Legal Regulation of Cryptoassets (Virtual Assets) in Armenia
Recent reforms in the Civil Code of the Republic of Armenia have introduced first step of recognition of cryptoassests as a distinguished type of property or goods. The reform is merely aimed to design a framework of regulations with regard to various types of transactions and modalities thereof. Still it is a bold move of regulating the industry and alludes to expand the use of cryptoassets in Armenian market.
Please find below short recap and key highlights of the reform.
1. Definition of Cryptoasset (Virtual Asset) and Its Types
According to Article 143.1 of the Civil Code of Armenia, a cryptoasset is a property based on cryptography, which has value or certifies a right, and can be transferred and stored exclusively electronically through decentralized ledger technology.
Although the Law does not specifically address the types of cryptoassets, it is commonly accepted to include in the list: cryptocurrencies (for example, Bitcoin), tokens (for example, Stablecoins), NFTs (Non-Fungible Tokens), and others.
2. Transactions Conducted Through Cryptoassets (Virtual Assets)
Transactions conducted using cryptoassets can encompass a wide range of operations and services. However, the main types of transactions that can be carried out through cryptoassets include cryptocurrency exchange, cryptocurrency transfers, payments for goods and services, buying and selling of NFTs, investment transactions, and more.
3. Grounds for Acquiring Ownership Rights to Cryptoassets
According to Article 176, Part 3 of the Civil Code of Armenia, a person acquires ownership rights to a cryptoasset:
1) From the moment of registration at the address of the person receiving the cryptoasset in a decentralized ledger, in accordance with its rules, provided that the person receiving the cryptoasset or the person they designate legally possesses the means to access the cryptoasset;
2) From the moment of registration in the name of the person receiving the cryptoasset at the custodian of the cryptoasset, in accordance with the law.
As a basis for acquiring ownership rights, the purchase and sale, as well as the exchange of cryptoassets, are considered.
- Purchase and Sale
In Armenia, the regulation of cryptoassets, including the purchase and sale of cryptocurrencies, is not fully regulated at the moment. The purchase and sale of cryptoassets are governed by the provisions of the Civil Code of Armenia related to sales agreements, unless otherwise specified by law.
Considering that the legislator has defined Cryptoassets as property, it can be assumed that in the case of a sale, it will be subject to VAT. Regarding income tax, the Tax Code of Armenia stipulates that for all income derived from the sale of property (except for the cases specified in parts 10 and 11 of this article), the income tax is calculated at a rate of ten percent.
- Exchange
In addition to the purchase and sale, cryptoassets can also be exchanged. The exchange of cryptoassets is regulated by the provisions of the Civil Code of Armenia related to exchange agreements, unless otherwise specified by law. Perhaps the only limitation in this regard is that the exchange agreement is prohibited from involving the transfer of something other than a cryptoasset as an item (property). A contract concluded in violation of this provision is considered null and void.
NEED OF FURTHER REFORMS
Unfortunately, at this moment, Armenia completely lacks a dedicated law regulating the cryptoassets and cryptocurrency sector. Recent bill was harshly criticized by the industry stakeholders and remains on hold.
We anticipate that potential taxation implications shall be the next step of industry regulation considering that cryptoassets are not considered as currency and taxation thereof shall not be distinguished from other types of assets and property.