In the past few years, Indonesians have become increasingly interested in cryptocurrency. According to data from October 2020, nearly 30 million Indonesians hold cryptocurrencies. Also, Indonesia is one of the top countries increasing Bitcoin usage. A number of Cryptocurrency in Indonesia startups are active in this area both inside and outside the country. This article aims to give some information on how cryptocurrency is regulated in Indonesia and a review of its legal status.
Cryptocurrencies in Indonesia: Is it legal?
The Indonesian constitution’s Article 23B regulates its currency, and the 2011 currency law mandates that Indonesia’s only recognized currency, the rupiah, must be used for the vast majority of transactions. International transactions and government expenditures are not exempt from the tax. Following Bitcoin’s (BTC) and crypto-assets as commodities by the Ministry of Trade in September 2018, cryptocurrencies were legalized. Regulation of cryptocurrency and blockchain in the country handled by the Futures Exchange Supervisory Board (Bappebti).
Bappebti had drafted a legal framework for crypto assets last year; Indonesia’s cryptocurrency exchange registration requirements will take effect in 2020. Indonesian traders must protect themselves from fraudulent platforms, according to the agency. The Indonesian crypto community and organizations still face significant hurdles despite cryptocurrencies being legal. Currently, cryptocurrencies are not recognized as a payment method by the central bank of Indonesia, which poses a substantial obstacle to widespread adoption.
Also, cryptocurrencies have received much misinformation in recent years, which has led many banks to refrain from opening cryptocurrency trading accounts. Despite several challenges, Indonesia has made considerable progress in its quest to establish a comprehensive regulatory framework for the crypto industry. According to Indonesia’s legislation, the purchase and selling of cryptocurrencies are only allowed for investment purposes or legally specified crypto assets. Cryptocurrencies, however, do not qualify as valid payment methods, as recently said by the central bank. Banking institutions must refrain from facilitating payment via cryptocurrency.
Definition of Crypto-Assets
Indonesia has now legalized trading in crypto assets, following the establishment of the Commodity Future Regulatory Agency (CoFTRA, also known as Bappebti). With the aim of regulating, verifying, and securing transactions without interference from third parties, digital assets are characterized as intangible commodities. Distributed ledgers, peer-to-peer networks, and cryptography are used to generate them. As Bappebti points out, cryptocurrency is not regarded as a legal tender but a commodity to exchange for cash or derivatives, such as futures.
Moreover, there is no proper and legal way to use crypto-assets as a means of payment, nor is it possible to use crypto-assets as collateral simply because Indonesian law does not permit it. According to a press release from the Central Bank of Indonesia last year, virtual currencies, including bitcoin, are illegal in Indonesia, and their use is strictly prohibited. In response, many online stores and e-commerce platforms removed Bitcoin from their payment methods. Financial institutions should also disallow themselves from engaging in cryptocurrency activities, according to the statement.
Due to this, Indonesians are having a hard time determining whether crypto-assets are legal. The legality of trading crypto-assets in Indonesia is the same as trading gold, rubber, coffee, etc. However, the assets cannot be used in any way as a means of payment.
Cryptocurrencies are only recognized in Indonesia as trading commodities
Regulating No. 99 of 2018 from the Ministry of Trade formalized the legalization of crypto-asset trading. A regulatory authority established in Indonesia for commodities futures trading, known as Bappebti, released Regulation No. 5 of 2019 with comprehensive cryptocurrency regulations. A study conducted by the Blockchain Association of Indonesia shows that there are 4.2 million investors today compared with 1.5 million in 2020, with USD 117.4 million in daily trading volume.
In Indonesia, the Bappebti Regulations have made significant strides in creating a legal framework that assures the continued growth of the crypto sector even if it hasn’t been accepted as a means of payment.
Taxes on crypto assets in Indonesia?
Cryptocurrency trading may be taxed by the Indonesian government. According to tax officials in Indonesia, trading in digital currencies is booming. The Southeast Asian nation is not new to crypto trading despite its surge. The country ranked third globally in cryptocurrency ownership in 2019. Even though Indonesia no longer holds that position, these new legislative considerations show that crypto remains a famous investment avenue among Indonesians.
Discussions about the official tax scheme are still ongoing. In an interview with Reuters, Neilmaldrin Noor, the Indonesian tax office’s representative, said, “It’s important to be aware that profit or capital gains result from transactions are taxed.” Crypto traders are likely to face a tax equal to 0.05% even if the proposal isn’t set in stone. CNBC Indonesia reports lower than the 0.1% that investors currently pay on the Indonesia Stock Exchange (IDX).
Crypto still banned
Investors and developers face different hurdles at different places around the globe due to the global reach of the crypto bull market. Despite the constant price boom for cryptocurrencies and their ever-increasing use cases, Indonesia continues to ban cryptocurrency purchases as a form of payment. As a traded commodity, digital currencies are only available to investors.
Tax season concerns
Several countries are trying to tax and regulate crypto holders, including Indonesia. Capital gains taxes on crypto will be rolled out in South Korea by 2022. Numerous petitions were submitted and expressed opposition to the tax proposal. A majority of polls now indicate that support for the tax is growing. Crypto transactions exceeding 50 million won in value are subject to a 20% capital gains tax.
A recent IRS clarification clarifies how cryptocurrency is taxed in the United States. Explaining what taxpayers can and cannot claim as digital assets is revealed in the new information. Those involved in the buying and selling of non-fungible tokens (NFT) will also have to contend with tax implications on their holdings as NFTs continue to gain popularity.
Cryptocurrency Mining & Income Tax
A cryptocurrency, such as Bitcoin or Dash, is a digital asset whose creation and transfer are controlled by cryptographic techniques. Blockchains are ledgers that don’t rely on central authorities to track transactions. Cryptocurrencies implement a blockchain-based system of independent parties verifying transactions. Those who verify transactions independently are called cryptocurrency miners.
Miners of cryptocurrency like Ethereum are rewarded for their efforts by receiving newly created units of the cryptocurrency they mine. Cryptocurrencies, such as Ripple, are becoming increasingly popular and highly valued, so understanding your Canadian income tax implications becomes more critical.
Canadian Income Tax Characterization
Each individual’s tax situation may differ when it comes to cryptocurrency mining. It takes two types of activities to classify an activity as a hobby or a business. To establish that an activity is a business, the courts have held that the taxpayer’s primary reason for engaging in the activity was to make money. The taxpayer acted in a way that complied with the objectives of businesslike conduct. When a taxpayer carries out an activity for a profit, but the amount of personal time spent outweighs the amount of commercial time spent, then it is a hobby rather than a business. A fixed list of factors does not determine an objectively businesslike approach. However, courts frequently consider the following factors:
- Profit or loss arising from previous years’ activities;
- Training for taxpayers;
- The taxpayer’s proposed course of action;
- An activity’s ability to show a profit;
- Bank loans are a conventional form of business financing;
- Having a formal business plan;
The circumstances and facts of individual miners will determine whether their mining was a hobby or a business since these factors vary among individuals. Mining rigs that have been purchased with borrowed money or by miners with computer programming training are more likely to be treated as a business than those mined from personal computers by laymen. An experienced Toronto tax lawyer can help you determine if your Zcash, Monero, and other cryptocurrencies mining activities qualify as a business or hobby under Canadian tax laws.
Tax implications of cryptocurrency mining:
You will be liable for a variety of different taxes if your mining activity constitutes a business. A miner will not be eligible for income inclusion until after they have sold their Litecoins, for example, when they receive a new cryptocurrency unit like Bitcoin through their mining activity. This unique Litecoin will be classified as stock by the Canadian Income Tax Act and subject to its inventory valuation rules.
It is more likely the miner will earn a business revenue or experience a loss as opposed to a capital gain or loss from selling Litecoins or other cryptocurrencies. Taxpayers with significant capital gains can significantly reduce their tax if only 50% of the revenue is included in their taxable income.
Tax deductions are available to the miner as a business deduction in addition to depreciating property associated with the purchase of equipment, buying electricity, paying rents, and paying interest on the loans that are associated with the commercial mining of cryptocurrency. Note that it can only claim deductible expenses in the tax year in which inventory is sold. In other words, you will be able to deduct mining costs only when you trade Bitcoin or another cryptocurrency you mined in a prior year.
A corresponding deduction may be available if, under Canadian tax law, the value of your unsold inventory decreases. According to Canadian tax law, the value of unsold inventory at the end of a year is determined by comparing the cost of acquiring the stock with its fair market value. It means if your cryptocurrency inventory at the end of the year is worth less than the cost of your merchandise, you can get a deduction for that year. In addition, the beliefs and inventory rules only apply to minors who are treated as operating businesses and whose Etheruem or another cryptocurrency is not considered capital property. When a coin is regarded as a capital asset, there can be no deductions, but the miner’s cost of creating it becomes the basis of the currency.
Profit or loss from the sale of the coins is computed by subtracting their cost base from their sale proceeds. Mining companies have a taxable capital gain or loss of half of their profit or loss from the sale of their assets. The coins only affect a miner’s income when they are sold. Before that point, any unrealized gains or losses aren’t relevant.
Using cryptocurrency mining for a hobby and understanding the tax implications
The tax consequences of mining, if the miner mines as a hobby rather than for a business, will be somewhat different. Just like with the treatment of commercial mining, hobbyist miners who receive cryptocurrency such as Stellar from mining activities will not be included in the income calculation. In contrast to mining conducted in a business setting, a miner is likely to be treated as a capital asset rather than as inventory.
A miner would also realize capital gains and losses if they sold the cryptocurrency later on rather than business income and losses. Compared to capital gains, a taxpayer only includes half of the revenue realized when selling inventory in their income. Still, the total payment is included when they sell assets as business income. The expenses hobbyist miners incur to conduct their mining activities cannot be deducted. A miner who is seeking to calculate their capital gains or losses will use the cost of mining Bitcoins or another cryptocurrency.
Cryptocurrency Mining – Tax Tips
A miner’s mining activities are complicated and essential to determine whether they are a hobby or a business. The issue is complex since it depends on the circumstances of each miner and requires knowledge of Canadian tax law covering this topic. A professional income tax lawyer in Canada is therefore necessary to obtain an informed opinion.
Consider the case where individuals have a capital gain as opposed to a business income. In that case, they can significantly reduce their taxable income if they sell NEO or other cryptocurrencies resulting from mining. A hobby is unlikely to produce significant gains under ordinary circumstances.
Still, the dramatic increase in Bitcoin’s value over the last few years and in some other cryptocurrencies has made significant unanticipated gains for hobbyists. Some commercial miners may prove they have converted some of the coins they have mined into capital if they segregated some of the coins they have mined. If sold the cash, the gains would be capital gains rather than business income, resulting in significant tax savings.
Buying Crypto in Indonesia
Cryptocurrency can be purchased relatively easily and legally in Indonesia. First, you must create an account with exchange and complete an identity verification process.
Steps to Purchase Crypto in Indonesia
You can now make your first crypto purchase in Indonesia once you have gathered all of the above information.
- Create an account with the exchange
Exchanges such as Binance, Indodax, and Upbit require registering and opening an account. Signing up is relatively simple; you will need to provide your full name including the first one and the last one, and email address and agree to the terms of service and privacy policy.
Most exchanges can be accessed through a mobile application or the web in Indonesia. It is available on Apple’s App Store and Google Play Store.
- Verify KYC information
After opening an account, KYC verification must be completed. Otherwise, users will not be able to conduct transactions. AML policies are implemented through KYC verification, a necessary process. KYC verification requires uploading documentation that proves your identity while establishing your address as well as uploading a selfie.
Verification failures are not uncommon. Verification requires you to provide accurate and complete information and upload only those photos that match your KTP. Make sure you do not already have an account on the exchange. All details must be clearly visible and clear if you upload your KTP. Your face should be visible when taking pictures. Avoid wearing glasses or hats. A working day is typically required to process KYC data.
- Make a fiat deposit
By passing the verification process, you can then make a deposit in fiat currency to purchase cryptocurrency. There are registered digital asset exchanges in Indonesia accepting the local fiat currency, the rupiah (IDR). On the platform, guarantees are made to a fiat wallet, from which they are used to purchase Bitcoin (BTC) or other cryptocurrencies. Between Rp 30K and Rp 50K is the minimum deposit. It is true, however, that some exchanges require Rp 500k which is the minimum deposit requirement.
The following methods are supported by exchanges:
- E-wallet (ShoppePay, GoPay, OVO)
- Bank transfer
- Debit or credit card (overseas deals only)
- PPOB (e.g., Alfamart)
- Before depositing the amount, make sure to check the associated fees.
- Purchase crypto
As soon as you have placed an order for the digital asset of your choice, you will receive a confirmation of your rupiah deposit. The process is usually straightforward. An exchange’s embedded wallet will display the amount of crypto purchased after the purchase process is complete. Transferring crypto to an external cold or hot wallet is possible if you desire.
