regarding cryptocurrencies, stating that financial entities “are not authorized to custody, invest, intermediate or operate with these instruments, nor allow the use of their platforms to carry out operations with VC”, this based on the volatility and uncertainty generated at the time of creation, negotiation and exchange of these assets. Currently, this Circular Letter is under scrutiny by the Council of State (Consejo de Estado) for a possible nullity, due to an alleged overreach of the functions of the Superintendency at the time of issuing such Circular Letter, we expect a decision soon.
Together with the Superintendence of Finance, the Bank of the Republic in its capacity as an authority on exchange issues, through Concept 20348 of 2016, indicated that cryptoassets should not be considered as foreign exchange, given that they do not have the backing of a Central Bank.
On the other hand, different entities have issued more favorable concepts, from which it is possible to conclude that cryptoassets are legal assets within the Colombian territory. Among such entities is the DIAN (Colombian Tax and Customs Entity) (Concept 20436 of 2017), which points out that the activities of creation and transfer of cryptoassets are taxed through income; the Superintendence of Corporations (Oficio 100-237890 of 2020) pointed out that cryptoassets can be given as in-kind contributions to the company; and finally, the Technical Council of Public Accounting (Concept 977 of 2017) pointed out that cryptoassets can be assimilated to an inventory commodity or a financial asset. Recently, the Ministry of Finance together with the Superintendence of Finance initiated the Sandbox, a space that allows the development of business models related to financial innovation, through alliances between financial entities, such as Bancolombia or Movii, and entities of the Fintech sector, such as Buda or Panda. At the cryptoassets level, this space will allow the testing of programs for digital transactions, i.e. deposit and withdrawal of cryptoassets. As can be evidenced in this article, the following are the most important entities that are taxable through income taxation; the Superintendence of Corporations (Oficio 100-237890 of 2020) pointed out that cryptoassets can be given as in-kind contributions to the company; and finally, the Technical Council of Public Accounting (Concept 977 of 2017) pointed out that cryptoassets can be assimilated to an inventory commodite or a financial asset.
Recently, the Ministry of Finance together with the Superintendence of Finance initiated the Sandbox, a space that allows the development of business models related to financial innovation, through alliances between financial entities, such as Bancolombia or Movii, and entities of the Fintech sector, such as Buda or Panda. At the cryptoassets level, this space will allow the testing of programs for digital transactions, i.e. deposit and withdrawal of cryptoassets.
As can be evidenced in this recount of the regulatory framework that Colombia currently has, it is clear that there is a long way to go to find them in an environment that generates legal certainty regarding the operation of operations with cryptoassets, but we can affirm that Colombia is heading towards a favorable regulatory framework for the implementation of business models focused with cryptoasset industries.
Finally, in the current state of affairs, Colombia is considered one of the most attractive destinations for the development of Fintech companies. However, the implementation and start-up of this business model require a great capacity for creativity and a high level of legal and administrative knowledge to overcome the obstacles resulting from the lack of legislative activity.
In Abusaid Gomez we are able to provide advice in the technology industry. If you have any questions please contact us at info@abusaidgomez.com or directly to our Partner José Alejandro Abusaid at jose.abusaid@abusaidgomez.com.