Austrian financial regulators and policymakers are generally receptive to cryptocurrencies, new technologies and fintech.
The Austrian government closely monitors developments in the area of alternative means of financing through distributed ledger technology (“DLT”) and other digital assets, such as initial coin offerings (“ICOs”), initial token offerings (“ITOs”), security token offerings (“STOs”) and initial exchange offerings (“IEOs”), which, however, seem to have slowed down significantly over the last year and a half. On the other hand, we have noticed an uptick in innovative digital business models across a wide range of industries, including in the mobile payments services sector, and more generally in platform-based crowdfunding/investment offerings.
To further strengthen innovation, the current Austrian governmental programme hopes to improve incentives for private venture capital for innovative start-ups and small- and medium-sized enterprises (“SMEs”). The trend appears to have moved away from using blockchain/DLT as a financing instrument for start-ups to being used for more mature applications. In particular, financial institutions are increasingly interested in cryptoassets and blockchain/DLT applications in Austria.
The Austrian Financial Markets Authority (Finanzmarktaufsicht; “FMA”) has established a dedicated fintech contact point to assist with new business models requiring authorisation under Austrian financial services regulation (see further below).
At the same time, regulators and the government stress that integrity, security and investor protection must not be compromised. While Austrian law does not prohibit cryptocurrencies, the FMA has warned investors of the risks of cryptocurrencies, stating that virtual currencies like Bitcoin and trading platforms for such instruments are neither regulated nor supervised by the FMA.
In Austria, no cryptocurrencies or fintech-specific laws or regulations have currently been enacted. Although there is no statutory definition of cryptocurrencies, according to the Austrian regulator, the FMA, cryptocurrencies are typically characterised as follows:
Furthermore, cryptocurrency is currently not treated as “money” or otherwise given equal status with domestic or foreign fiat currency in Austria. Likewise, there are not yet any cryptocurrencies that are backed by the Austrian government or the Austrian National Bank.
From an Austrian financial services regulatory perspective, cryptocurrencies are currently neither treated as financial instruments (in particular, not as securities or derivatives) nor as currency (domestic or foreign), but as commodities. It is worth noting, however, that derivative instruments referencing cryptocurrencies or tokens will qualify as financial instruments under the second Markets in Financial Instruments Directive (“MiFID II”) and hence will be covered by financial services regulation under MiFID II and the Markets in Financial Instruments Regulation (“MiFIR”).
While commodities as such are not subject to supervision by the FMA, this does not mean that business activities involving cryptocurrencies are entirely outside the Austrian regulatory remit. Depending on their precise features/content, the operation of various business models based on cryptocurrencies may trigger licensing requirements under the Austrian Banking Act (Bankwesengesetz; “BWG”), the Austrian Alternative Investment Fund Managers Act (Alternative Investmentfonds Manager-Gesetz; “AIFMG”) or the Austrian Payment Services Act (Zahlungsdienstegesetz; “ZaDiG”), and/or prospectus requirements under the EU Prospectus Regulation or the Austrian Capital Markets Act (Kapitalmarktgesetz; “KMG”).
In this respect, the general legal framework also applies to cryptocurrencies and new technologies. The FMA is known to apply a “technology-neutral” supervisory approach, meaning that products and services are subject to the same regulatory framework as “traditional” products/services. The underlying rationale is “same risk – same rules”. If and to what extent financial services regulation applies, primarily depends on the actual product features/activities.
Innovative business models involving cryptocurrencies may be subject to licensing requirements and governed by:
The FMA has published further guidance on the regulatory treatment of certain activities around cryptocurrencies, ICOs/ITOs and fintech on the fintech navigator section of its website at (Hyperlink).
Key areas to note are the following:
Given the diversity, complexity and rapid evolution of business models in the fintech space, the regulatory treatment of any business models involving cryptocurrencies or tokens will need to be assessed on a case-by-case basis.
The FMA therefore encourages discussion of the regulatory treatment prior to engaging in any business activity. It has set up a dedicated specialist team and fintech contact portal dedicated to those areas, which handles all fintech-related queries.
There is currently no specific regulation dedicated to the sale of cryptocurrencies or tokens, which are thus covered by general securities and commodities laws.
Depending on a token’s terms and conditions/features, certain token offerings/sales may be subject to prospectus requirements under Austrian securities laws unless a prospectus exemption applies. Each offering must be assessed on a case-by-case basis and the regulatory assessment will depend on the specific technical, functional and economic design of the instruments offered.
For Austrian supervisory law purposes, the FMA has broadly classified tokens as set out below, noting that in practice, hybrid forms and overlaps frequently occur and that such classification is subject to any further national and international legal developments:
Accordingly, due to their specific content/features, security/investment tokens will typically be subject to prospectus requirements (unless an exemption applies), while other types of tokens, such as utility tokens or payment/currency tokens usually will not. No prospectus will need to be published if a prospectus exemption applies. This will be the case if the respective tokens are only offered to qualified investors, or if the offering is directed to fewer than 150 persons who are not qualified investors per EEA Member State, or if the minimum investment is at least €100,000 per investor.
Besides issuers, platform operators may also have the obligation to publish a prospectus, as they may be considered “offerors” for these instruments under the EU Prospectus Regulation. Breaches of the obligation to publish a prospectus are subject to severe sanctions, including under criminal laws.
Income tax treatment of cryptocurrencies
In general, capital gains from the sale of cryptocurrencies held as business assets, and income from commercial activities related to cryptocurrencies (e.g. mining, brokerage), are subject to progressive income tax rates of up to 55% for individuals and 25% for corporations.
Special rules apply to cryptocurrencies treated as investment assets and other (non-business) assets:
Cryptocurrencies are treated as investment assets in case the taxpayer uses them to generate interest income. In this case, capital gains from a subsequent sale are taxed at 27.5% for individuals (taxation at lower progressive income tax rates optional) or at 25% for corporations.
In case cryptocurrencies are not used to generate interest income, are only acquired and sold occasionally (private sales) and are not part of a business (non-business assets), capital gains are subject to taxation of up to 55% for individuals only if they are acquired and sold within 12 months. A tax exemption applies if capital gains do not exceed €440 per calendar year. In case cryptocurrencies are held for longer than 12 months, capital gains are not taxable.
VAT treatment of cryptocurrencies
The exchange of cryptocurrencies (e.g. Bitcoin) into fiat currency (e.g. euro) and vice versa is VAT-exempt (CJEU 22 October 2015, C-264/14, Hedqvist; VAT guidelines para. 759). Bitcoin mining as such is not subject to VAT because the recipient of the mining services cannot be determined (CJEU 22 October 2015, C-264/14, Hedqvist; VAT guidelines para. 759).
Purchases/supplies of goods or services that are subject to VAT, and which are paid for in cryptocurrency, are treated no differently from payments with fiat currency. The assessment basis for transactions subject to VAT is the fair market value of the units.
As stated above, money transmission laws may apply to certain business activities involving cryptocurrencies. Cryptocurrencies and tokens used as means of payment may trigger a licensing requirement if they are intended for payment at third parties, and the network within which they can be used to purchase goods/services is large in terms of geographical reach, type of products/services and/or number of accepting parties. Also, if accounts are operated in connection with currencies, payment instruments or means of payment, through which payments are made, the entity holding the accounts may be obliged to become licensed as a payment service provider.
Activities involving cryptocurrencies are subject to anti-money laundering (“AML”) requirements (including know-your-customer (“KYC”) checks and AML prevention systems) if:
True to the government’s motto “advice instead of punishment”, the Austrian Ministry of Finance has finally implemented a dedicated regulatory sandbox programme that will go live in Fall 2020. In such a sandbox, companies that require a financial services licence will be able to swiftly and comprehensively clarify regulatory requirements for innovative business models in a constant dialogue with the regulator and, if necessary, test such business model based on a scaled-down licence. The selection criteria for admission to the sandbox and further details are based on international best practice.
Cryptocurrencies are currently treated by the Austrian regulator as commodities for supervisory law purposes (see “Cryptocurrency regulation”, above). Applicable law as well as internal investment policies may restrict investment managers of certain investors to own cryptocurrencies for investment purposes. For example, Undertakings for the Collective Investment in Transferable Securities (“UCITS”) funds, real estate investment funds pursuant to the Austrian Real Estate Investment Funds Act, or staff provision funds and their managers, may not invest in commodities. Pension funds and insurance companies are subject to qualitative and quantitative investment restrictions which will typically not permit direct investment into cryptocurrencies. Depending on the relevant investment policy, AIFs and their managers may, however, invest in cryptocurrencies.
There are currently no specific licensing requirements imposed on an investment advisor or fund manager holding cryptocurrency, over and above those set out under the general trade law/financial services licensing framework.
Mining Bitcoin and other cryptocurrencies as such is not yet regulated and is thus currently permitted. However, raising capital from the public in order to invest proceeds into mining of cryptocurrencies may be regulated (see “Cryptocurrency regulation” and “Sales regulation”, above).
There are currently no border restrictions or obligations to declare cryptocurrency holdings.
There are currently no reporting requirements for cryptocurrency payments made in excess of a certain value under Austrian law.
There are no specific rules as to how cryptocurrencies are treated for purposes of estate planning and testamentary succession. Accordingly, general civil law rules apply. Cryptocurrencies qualify as (intangible) assets (unkörperliche Sache) for civil law purposes and as such can be included in estate planning/testamentary succession, or form part of a deceased person’s estate.