Over the recent years, we have witnessed a huge rise in popularity of cryptocurrencies on the global stage. This phenomenon is present in Serbia as well and recently became a trending topic in general public.
Although difficult to define due to their nature, there are certain commonalities exhibited in almost every available description of cryptocurrencies out there. These include the following:
- “currency” whose existence is solely digital;
- no central authority issues them;
- using a virtual decentralized system to record transactions and issuance of new units;
- reliance on cryptography and blockchain technologies.
While some view cryptocurrencies as a potential new future alternative to state-issued currencies, others are particularly wary of the risks involved in dealing with this new technological achievement.
Serbian Regulatory Perspective
Unfortunately for those that see them as a better alternative to state-issued currencies, cryptocurrencies are currently not recognized as an official payment device in Republic of Serbia.
Generally, cryptocurrencies can be treated as either currencies or commodities. Act on National Bank of Serbia clearly states that the official currency of Republic of Serbia is “dinar” (RSD) and all payments must be settled in the official currency, while the Act on Foreign Exchange Operations allows for settlement of claims between residents and non-residents in official foreign currencies. However, cryptocurrencies are not issued by an official government entity such as National Banks and cannot be considered an official (foreign) currency. They are considered to be “virtual currencies” that bypass monetary or financial regulations and are viewed by default as commodities at the moment. National Bank of Serbia confirmed this in publicly available statements along with a warning that anyone engaged in selling, purchasing or otherwise transferring cryptocurrencies is undertaking a risk of not being protected by relevant financial market regulations, most notably Act on the Protection of Financial Service Consumers.
Furthermore, the NBS states that if/when the use of cryptocurrencies becomes widespread, new regulation will be drafted with the purpose of determining their status.
Additionally, the Ministry of Finance issued an Opinion no. 413-00-168/2017-04 on 26 November 2017, confirming that the Article 25 of Act on Value Added Tax does not apply to cryptocurrencies, which means that cryptocurrencies are treated, from the tax provisions standpoint, as commodities as opposed to money or currency for which value added tax is not payable.
EU Regulation Impact
Having in mind that the Republic of Serbia is currently in the process of accession to the European Union (EU), it is expected that Serbian legislation on cryptocurrencies will follow EU standards, recommendations, and guidelines or possibly legislation. Unfortunately, no such legislation has been drafted and no uniform regulation has been established at the level of EU at this time, as the member states of the EU approach this subject from different standpoints. For example, German regulatory rules treat cryptocurrencies as financial instruments, while in France they remain mostly unregulated.
It will be interesting to see which approach will Serbian legislators and other authorities such as National Bank of Serbia and Ministry of finance take in drafting rules and regulations that will introduce cryptocurrencies into Serbian financial system. As the use of cryptocurrencies is becoming more common, the demand for legislative action to protect its users form abuse and/or fraud is increasing. Furthermore, this legislation will not only ensure that users of cryptocurrencies are protected, but also provide an opportunity to combat use of cryptocurrencies for money laundering and financing of terrorism, which should serve as an additional incentive for Serbian legislators to tackle this issue.
In order to protect yourself from any of the above mentioned risks involved in buying, selling or otherwise using cryptocurrencies, our recommendation is to consult with your legal advisors before taking any action.
This text is for informational purposes only and should not be considered legal advice. Should you require any additional information, feel free to contact us.
By Milos Velimirovic, Partner, and Dragan Martin, Junior Associate, Samardzic, Oreski & Grbovic