CONCEPT AND TYPES OF DIGITAL ASSETS
For a long time, crypto assets existed somewhere between existing regulations and a grey zone, and their unresolved status caused problems for legislators and investors alike. It has long been clear that cryptocurrencies, as one form of digital assets, are here to stay. At the end of 2020, the Republic of Serbia adopted the Law on Digital Assets (Official Gazette of the Republic of Serbia No. 153/2020), which has applied since the end of June 2021, and thus joined the countries that have regulated the market for virtual assets.
The Law defines digital assets and their forms and draws a clear distinction between digital assets and legal tender. It also regulates the issuance of digital assets, that is, who may issue them and under what conditions, as well as secondary trading and services related to digital assets, in order to reduce the risks of fraud, money laundering and other risks of an unregulated market.
Under the Law, digital assets, also referred to as virtual assets, are a digital representation of value that can be digitally bought, sold, exchanged or transferred and that can be used as a medium of exchange or for investment purposes. Digital assets do not include digital representations of legal tender or other financial assets regulated by other laws, unless the Law provides otherwise. The Law applies to all digital assets regardless of the technology on which they are based.
The Law distinguishes two basic types of digital assets: virtual currencies and digital tokens.
VIRTUAL CURRENCY
A virtual currency is a type of digital asset that is not issued or guaranteed by a central bank or any other public authority, is not necessarily linked to legal tender and does not have the legal status of money or currency, but is accepted by natural or legal persons as a medium of exchange and can be bought, sold, exchanged, transferred and stored electronically.
Virtual currencies cannot be contributed as capital to a company. They may first be exchanged for money and then paid in as a cash contribution.
DIGITAL TOKEN
A digital token is a type of digital asset that represents any intangible property right which, in digital form, represents one or more other property rights, and may include the right of the token holder to receive certain services.
Digital tokens that do not relate to the provision of services or performance of work may be a non-cash contribution to a company. Tokens that relate to the provision of services or performance of work may be a non-cash contribution only in general and limited partnerships. The list of digital tokens that may be contributed is determined by the Securities Commission.
Issuing digital tokens is a way for companies, especially start-ups, to raise capital. In practice, an initial offering of tokens is known as an ICO (initial coin offering). ICOs and IPOs (initial public offerings) may have a similar economic function of raising capital, but they differ in the legal nature of the rights acquired by investors, the conditions of issuance and the applicable regulatory regime. For a long time ICOs operated globally without a clear legal status, which was one of the reasons for the instability of the digital assets market. The Serbian Law on Digital Assets brought order to the primary issuance and secondary trading of digital assets.
DIGITAL ASSETS SERVICES
Services related to digital assets include:
- receiving, transmitting and executing orders to buy and sell digital assets on behalf of third parties,
- buying and selling digital assets for money,
- exchanging digital assets for other digital assets,
- custody and administration of digital assets,
- underwriting and placement of digital assets (with or without an obligation to purchase them),
- maintaining a register of pledges on digital assets,
- accepting and transferring digital assets,
- portfolio management,
- organising a digital assets trading platform.
These services may be provided only after obtaining a licence from the competent supervisory authority, the National Bank of Serbia or the Securities Commission. The service provider must be a company and must have the prescribed minimum capital, the amount of which depends on the type of service it intends to provide.
HOW CAN I PAY WITH VIRTUAL CURRENCY?
Virtual currencies are not legal tender. Payment for goods or services is therefore made through a digital assets service provider, which accepts the digital assets from the consumer, exchanges them for the corresponding amount of legal tender and transfers that amount to the merchant's account.
Digital assets can be bought and sold through trading platforms, as well as through crypto ATMs, automated machines for buying and selling digital assets for money or exchanging one digital asset for another. Parties to such transactions sometimes additionally secure them with an escrow agreement.
An initial offering of digital assets may be accompanied by a white paper, a document containing information on the issuer, the digital assets and the investment risks.
PRINCIPLE OF TECHNOLOGICAL NEUTRALITY AND BLOCKCHAIN
Digital assets do not depend on the technology on which they are created. However, many forms of digital assets are based on smart contracts, that is, computer protocols or programs based on distributed ledger or similar technologies, which wholly or partly automatically execute, control or document legally relevant events in accordance with a contract. The Law allows the use of smart contracts in secondary trading of digital assets, provided that the service provider obtains the user's consent.
Blockchain is one form of distributed ledger technology, in which data are grouped into linked blocks and confirmed using cryptographic and other mechanisms. This technology makes subsequent unauthorised changes to recorded data more difficult. Custody and management of digital assets on behalf of users involves control over the means of access to digital assets, such as cryptographic keys.
DIGITAL ASSETS WITH FINANCIAL INSTRUMENT STATUS
Where digital assets have all the characteristics of a financial instrument, their issuance and secondary trading are governed by the law regulating the capital market, unless the Law on Digital Assets provides otherwise. Capital market rules do not apply if all of the following conditions are met:
- the digital assets do not have the characteristics of shares,
- the digital assets are not exchangeable for shares,
- the total value of digital assets issued by one issuer over a period of 12 months does not exceed EUR 3,000,000 in dinar equivalent.
This allows smaller companies and start-ups to issue digital assets under the rules of the Law on Digital Assets, without having to comply with the considerably stricter rules of capital market legislation.
The Securities Commission supervises digital tokens and digital assets with the characteristics of financial instruments, while the National Bank of Serbia supervises virtual currencies.
MINING OF DIGITAL ASSETS
The Law allows so-called mining of digital assets, but does not regulate it in detail: the provisions of the Law do not apply to persons who acquire digital assets through mining at the moment of such acquisition.
TAXATION OF CRYPTOCURRENCIES AND OTHER DIGITAL ASSETS
Under the Serbian Personal Income Tax Law, the transfer of digital assets, whether a sale or another transfer for monetary or non-monetary consideration, including the exchange of one digital asset for another, may give rise to a capital gain or loss for a natural person, including an entrepreneur. Capital gains are taxed at a rate of 15%, and the law provides, under prescribed conditions, for a partial tax exemption where the proceeds from the sale of digital assets are invested in the capital of a Serbian company or investment fund. Taxation of legal entities is governed by the rules on corporate income tax.
DIGITAL ASSETS LAWYER IN SERBIA
We provide legal assistance to individuals and companies in matters related to digital assets, in particular:
- legal advice on the issuance of digital tokens and the preparation of white papers
- preparation of documentation for obtaining a licence to provide digital assets services
- contribution of digital tokens as non-cash capital and drafting of contracts related to digital assets
- legal issues concerning NFTs and intellectual property rights in digital content
- legal advice on the tax aspects of digital asset transactions
For legal assistance with digital assets, please contact us.
This text does not constitute legal advice and is for information purposes only, in accordance with the terms of use of this website.