The South African framework for regulations in cryptocurrency exchanges and trades is quite detailed. This is why a lot of local traders are hesitant about diving into Bitcoin trading. Most people are not sure where the law exactly stands. Some believe that Bitcoin is banned, while others assume it exists in a legal grey area. Neither view is correct.
Cryptocurrencies, including Bitcoin, are 100% legal in South Africa. As a trader, you can purchase them, hold them, invest in them, or put them up for sale. That said, legality does not mean official status. Bitcoin trading does not exist in a place without rules. South Africa has always been tight on rules that allow for the protection of consumers and prevent money-laundering. Bitcoin and other cryptocurrencies are also not legal-tender. If a business accepts Bitcoin, it is their choice, but they are not required to do so. The rand is the only form of money that is mainly accepted for payment.
To begin your cryptocurrency trading endeavour in South Africa, it is very important for you to initially understand the rules put in place.
Main Cryptocurrency Regulators in South Africa
South African regulators avoid calling Bitcoin “money”. They use more careful language. Bitcoin regulation is typically overseen by three parties: the FSCA, the FIC, and the Reserve Bank. Under the FAIS (Financial Advisory and Intermediary Services Act), crypto providers are formally known as ‘Financial Service Providers’ or FSPs. The term ‘Crypto Asset Service Provider’ or CASP is also used sometimes, usually informally as it does not have a formal definition in the FAIS.
Financial Sector Conduct Authority (FSCA)
The FSCA treats crypto as financial products. It is the main regulator in the cryptocurrency space in South Africa. According to the rules:
- Brokers, exchanges, and wallet providers must register as CASPs.
- Fines will be given to unlicensed crypto providers. They may also be shut down.
- Providers must follow strict guidelines for better protection of consumers.
In practice, this simply means that users must follow tax law.
South African Reserve Bank (SARB)
SARB sees Bitcoin as a ‘digital asset’. It does not issue it or back it, nor does it control its supply. Its main motive is to ensure stability and exchange control. SARB does not license cryptocurrency platforms directly, but it does play a huge part in shaping the policies.
Buying and Selling Bitcoin Locally
South Africans can buy Bitcoin through local and international platforms. Most people use online exchanges that support bank transfers. These platforms are legal, but not all are equal.
Licensed platforms must:
- verify user identity,
- monitor transactions, and
- report suspicious activity
These rules are not unique to just cryptocurrencies like Bitcoin. Banks also follow similar guidelines.
Unfortunately, unlicensed platforms exist too. Although they may seem economically better as they are quite cheap, using these comes with a ton of risk. If something goes wrong, there is often no support and no accountability.
Regulations You Should Know About
Crypto regulation in South Africa is not a single law. It is a collection of rules applied from different angles. The most important thing to be aware of is that South African regulation focuses on service providers, not individuals.
As aforementioned, exchanges, wallet providers, and brokers must register with the FSCA. They must meet compliance standards and protect customer data. As a user, your main legal duties are simpler. You must not misuse Bitcoin for illegal activities. Keeping meticulous records of your Bitcoin usage and trades will also be an added help.
Tax on Bitcoin Explained
South African Revenue Services (SARS) treats cryptocurrency as an ‘intangible asset’ for taxation reasons. Traders who delve into Bitcoin trading on the regular will be taxed on profits as income and long-term traders may be faced with Capital Gains Tax (CGT). SARS also wants everyone involved in cryptocurrency to declare the transactions on their tax returns.
How you are taxed depends on how you use cryptocurrencies. If you buy Bitcoin and sell it later at a higher price, the profit is usually treated as a capital gain, for which you would have to pay CGT. If you trade frequently, mine Bitcoin, or earn it as payment, the profit may count as income. This difference actually matters as income tax rates are higher than capital gains tax rates.
This is where most traders get caught, there is no shortcut around paying these taxes. SARS has made it clear that crypto transactions must be declared.
What Counts as a Taxable Event?
You might think that that tax only applies when you convert Bitcoin to rands, but that is not always true. Tax can apply when you:
- Sell Bitcoin for rands
- Trade Bitcoin for another crypto asset
- Use Bitcoin to pay for goods or services
Each of these can trigger a gain or loss. The outcome of your transactions or trades need to be recorded. This might sound tedious, but it is more than manageable with basic trading tools like trading journals.
How to Ensure Safety
Most losses in cryptocurrency trading happen because of poor security choices. If you leave Bitcoin on an exchange and it gets hacked or shuts down, you may lose access. This is why you should control your own wallet, it allows you to control your funds.
Risk management tools can also come in handy here. Trading in Bitcoin carries real and significant risks, namely price volatility. Bitcoin, like many other trading instruments, rises fast. It also falls in price movement faster.
Regulatory risk is also one to keep in mind. Rules may be subject to changes, and taxes may be increased. Reporting standards may also tighten. It is incredibly important to keep these things in mind before deciding on a risk tolerance percentage, especially as a beginner trader.
In cryptocurrency trading, there is also the human error factor. You may accidentally send your Bitcoin to the wrong address or lose permanent keys. Bitcoin trading is only for the most careful of users. This is why there are such strong regulations on Bitcoin trading. Not because it is illegal, but because it is unsuitable for careless use.
Bitcoin is not a guaranteed investment and it is not backed by the government. Which means that cryptocurrencies are not protected like the funds in your bank accounts are.
Licensing in South Africa
Getting a crypto license in South Africa ensures that you are compliant with the regulations of the FSCA. It also boosts credibility, fosters trust, and protects consumers from fraud and money-laundering scams. A license legitimizes the platform and allows them to operate legally and access banking services in South Africa.
The licenses are issued in four categories, depending on what activity you plan to engage in.
- Category I, works for most intermediary clients and advisors
- Category II/IIA, for discreet management of investments
- Category III, client asset administration
- Category IV, special services
Applicants need to meet a specific criteria to apply for a license. They need to be qualified individuals with a strong compliance and risk management system. Their policies and guidelines must also be in sync with the policies with the Financial Intelligence Centre Act (FICA). They must also have sufficient audits, reports, and financial resources.
How to Obtain a License
Operating without a license in South Africa is illegal and the penalties include heavy fines and imprisonment. For exchanges and brokers, having a license is the first step towards financial sustainable growth.
The process for obtaining a license is as follows:
- Register your company with South Africa’s Companies and Intellectual Property Commission (CIPC).
- An application submission for the license to the FSCA is the next step, which is subject to thorough evaluation.
- Once approved, the CASPs must follow supervisory measures.
The licensing process can take a bit of time, up to six months, and sometimes even longer in cases of backlog. The costs include various fees and charges, including an application fee.
How to Invest in Bitcoin
For everyday users, Bitcoin management and trading is clear-cut and straightforward.
- Do your own research into licensed South African cryptocurrency exchanges and brokers.
- Once you are satisfied, register with your chosen crypto exchange or broker.
- Complete a FICA-compliant verification process which involves an identity document and proof of residence.
- Deposit ZAR (rands) into your account via bank transfers or card.
- Purchase Bitcoin or the cryptocurrency of your choice.
- You can now withdraw these crypto assets to a personal wallet or use the exchange to trade.
Conclusion
Bitcoin’s legal position in South Africa is clearer than many people think. You are allowed to hold and trade cryptocurrencies. What you are not allowed to do is ignore the rules that South African regulatory agents have put in place. If you mindfully keep track of your Bitcoin usage and record your transactions, you are good to go. Keep in mind that risk management is absolutely crucial when it comes to cryptocurrencies. You must remain vigilant and deal with Bitcoin carefully and responsibly in order to earn profits while trading.
