Regulation of Cryptocurrency Activity and Tax Advantages
in El Salvador

Regulation of Cryptocurrency
Activity in El Salvador

Before June 9, 2021, cryptocurrency activity in El Salvador was not directly regulated. Although Salvadorans could use cryptocurrencies as a private payment method, these assets were not classified as regulated activities under the Financial System Oversight and Regulation Act. Similarly, the Financial Inclusion Facilitation Act excluded private ecosystems using ledgers for payments within closed systems, as long as both parties agreed. In a 2017 statement, the Central Bank of El Salvador (BCR) described cryptocurrencies as high-risk assets to be used at one’s own discretion.

However, the regulatory landscape for cryptocurrencies in El Salvador changed significantly in June 2021. The nation’s parliament passed a law recognizing Bitcoin as legal tender, making El Salvador the first country to officially accept cryptocurrency alongside the U.S. dollar. While the U.S. dollar remains the base currency for accounting, Bitcoin gained equal status as a legal tender.

On August 27, 2021, the law was published in the Official Gazette and came into effect on September 7, 2021. This legislation obligated all Salvadoran businesses to accept Bitcoin as payment, allowed taxes to be paid in Bitcoin, and enabled the government to issue subsidies in digital currency. To support this shift, El Salvador installed a network of 200 Bitcoin ATMs, launched the Chivo digital wallet application, and provided every citizen with $30 in Bitcoin as an incentive to adopt the currency. These initiatives marked a groundbreaking step in integrating Bitcoin into the country’s economic framework.

In 2022, the Digital Assets Bill was introduced to create a legislative framework for digital asset transactions in public offerings. On November 17, 2022, the president signed the **Ley De Emisión de Activos Digitales** (Digital Assets Law) into law. This legislation established rules for digital asset providers, aligning them with traditional financial institution standards. Cryptocurrency companies were formally defined as firms offering services such as cryptocurrency exchange, storage, and maintenance for third parties.

The Financial System Authority (SSF) oversees compliance with the Bitcoin Act by service providers. This includes regulations such as:

• Obtaining a cryptocurrency license in El Salvador.

• Implementing and adhering to anti-money laundering (AML) and know-your-customer (KYC) policies.

• Meeting financial reporting and customer asset protection requirements.

• Enforcing robust cybersecurity protocols.

• Monitoring customer accounts, transaction limits, and maintaining accurate transaction records.

These measures provide a structured and secure environment for cryptocurrency activities, ensuring legal compliance and fostering trust within the digital economy.

Tax Advantages for Companies Registered with the Registry of Digital Asset Service Providers (RPSAD) in El Salvador

El Salvador has positioned itself as an innovative and forward-thinking commercial jurisdiction, offering opportunities for economic growth and foreign investment. While the cost of business registration may not be the lowest, the country provides unique advantages, particularly for companies involved in cryptocurrency-related activities.

Notably, El Salvador is the first nation to officially recognize Bitcoin as legal tender. This groundbreaking decision has opened new avenues for businesses in the cryptocurrency and blockchain sectors, fostering innovation and technological advancement.

If you are exploring cryptocurrency regulations or planning to establish a business in El Salvador, our team of experts is here to assist you. We offer detailed guidance and comprehensive solutions to ensure the successful registration of your cryptocurrency company in El Salvador. Contact us today to take the first step toward leveraging these opportunities.

Companies registered with the RPSAD in El Salvador benefit from several tax incentives, including:

1

Exemption from Taxes on Digital Assets

  • No fees, taxes, duties, or assessments apply to the face value or yield of digital assets.

  • Capital gains and ordinary income from the purchase, sale, or transfer of digital assets are entirely tax-exempt.

2

Tax-Free Operations for Digital Asset Services

  • Issuers, certifiers, and service providers of digital assets are exempt from goods and services transfer tax, income tax, and other related tax obligations.

3

Relief from Withholding Responsibilities

  • RPSAD-registered companies are not obligated to withhold taxes associated with their digital asset activities, where applicable.

These incentives aim to create a supportive and growth-oriented environment for digital asset activities, making El Salvador an attractive destination for businesses in the cryptocurrency sector.

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