Regulation of Cryptocurrencies in Zimbabwe

Whilst the Zimbabwean Government has not said anything at all about the legality of cryptocurrencies, the Reserve Bank of Zimbabwe has. In a statement issued on the 11th of May 2018, the Reserve Bank purportedly banned the trading of cryptocurrencies. This ban was, however, overturned by the High Court. It was held that the Reserve Bank, which derives its powers solely from its enabling statute – the Reserve Bank of Zimbabwe Act- had no such powers to ban cryptocurrencies. The Judge, however, did not pass comment on whether cryptocurrencies were illegal or not. The effect of that High Court judgment is that cryptocurrencies remain unregulated and unprohibited. Two points are of interest here. First, is that the manner in which virtual currencies operate inevitably gives rise to concerns about money laundering and other uses of finances for illegal purposes. The Reserve Bank’s position makes it clear that any person trading in cryptocurrencies ‘will not have legal protection from, or recourse against, any regulatory authority.’ For those trading in such currencies, very stringent structures of KYC and AML regimes would be required to avoid running into difficulties with a variety of law enforcement agencies. The second is the question of whether cryptocurrencies are taxable. The Zimbabwe Revenue Authority has not yet made a pronouncement on this and appear to take a ‘wait and see’ approach. In our view, the tax liability will depend on whether cryptocurrencies are considered securities or property. What is clear, however, is that whichever form they take cryptocurrencies must be listed as part of a company’s assets. Any profits and losses incurred from trading these tokens must also be reflected in the company accounts, and it is very likely that these will be taxable on normal income tax rules. Similarly, any cryptocurrency bought for the purpose of appreciation and subsequently sold as an asset will likely incur a capital gains tax. Given our current liquidity issues in the country, and coupled with the Government’s open for business mantra, our prediction is that cryptocurrencies will become more and more popular in Zimbabwe. It is unlikely they will be declared illegal, but quite naturally will become heavily regulated. For a further discussion on virtual currencies and any further assistance, please contact Irvine H. Chiware on chiwara@cwg.co.zw.