Crypto License in Taiwan

The Legality of Cryptocurrency Business in Taiwan

When it comes to crypto, the Financial Supervisory Commission (FSC) is the main regulating body. It was formally designated as the principal cryptocurrency regulator in March 2023.

Relevant laws include:

Anti-Money Laundering (AML) Laws. Starting July 1, 2021, the anti-money-laundering rules for crypto firms went into effect. Money Laundering Control Act compliance is now a legal requirement for VASPs.

Guiding Principles for Crypto Firms. The FSC published updated guiding principles in September 2023. The goals of “Guidelines for the Administration of Virtual Asset Service Providers" were clear: making the cryptocurrency sector more transparent and bolstering consumer safety. Crypto issuers must publish white papers and adhere to all regulations and best practices regarding asset custody and internal controls.

Enforcement dates:

• July 1, 2021: AML regulations for cryptocurrency businesses came into effect.
• March 2023: FSC was officially designated as the primary regulatory authority for cryptocurrencies.
• September 2023: New guiding principles for crypto firms were introduced.

Taiwan Virtual Asset Service Provider Association

On June 13, 2024, 24 cryptocurrency enterprises became founding members of the Taiwan Virtual Asset Service Provider (VASP) Association. Members of this group are working toward a common goal: creating self-regulation guidelines for the digital asset market in the country. The group’s mission is to promote strict and equitable policies that will encourage the expansion of blockchain finance on a worldwide scale. Titan Cheng, creator of BitoPro, and Winston Hsiao, chief revenue officer of XREX, serve as vice chairs.

The Ministry of Justice, law enforcement, and the Taiwanese government will collaborate with the VASP Association in combating fraud along with other unlawful activities. The anticipated results include better currency movement tracking, alignment with Taiwan’s AML legislation, and the creation of a joint platform.

This association is expected to bring several improvements to the sector, namely:

• Greater cooperation,
• More efficient standardization,
• Higher transparency.

Experts say that this will help ensure healthy development and further protect consumer rights. At the same time, Taiwan is working to tighten its anti-money-laundering policies and implement new rules for digital assets. Therefore, the Association’s efforts are not only timely but also crucial. Crucial for creating a well-regulated and secure environment for the Taiwanese cryptocurrency industry.

Governmental Statements on Crypto in Taiwan

Both the FSC and the Central Bank of the Republic of China (Taiwan) have long taken a cautious approach. Bitcoin and other such digital assets are not “currency” but rather highly speculative “virtual commodities,” as they made clear in a joint statement on December 30, 2013. Subsequent declarations, such as a 2014 announcement that forbade local banks from providing Bitcoin-related services and a 2022 letter that instructed credit card acquirers not to provide services for crypto-asset transactions, further supported this stance.

The governing bodies are clearly taking a cautious stance, even in 2024. However, the fact that the FSC and the Central Bank have been vocal about their positions indicates a recognition of the growing relevance of cryptocurrencies. Now, in recent months, they have been growing even more vocal.

Developing clear regulations for the digital asset business is crucial, and the fact that such powerful organizations are tackling the issue head-on shows that Taiwan recognizes this. Although the present approach is cautious, these official remarks may indicate that Taiwan is cognizant of the need to deal with the changing financial landscape.

Requirements for Companies Engaged in Crypto Activities in Taiwan

Aside from the universally accepted and obvious requirements mentioned above, here are the key points for companies engaged in crypto activities in Taiwan:

• White Paper Publication. Crypto issuers must publish a white paper detailing their project.
• Asset Custody. Companies must custody platform assets and customer assets separately for increased transparency and security.
• Review Mechanism. Registered exchange platforms need to set up a review mechanism for listing and delisting virtual assets.
• Local Registration. Overseas firms must register locally and comply with Taiwan’s company and anti-money laundering (AML) laws before serving any customers.
• AML Compliance. Both domestic and overseas crypto firms must register for AML compliance. Non-compliance can result in serious legal issues and fines.

The Process of Setting Up a Company for a Cryptocurrency Business in Taiwan

The first major step before requesting a VASP license is establishing a company in Taiwan. The process begins with the formation of a legal entity, typically a limited company.

First, you have to register your business under the Company Act and decide on an appropriate business structure. This entails choosing a distinctive company name, preparing the articles of incorporation, and specifying the extent of your business operations, more specifically, those pertaining to crypto. In addition, you will have to name at least one director and, if necessary, set up a local office following legal requirements.

Once your business is established, you may concentrate on fulfilling the particular VASP licensing criteria. Please refer to our Company Formation in Taiwan page for further details.

Taxation for Cryptocurrency Companies in Taiwan

As of right now, Taiwan does not have a particular tax code catered specifically to crypto transactions. Nonetheless, standard tax rules applicable to e-commerce and online sales direct the taxation of crypto enterprises.

1. Corporate Income Tax

• Tax Rate. Under Taiwan’s income tax laws, crypto trading income is usually regarded as taxable. The corporate income tax rate for companies operating in Taiwan is 20% on net taxable income.
• Taxation for Foreign Entities. Should a foreign firm trade cryptocurrencies out of a permanent place of business in Taiwan, say a branch, it has to pay the 20% tax and record trading revenue alongside other taxable income. Foreign entities without a permanent address or business agent must submit a tax return and may call upon a tax agent to assist with this procedure.

2. Withholding Tax

• There is no specific mention of withholding tax on dividends from cryptocurrency activities. General withholding tax regulations, therefore, would apply should dividends be paid to shareholders. Usually, non-residents pay 21%.

3. Capital Gains Tax

• Once again, Taiwan lacks a dedicated capital gains tax code for crypto firms. General income tax rules would govern how capital gains from crypto sales are handled. For Taiwanese individuals and businesses, gains would be included in their overall income and taxed accordingly.

4. Value-Added Tax

• Transactions using cryptocurrencies within Taiwan might be subject to a 5% VAT. Should the vendor be a Taiwanese corporate entity, they have VAT to collect and pay. Similar VAT responsibilities apply to international companies that have operations in Taiwan. VAT responsibilities depend on the kind of transactions and the residency of the purchasers if a foreign firm does not have an established place of business.

Obligations for Crypto Companies in Taiwan

Whenever a VASP firm in Taiwan receives proper accreditation, it takes up several important obligations. The main responsibilities are:

• Reporting and Supervising. VASPs have to routinely let other relevant authorities and the FSC know about their activities. This covers turning in periodic financial statements and transaction reports.
• AML/CFT Compliance. VASPs are obliged to apply strong AML/CFT policies.
• Client Asset Protection. Licensed companies have to always separate client assets from their own.
• Internal Controls and Management. VASPs must build robust internal controls and management systems to guarantee regulatory compliance.
• Self-Guardianship. Licensed VASPs are encouraged to join industry associations, such as the Taiwan Virtual Asset Service Provider (VASP) Association, to develop and adhere to self-regulatory standards.

Sanctions for Violating Taiwan Crypto-Business Obligations

Companies involved in crypto activity have to follow tight regulations. Ignorance of these responsibilities could lead to severe fines. Here are some potential consequences:

• Fines. Companies running in non-compliance with regulatory criteria — for example, failing to apply sufficient AML/CFT policies—may suffer significant financial fines.
• License Nullification. The option to terminate the VASP licenses for failing to follow the rules rests with the FSC.
• Imprisonment. Severe violations — especially those related to money laundering or sponsorship of terrorism — may result in criminal prosecution and incarceration.
• Restriction. Non-compliant businesses might be subject to operating constraints.
• Public Disclosure. Should the FSC publicly identify non-compliant businesses, their reputation and consumer confidence might take a serious hit.

Keep in mind that earlier this year, on May 9, 2024, the Ministry of Justice suggested changes to AML rules. With penalties ranging from 2 years of imprisonment to $1.5 million, their amendments propose severe fines and jail sentences for non-compliant cryptocurrency service providers.