On February 2023, Decree No. 643 issued by the Legislative Assembly on 11 January 2023 and published in the Official Newspaper No. 16, Volume 438, on the Economy, came into force, establishing the legal framework that provides legal certainty to the transfer operations of digital assets used in public offerings in El Salvador, as well as to the issuers and service providers of digital assets and other participants in public offerings.
Digital assets are defined as a digital representation that can be stored and transferred electronically, using a distributed registry technology system, in which the registers are linked and encrypted to protect the security and privacy of transactions. The purpose of this regulation is to enable the state to make or promote offers to the public of digital assets, or to seek admission of such assets for the purpose of selling or trading them on an exchange or trading platform.
The digital asset services covered by the law include the following: a) exchanging digital assets for fiat money or equivalent or for other digital assets either using own or third party capital, b) operating an exchange or trading platform for digital assets or their derivatives, c) placing digital assets on digital platforms or wallets, e) promoting, structuring and managing all types of investment products in digital assets and f) operating on behalf and for the benefit of third parties in the following cases: 1) transferring digital assets or the means to access or control them, between natural or legal persons or between different acquirers, e-wallets or digital asset accounts; 2) safekeeping, custody or administration of digital assets or the means to access or control them; 3) receiving and transmitting orders for the purchase or sale of digital assets or the trading of derivative digital assets; and, 4) executing orders for the purchase or sale of derivative digital assets.
However, the rules contained in the Act shall not apply to the following digital assets: a) digital currencies issued by central banks of another country, jurisdiction or territory; b) digital assets that are legal tender in any country, territory or jurisdiction; c) digital assets that can only be exchanged for a good or service that is provided by the issuer of that digital asset or by a limited number of providers of that good or service; and d) digital assets that cannot be traded or exchanged.
Those in charge of applying the rules contained in the law are the National Commission for Digital Assets, which will be in charge of authorizing, suspending or cancelling public offerings of digital assets, and will also be in charge of managing the Register of Digital Asset Service Providers, Register of Digital Asset Issuers, Register of Digital Asset Issuers and Register of Digital Asset Certification Authorities, Registry of Authorized Certification Entities in the country and will be in charge of a board of directors made up of three designated members and their respective substitutes, appointed by the President of the Republic, the Secretary of Commerce and Investment of the Republic and the Ministry of Economy, who will hold office for five years; and the Bitcoin Fund Management Agency, which will be in charge of the administration, safeguarding and investment of the funds from the public offerings of digital assets made by the State and the returns from such public offerings, which will be managed by an administrator appointed by the President of the Republic for a period of five years.
The benefits for issuers, providers, certifiers and acquirers of digital assets are the following: a) the yield of digital assets shall be determined at the time of the transaction, in accordance with the conditions of the digital asset market, b) the nominal value and yields or income from digital assets shall be exempt from all kinds of levies, duties, taxes, fees and contributions, of any kind and nature, present or future, whether ordinary or extraordinary or even special, c) issuers, certifiers and digital asset service providers shall be exempt from all taxes, duties, taxes, fees and contributions, of any kind and nature, present or future, whether ordinary or extraordinary or even special, c) issuers, c) issuers, certifiers and registered digital asset service providers shall enjoy all the tax benefits established in Article 36(b) of the aforementioned law, and d) in the case of legal persons, the tax benefits of paragraphs b) and c) shall apply both to the entity and to the partners or shareholders individually considered, with respect to the profits or dividends from the activities detailed in the previous paragraphs.