Overview of Kyrgyzstan's Taxation and Regulatory System for Encryption Assets

1 Introduction

Recently, Kyrgyzstan has been making frequent moves in the field of encryption assets. The government of the country has been closely interacting with executives from a well-known trading platform, even inviting them to join the national encryption committee. This has sparked interest in Kyrgyzstan's policies regarding encryption assets. This article will provide you with a detailed introduction to the characteristics of the country's taxation and regulatory system related to encryption assets.

1.1 National Overview

Kyrgyzstan is located in the northeast of Central Asia and is an important hub connecting Western Europe and East Asia. The capital is Bishkek, and the official languages are Kyrgyz and Russian, with the currency being Som. In recent years, the country has rapidly developed in the field of encryption assets, actively formulating relevant regulations to support the development of digital technology and the blockchain ecosystem, becoming a leader in the regulation of digital assets and market scale development in the Central Asian region.

1.2 Qualitative Analysis of Encryption Assets

According to Kyrgyzstan law, virtual assets are a set of electronic digital data with value, serving as a digital representation of value and a means of proving property or non-property rights. They are created, stored, and circulated using distributed ledger technology or similar technologies, but are not currency units, means of payment, or securities. Encryption assets are a type of virtual asset.

2 Tax Policy

2.1 Tax System Overview

The legal system of Kyrgyzstan is derived from the former Soviet Union and is similar to that of Russia and other countries. Its taxation mainly includes income tax, turnover tax, and other minor taxes. The Tax Code also introduces various special tax systems, such as simplified taxation, taxation on digital currency mining, and e-commerce tax.

The main types of taxes include:

1. Corporate Income Tax: Resident enterprises are taxed on their global income, while non-resident enterprises are taxed on income sourced from Kyrgyzstan.
2. Personal Income Tax: Resident taxpayers are taxed on their global income, while non-resident taxpayers are taxed on income sourced from Kyrgyzstan.
3. Value-added tax: levied on the sale of goods, provision of services, and import of goods within the territory.
4. Simplified tax system: Applicable to most businesses and individual operators, based on sales revenue as the tax basis.
5. Special Tax System: Such as special tax systems in free economic zones and high-tech parks, which provide tax incentives.

2.2 encryption tax policy and latest updates

Kyrgyzstan imposes a special tax on activities related to encryption assets:

1. Encryption mining tax: The taxable amount is based on the electricity consumed for mining, with a tax rate of 15%.
2. Income Tax on Sale of Encryption Assets: The excess profits from the sale of encryption assets are subject to a 10% income tax.
3. Cryptocurrency sales tax: A sales tax of 2% or 3% must be paid on the sale of cryptocurrency assets, but value-added tax is exempt.

It is worth noting that the government is considering increasing the tax rates on non-bank financial institutions such as operators of encryption asset exchanges, in order to increase the country's non-tax revenue and enhance financial stability.

3 Encryption Asset Regulatory Dynamics

3.1 encryption asset regulatory policy

In 2022, Kyrgyzstan established a regulatory framework for the creation, issuance, storage, and circulation of encryption assets through the "Virtual Assets Law." The main measures include:

1. Establish an encryption asset service provider ( VASPs ) licensing system.
2. Raise the requirements for encryption asset trading operators, including customer identity verification, disclosure of trading rules, etc.
3. Regulations on the activity requirements for encryption asset exchange operators, such as annual audits, minimum authorized capital, etc.
4. Modify the regulations on encryption asset issuance to restrict private placements.

In addition, the government is also promoting the incorporation of encryption banking technology into the banking system, as well as formulating relevant digital payment and financial regulations.

3.2 Latest developments in the local encryption industry

1. The Ministry of Finance of Kyrgyzstan has created the first national encryption asset exchange in Central Asia, Coin National Exchange.
2. Support the development of stablecoins, such as A7A5 pegged to the Russian Ruble and USDKG pegged to the US Dollar and backed by gold.
3. Promote CBDC research and consider issuing "Digital Som".

4 Summary and Outlook

Kyrgyzstan is actively optimizing the taxation policies and regulatory systems for encryption assets, creating a stable and favorable business environment for investors and market participants. With the development of encryption banks, national exchanges, and stablecoins, Kyrgyzstan is expected to become an important hub for encryption asset innovation in the Central Asian region, promoting the flourishing development of the entire industry.