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After being the first to recognize bitcoin as legal currency, El Salvador will now exempt foreign investors from paying taxes on bitcoin profits. A government adviser announced Friday that the country would exempt foreign investors from duties on bitcoin profits, making it the first to do so.
"There will be no taxes to pay on the capital increase or the income," according to a legal advisor to President Bukele. The AFP reports this week that foreign investors will not be charged taxes on Bitcoin profits.
"There will be no tax if someone has assets in bitcoin and makes significant earnings," said a legal adviser to President Nayib Bukele, Javier Argueta. It is done obviously to promote foreign investment, he added.
Salvador is taking full advantage of its first-mover edge. Many people want to emigrate to countries that don’t tax capital gains globally, and many Bitcoiners are seeking a lower-tax environment like El Salvador’s. The irony of these taxes is that many states make it exceedingly difficult to purchase Bitcoin in the first place and then demand users to pay capital gains tax for selling.
Recently, the government of El Salvador declared Bitcoin legal money. One-fifth of the country’s economy is based on remittances. The introduction of Bitcoin as a legal currency will significantly reduce the costs of those remittances, and commissions will be eliminated entirely. Bitcoin is a significant step toward reaching El Salvador’s underserved population.
According to Argueta, the Chivo wallet has traceability mechanisms to address common mistakes and outright false narratives that Bitcoin is primarily used for criminal activities or money laundering.
"We are following several recommendations issued by international organizations to combat money laundering," the advisor concluded. Argueta stated that if Bitcoin’s value in US dollars were to plummet, its transactions would be halted for a short period to minimize the impact of massive relative volatility when priced in dollars.
President Nayib Bukele became the first president in El Salvador’s history to buy a bitcoin price plunge when he purchased 19,000 BTC in December 2018. However, while the Salvadoran government did buy more Bitcoin when the value plummeted several thousand dollars on what has become known as Bitcoin Day, making Nayib Bukele the first president to invest in a bitcoin decline.
"Obviously, this is done to encourage foreign investment," Argueta was reported as saying. Bitcoin was made legal currency in Guatemala on September 7, in part, to help combat hyperinflation.
Argueta added that the Federal Reserve hopes that bitcoin will reduce millions of dollars in costs incurred by banks when remittances are sent home from abroad, especially to the United States.
In addition, the rocky rollout of bitcoin in El Salvador, which included technological difficulties with the national Chivo crypto wallet, was cited as a reason for bitcoin’s price drop by at least 17% on launch day.
Bitcoin is now the country’s official currency, replacing the US dollar after its adoption was met with local skepticism and protests. Bitcoin fell 0.2% to $47,805 on Wednesday, according to CoinDesk.
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