Written by: Daniel Leiva
On January 11 of this year, the Legislative Assembly during its 90th plenary session approved the opinion number 43 of the Economy Commission which contained a Legislative decree of 47 articles called Law of Issuance of Digital Assets (“LIDA”).
Relevant aspects of the Law:
The LIDA aims to create the regulatory framework to regulate digital assets, their transfers, public offerings, regulate the requirements and obligations of issuers, digital asset service providers, and other participants in the public offering process. LIDA defines digital assets as “a digital representation that can be stored and transferred electronically using a Distributed Ledger Technology system, or similar or analogous technology, in which the records are linked and encrypted to protect the security and privacy of transactions.”
National Commission for Digital Assets
The National Commission for Digital Assets (“NCDA”) is the public law institution created by the LIDA in charge of the application of the LIDA, its Regulations, and other rules for public offerings of digital assets. The NCDA is also in charge of approving the issuance of digital assets. Its administration will be in charge of 3 directors designated by different state institutions who will be in office for 5 years.
Bitcoin Fund Management Agency
The Bitcoin Funds Management Agency (“BFMA”) is the public law institution created by the LIDA in charge of the administration, safeguard, and investment of the funds from the public offerings of digital assets made by the State of El Salvador and its autonomous institutions and the returns from such public offerings. Its administration will a director appointed for a period of 5 years, appointed by the President of the Republic.
Digital Asset Services Providers
Digital Asset Services Providers (“DASP”) shall be those natural or legal persons engaged in providing digital asset services and domiciled in El Salvador, or those not domiciled in the country that promote and market services in the country. To be a DASP, a series of requirements must be met to register as such before the NCDA. The services that may be provided are:
– Perform exchange of digital assets for fiat money or equivalent or for other digital assets, with its own capital or that of a third party;
– Operating a platform for exchange or trading of digital assets or derivative digital assets;
– Assessing the risk and pricing, as well as underwriting the issuance of digital assets;
– Placing digital assets on digital platforms or wallets;
– Promoting, structuring and managing all types of investment products in digital assets;
– When on behalf of third parties the following operations are carried out:
-Transfer of digital assets or the means to access or control them.
-Safekeeping, custody or administration of digital assets or the means to access or control them.
-Receive and transmit orders for the purchase or sale of digital assets or the trading of derivative digital assets.
-Execute orders for the purchase or sale of derivative digital assets.
The Issuers of Digital Assets (“Issuers”) shall be a natural or legal person that makes or promotes an offer to the public of digital assets or that seek the admission of a digital asset with the purpose of selling or trading it in an exchange platform, centralized or decentralized, whether regulated or not. Issuers must be domiciled in El Salvador or otherwise use an exchange or trading platform domiciled in the country. The public offerings of the Issuers will be authorized by the NCDA and in turn they will be part of the Issuers Registry administered by the NCDA.
Issuers will be considered Issuing a public offering of digital assets when these are offered to the public, on a massive basis, and with the purpose of marketing or selling such digital assets. The public offerings may be made by Issuers, using already existing digital assets, and building, through them, new digital assets, or creating original digital assets. Public offerings may be carried out by the State, the Ministry of Finance, the Central Reserve Bank, autonomous institutions, as well as private individuals and legal entities. Likewise, issuers of stable coins must inform the amount of stable coins they plan to issue for the next 12 months and pay the corresponding fee for that amount.
Public Offering Certifiers
The Public Offering Certifiers (“Certifiers”) will be legal entities that will perform a financial, legal, technical, and administrative analysis of the material and relevant information of the public offerings contained in the Relevant Information Document and will issue and submit a report on compliance with the issuer’s formal and substantive obligations to the NCDA. The Certifiers will be registered with the NCDA in a special registry.
Issuers, providers, certifiers, acquirers, and public offerings of digital assets will enjoy the following benefits:
– The performance of digital assets will be determined at the time of the transaction, in accordance with digital asset market conditions. Digital assets may have a discount or premium, in accordance with the practice of the digital asset market in which they are issued;
– The nominal value and the yields or income from digital assets shall be exempt from all kinds of levies, duties, taxes, rates and contributions. The capital gain or ordinary income obtained by any mode of transfer of digital assets shall be exempt from any kind of taxation;
– Issuers, certifiers and registered digital asset service providers shall enjoy the tax benefits set forth in the second paragraph, being exempt from VAT, income tax, municipal taxes or any other tax regardless of their nature; they shall also be exempt from the obligation to withhold such taxes in the event that such obligation exists;
– In the case of legal entities, the tax benefits of the two preceding points will apply to the partners or shareholders individually considered, with respect to the profits or dividends from the activities detailed in the previous paragraphs;
The tax benefits established in the previous paragraphs will not apply when transactions of exchange of digital assets for goods or services that are not detailed in the LIDA are carried out.
The law provides for a series of fees according to the following detail:
- For DASPs and Certifiers:
-Initial registration fee: Fifteen minimum wages, applied once.
-Renewal fee: Ten minimum wages, annually.
-Additional registration certification fee: $50.00 or its equivalent in bitcoin.
- For Issuers:
– At the moment of receiving the authorization for the requested issuance: to pay 0.01% of the amount of the enabled public offering.
– For each certification of the resolution issued: $50.00.
The State, Ministry of Finance, BCR and Autonomous Institutions will not pay fees and charges established in the law.
The law regulates the infractions for suppliers, certifiers and issuers of public offerings, and the fines for each infraction; for the imposition, the gravity of the infraction, the damage caused, the intentionality and capacity to pay will be taken into account; for the determination of the infractions, sanctions and statute of limitations the provisions of Title V of the Law of Administrative Procedures will be applicable.