Jul 2
Why Costa Rica is Considered an Emerging Refuge for Crypto Entrepreneurs
READ TIME: 3 MIN.
There is one nation in Central America that's fast becoming a vibrant playground for entrepreneurs and innovators in cryptocurrency and blockchain technology. Costa Rica is taking a "vigilant tolerance" standpoint to cryptocurrency, rather than imposing outright bans or developing strict regulatory frameworks for crypto-focused operations.
In doing so, Costa Rica is becoming an agile environment for businesses in digital assets to operate under existing corporate frameworks. This move has enticed a string of crypto companies to up sticks and move to the country, including crypto exchanges, wallets, decentralized finance protocols, and even blockchain-based ventures.
Opportunity abounds, despite the lack of specific crypto permits
While some crypto jurisdictions across the world require operators to have Virtual Asset Service Provider (VASP) licenses to work legally, Costa Rica doesn't yet issue crypto-specific permits. Although there is no dedicated Costa Rica crypto license, any business registered in the country can deliver crypto-focused services. These cover trading exchanges, wallet services, payment processing and asset management.
It's easy for a business to seek registration as a corporate entity in Costa Rica under the Registro Nacional. With no minimum capital requirements or mandatory audits, crypto start-ups can launch here within six weeks. That may surprise some people, especially after cases like Sam Bankman-Fried, which eroded trust in the crypto space for a time.
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The light influence on crypto innovators in Costa Rica
Despite the lack of central authority on crypto-focused companies in Costa Rica, there are a handful of organizations that employ minor oversight on their operations.
Firstly, the Central Bank of Costa Rica (BCCR) is starting to warm up to the realities of cryptocurrency. It's issued a trio of non-binding directives between 2017 and 2021, declaring digital assets as "means of payment" and "quasi-money", without going as far as labelling them legal tender.
The Costa Rican financial market supervisory body, SUGEF, is another potentially influential organization. They may oversee the issuance of security tokens by a crypto company but would remain hands-off in all other scenarios.
The country's Ministry of Finance is also reportedly mulling over applying VAT and capital gains tax on cryptocurrencies, especially those earned within Costa Rica.
The tax benefits for global crypto firms to operate from Costa Rica
In Costa Rica, there are no existing laws on corporation tax on cryptocurrency income generated overseas. This country has what's known as a territorial tax system, where only income earned within its borders is taxable.
In addition, crypto sales could also be considered exempt from VAT and capital gains right now, further limiting the tax burden on crypto operators here. Employers are also legally permitted to pay staff salaries in cryptocurrency too.
With a unique combination of pragmatism and entrepreneurial flexibility, Costa Rica is now a favored jurisdiction for crypto ventures with a global reach. It remains to be seen whether the Costa Rican government adopts a more rigorous, formal framework for cryptocurrency in the future.
A draft proposal has outlined digital wallets, smart contracts, VASPs, and regulatory supervision of crypto firms under the watchful eye of CONASSIF, the country's national council of financial system supervision. The proposal also reaffirms cryptocurrency's status as non-legal tender. One hopes that any formal legislation will continue to offer crypto firms in Costa Rica a balanced future, without stifling their vision.
