Nayib Bukele, President of El Salvador, has opened the game and set a precedent by proclaiming Bitcoin as legal tender in his country. The Bitcoin Law aims to attract “crypto-friendly” companies, since, according to this law, they would not pay taxes on their earnings in bitcoin. This put El Salvador in the sights of many foreign companies and investors, knowing also that the development of the location of “BitcoinCity” in this country, along with other modern infrastructure plans, including a new airport.
It is in this framework that we spoke with the lawyer Alejandro Muñoz, to learn more about the regulations, requirements and benefits to take into account if you want to formalize operations in El Salvador.
Santiago Cassina (SC): What does the Torres firm do?
Alejandro Munoz (AM): We are a business law firm, focused on new technologies. We have the legal area, accounting, marketing, intellectual property, corporate and regulatory law and money laundering prevention. We advise all companies holistically and comprehensively.
SC: How is the method of setting up a company in El Salvador?
A.M: Companies can be constituted as legal entities. A holding company in Spain, or in Estonia, can be a shareholder here in El Salvador. All the documentation is needed, from Estonia for example, duly apostilled, a copy certified by a notary there, which can be electronic, and translated into Spanish. In addition to a power that allows you to open a company here, and have the tax identification number (NIT). This number is an essential document to open a company here and to carry out any type of commercial transaction. The NIT can be obtained by presenting all the documentation and appointing a proxy. All these procedures can be done remotely, but the signature must still be holographicdue to current notarial laws.
The natural person can also be a shareholder, they only need to have their NIT and valid passport. Currently sole proprietorships cannot be formed, but it is stipulated that it could be done in the future. At this time a minimum of two people are needed.
As a foreign person, self-employed, offering professional services, you must register as an individual, and take out tax documents to issue an invoice and reside here. The problem in general in these cases is to be able to prove your address. For that You must live at least 200 days here or start a residency process, so that it is understood that you are actually domiciled here, and pay 20% taxes. That’s why it’s easier to set up a company, since the company is domiciled here and you can be abroadand improve your profits by paying only 5%, and not 20%.
SC: What are Chivo’s operating limits?
A.M: Keep in mind that Chivo is a private/public project, so to speak, it is a private company that works with public funds. They manage their own transaction policies and the transaction amount limits are determined by them, for reasons of prevention of money laundering, as well as the flight of dollarsin case someone comes and wants to withdraw one hundred thousand dollars from an ATM, to give an example, and generate a liquidity problem. As a company, you can open a Goat Business, but there you must already make a commercial agreement to expand the limits.
The Mortgage Bank is “friendly” with Bitcoin, it is a state bank. And like any bank, it has its money laundering prevention and KYC policies (know-your-client). Therefore, all large transactions must have proof of origin of funds.
We have a limit, imposed by the United States, of one term of 3 to 6 months to start making bank transactions abroad, also to avoid the indiscriminate exit of dollars from the countrybecause if we run out of dollars in the country, we have to buy from the United States.
Something to note is that We still do not have a strict regulation or so adapted. Now 52 government reforms are coming, but we believe that it is not necessary to regulate everything, but to leave a flexible area of play, because we would be trying to centralize a model that was born decentralized. It’s like trying to regulate DAOs by requiring them to domicile here.
SC: How easy is it to receive money from abroad by bank transfer?
A.M: It’s a little complicated. Most of the transactions come from the United States, that’s easy. But the subject of receiving via SWIFT, or IBAN from another country, takes a long time, up to 5 days for each transaction.
Traditional banks are not allowed to operate with Bitcoin in order to open the game to exchanges, wallets and others.
The idea, with the laws that are coming, is that the neobanks, the digital banks, settle. But avoid giving traditional banks those tools, since they already have the capital and the structure to win business from everyone. The idea is that new fintech investments, new businesses and DeFi will come to perform this. That is why they did not give banks the power to have dollars and Bitcoin. The bank only receives dollars, it does not receive bitcoin.
SC: How is tax management currently?
A.M: With the subject of taxes, one first declares holdings to the state. Then the state decides whether to audit. There is no income tax for bitcoin. In other words, if you start to hold with your company here in El Salvador and the price of bitcoin goes to USD 100,000 for example, in relation to the dollar, you will not pay a penny. What many companies do is register here, present the documentation, with a representative and legal address here, and open a company wallet in El Salvador.
SC: Finally, is there anything you would like to highlight?
A.M: The next law should be extended to cryptocurrencies. Why wasn’t a cryptocurrency law launched from the start? Well, because it was going to be difficult, from the outset, to explain to people that Bitcoin exists and that all the others exist.
The subject of education has evolved little by little. There has been pushback for Bitcoin at first. You told people who were used to handling cash: “all that money that you have stored there because I can give it to you in bitcoin”. And people were skeptical, very traditional.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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