The Current Status of Crypto Adoption in San Marino
San Marino, a tiny "Microstate," has a rich history and is increasingly developing into an innovative hub for crypto and blockchain technology. Although tiny and relatively unknown in the tech world, San Marino is using its legislative flexibility to help create a flourishing blockchain ecosystem.
Their government’s transparency and active role in embracing crypto has put the country in the limelight as a pioneer of innovation. One example is the introduction of progressive legislation and innovative blockchain functionalities.
San Marino started its path towards blockchain regulation in 2015, and this is yielding results for the country. The most notable advancement is Delegated Decree No. 2nd of January 2024, which regulates Distributed Ledger Technologies (DLTs).
This decree is one step in a broader plan to provide a safe but also scalable space for blockchain businesses. Moreover, the Central Bank of the Republic of San Marino (CBSM) has already made a public consultation to devise a framework for the regulation of crypto assets that is likely to take into account the European Institutions’ Markets in Crypto-Assets Regulation (MiCAR).
“The Regulation will be adopted once the primary regulatory framework is established. Its main goal is to introduce a specific supervisory framework into the San Marino legal system, based on the principles established at the European level by EU Regulation No. 2023/1114 (known as MICAR).” — Central Bank of the Republic of San Marino (CBSM)
San Marino’s efforts extend beyond regulations. The country has also implemented practical blockchain solutions, such as its groundbreaking use of NFT vaccine passports. Working with VeChain, the Italian Sangro River Valley region designed digitized COVID-19 certificates using blockchain technology to guarantee secure, irreversible, and reliable proof of vaccination.
All of the passports are then presented as non-fungible tokens (NFT) on the VeChainThor blockchain, enabling easy cross-checking without the use of any additional apps. This initiative also focused on the usefulness of blockchain technology for practical purposes and showed that the government is willing to get the best technology available today to address current problems.
The use of cryptocurrency by the citizens of San Marino is on the increase due to the enabling policies from the government and the growth of blockchain use cases. The state provided an inviting environment not only for startup companies but also for corporate companies in the blockchain space.
Further, employees in blockchain companies also have social benefits, subsidies, and residency programs, and this makes San Marino an attractive place to work for tech professionals.
Despite these advancements, challenges remain. San Marino's small internal market and restricted international influence set limits on the extensibility of its blockchain efforts. Also, the policy aims to promote new investment and growth through innovation.
While the regulatory standards are intended to foster growth in the economy, they may be too high for most small-scale business enterprises. Nevertheless, their aggressive business strategy, as well as joining alliances with other players and offering broad-based schemes, ensures that San Marino does not fall off the radar of the crypto and blockchain industries.
Crypto Law In San Marino
In 2015, San Marino already began to prepare the legal groundwork for the deployment of blockchain regulations, which indicates that the country is prepared to harness the potential of this technology.
Even if it is not present in the European Union, the country follows high European parameters for its legislation, guaranteeing that all laws of the country adhere to international standards. The cornerstone of this approach lies in a series of legal decrees and guidelines aimed at fostering innovation while maintaining robust oversight.
The basis of San Marino's crypto legislation is Delegated Decree No. 37 of Feb. 27, 2019. The technological specifics outlined in Blockchain Council of Georgia, Inc. This decree was crafted after an extensive study of regulatory models from blockchain-forward jurisdictions like the U.S., Switzerland, Singapore, and Luxembourg.
It aims to maintain quality standards and reduce bureaucratic hurdles. The decree categorizes blockchain tokens into three types—utility tokens, security tokens, and payment tokens—based on their functionality and the rights they confer. Utility and security tokens are regulated on quite specific terms, but payment tokens are not due to their lesser market adoption.
“As an incentive, tax exemption for general income tax purposes has been created for income realized through token transactions regulated by the Decree. “
San Marino legislation is particularly noteworthy in its treatment of Initial Token Offerings (ITOs). Entities issuing utility tokens shall submit to San Marino Innovation, the authorities of innovation of the country, at least 20 calendar days before going live with that token.
Thus, for security tokens, more stringent requirements are applied, such as the preparation of an information prospectus under financial regulations. In contrast to the U.S. model, where it is the issuance bodies that retain more freedom, in San Marino, it is required of entities whose authorization must be obtained before ITOs can be registered.
Moreover, token issuers can operate across international borders under the regulations of San Marino, thereby broadening the scope of the law from the country.
Another of the most striking aspects of San Marino's crypto-legal framework is the introduction of trusts for blockchain entities. This unique approach enables the centralization of token issuance and investor relations with investors irrelevant from the issuer operations.
This trust framework offers more transparency and has better user protection as compared with standard company structures.
The primary consideration regarding San Marino's blockchain law is its transparency and compliance with anti-money laundering (AML) regulations. As such, the capital standards established by the decree are stringent and high-level money laundering (AML) measures, especially for high-risk transactions.
Only entities that are in compliance with the AML requirements of the State of San Marino (and with similar requirements in their respective home jurisdictions) are allowed to run, to provide a safe and reliable environment for digital asset transactions.
Taxation of Cryptocurrency in San Marino
San Marino's cryptocurrency taxation law is designed to encourage innovation but, at the same time, fiscal prudence. Delegated Decree No. 2, January 2024, regulation of technologies based on Distributed Ledgers (DLTs), clarifies the treatment of crypto-assets and related tax liability.
By providing attention to both the individual and corporate side of the crypto activity, the decree creates transparency and certainty for its stakeholders.
“Crypto-Asset Firms, a new category of entities authorized to carry out the newly-introduced reserved activities included in Annex 1 of the LISF, as provided for in the aforementioned Delegated Decree.
For persons, the tax law implies a substitute tax of 8% on proceeds earned using the transfer or realization of crypto-assets. This rate applies only to transactions exceeding a threshold of €2,000 per year, effectively offering a tax exemption for smaller investors. This approach balances the need for tax compliance with an encouragement for wider participation in the crypto economy.
This is in contrast, however, because corporations are subject to regulation that classifies crypto-assets as financial instruments. This classification corresponds to those employed in neighboring countries, such as Italy, and guarantees that all aspects of accounting and taxation will be uniform.
Crypto assets owned by companies are taxed as usual financial securities, thereby San Marino attracts a great number of businesses engaged in blockchain and crypto projects.
The crypto tax policies in San Marino extend beyond compliance to actively encourage blockchain businesses. The state grants complete tax relief for some crypto activities, especially those described by token transactions under Delegated Decree No. 37 of 2019.
This decree is directed to Initial Token Offerings (ITOs), utility tokens, and security tokens, and from taxation concerning General Income Tax the transactions related to these.
In addition, utility tokens are considered to be foreign currencies to simplify the tax situation and relieve businesses of them. In this same manner, it is provided that payment tokens are not subject to a second tax, unlike in many jurisdictions where they risk double taxation.
By adopting this innovative approach, San Marino positions itself as a crypto-friendly hub that prioritizes ease of doing business.
Factors Driving Crypto Adoption in San Marino
San Marino is a proactive jurisdiction in the adoption of cryptocurrencies and blockchain technologies, as it has taken advantage of its distinctive position. Below are four critical factors driving the growing embrace of cryptocurrency in the country:
Evolving and Adaptive Framework for Regulation
San Marino’s optimistic laws are the foundation of the country’s strategy of crypto adoption. The comprehensiveness of frameworks regarding the use of methodologies and cryptocurrencies is offered in Delegated Decree No. 37 of 2019 and Delegated Decree No. 2 of 2024.
Competitiveness in Tax Systems and Other Benefits
San Marino’s tax policies are highly favorable to individuals and businesses in the crypto space. For individuals, the country imposes an 8% substitute tax on crypto-asset gains, with a €2,000 annual exemption, which lowers the entry barrier for smaller investors.
Government Support and Innovation Initiatives
The government of San Marino actively supports blockchain and crypto projects, making the country a hub for technological experimentation. Initiatives like the NFT vaccine passport, developed in collaboration with VeChain during the COVID-19 pandemic, highlight the government's commitment to integrating blockchain into public services.
Strategic Alignment with European Standards
Although San Marino is not an EU member, it has aligned its crypto regulations with European standards, particularly MiCA. This alignment ensures cross-border compatibility and investor confidence while attracting international businesses seeking to operate within a clear legal framework.
Challenges Facing Crypto Adoption in San Marino
Even though San Marino has sought to become a forward-looking center for cryptocurrency and blockchain technology, many bottlenecks suppress its wider acceptance and evolution. Following are 4 key challenges that the country is confronted with in its quest to emerge as a global crypto innovator:
Small Domestic Market
The size of San Marino and its population of around 344,000 residents are factors that hinder the adoption of cryptocurrencies within the country. Additionally, the small user market limits the local appetite for blockchain solutions and crypto-oriented services, thus proving impossible for businesses to grow significantly within that country.
Regulatory Complexity and Evolving Standards
Although San Marino seeks to make its regulatory framework less burdensome, the laws still remain very complicated for many businesses and investors. The country has imposed anti-money laundering (AML) policies that are also very stringent. Although these policies are required for building trust, they can scare away small businesses that are unable to afford such measures.
Limited infrastructure and technical expertise
There is not enough infrastructure and human resources in San Marino to create and maintain a functional blockchain ecosystem. The scant availability of blockchain developers, cryptocurrency regulators, and compliance specialists in the local market compels companies to go and get such services from other nations at a cost.
Dependence on Foreign Investment and Partnerships
Though there has been interest from foreign crypto firms in venturing into San Marino, such a country, however, has the problem of relying solely on foreign investment and partnerships. As such, due to this dependency, the country faces risks associated with global economic developments, changes in attitude from investors, and variations of the countries for the use of crypto.
Potential Benefits of Crypto Adoption
San Marino's proactive use of blockchain and the technologies offers the potential for significant economic, social, and technological advantages. Below are 4 key benefits they stand to gain from widespread crypto adoption:
Economic Diversification and Growth
Cryptocurrency adoption can facilitate San Marino's greater diversification of its economy, moving away from historic sources of revenue, such as travel and industry. As a pro-blockchain and pro-crypto state, the country attracts global businesses, investors, and entrepreneurs who will stimulate economic development.
Enhanced Financial Inclusion
Cryptocurrencies offer an alternative banking system with the potential to serve underserved individuals and businesses that are served poorly by conventional banks. In San Marino, the use of digital assets can facilitate cross-border transactions more efficiently, minimize costs for companies, and offer residents opportunities to tap into international financial networks.
Improved Public Services Through Blockchain Integration
The acknowledgment of the value of incorporating blockchain technology into the provision of government services can be seen in the use of mobile applications and other projects designed during the global pandemic. These projects win the public over and show how useful the technologies based on cryptocurrencies can be.
Strengthened Global Reputation as a Tech Leader
Through aligning itself with the latest technology and finance trends, San Marino not only attracts the international attention of the blockchain community but also serves as an inspiration for other small countries wishing to implement the same strategies.
Conclusion
As the final version of San Marino’s Crypto-Assets Regulation is anticipated in 2024, the nation is poised to solidify its position as a blockchain-friendly jurisdiction. Under the regulation, new classifications of crypto-asset companies will be included, and relatively detailed rules for public offering and trading will be made.
This proactive behavior of San Marino towards the blockchain is also in line with the bigger picture of economic growth and the need for innovation in San Marino. Along with creating a favorable environment to draw new tech start-up investments, the country is not only inviting foreign ownership to do business within the premises. It also embeds the culture of technological innovation.
