El Salvador made history on Tuesday, September 7th as the first country to make Bitcoin legal tender. 72 hours later, a government advisor for the Central American country revealed it will exempt foreign investors from paying taxes on Bitcoin profits, both on capital gains and income in bitcoin. With this move, El Salvador hopes to encourage foreign investment, according to Javier Argueta, legal advisor to President Nayib Bukele:
If a person has assets in bitcoin and makes high profits, there will be no tax. This (is done) obviously to encourage foreign investment.
El Salvador now leads the way for financial incentives for Bitcoin users and investors seeking global markets that offer fewer capital gains taxes.
A flurry of commentary has surrounded El Salvador’s decision to adopt Bitcoin as legal tender. Supporters note that the decision has the potential to empower the country’s unbanked, particularly by allowing Salvadorans to skip hefty remittance fees, as well as through the implementation of Bitcoin ATMs.
Critics raised concerns that the move to grant Bitcoin the status of parallel legal tender in El Salvador could open the door for illegal activities. In response, Javier Argueta, legal advisor to El Salvadoran President Nayib Bukele, asserted that mechanisms have been put in place at the recommendation of international institutions to curtail these activities.
Coinciding with the first official day with the Bitcoin Law active in El Salvador, the price of Bitcoin dropped almost 19% on Tuesday last week. As of this reporting, the price of Bitcoin sits at around $44,300. While critics pointed to Bitcoin's volatility as a factor calling into question its ability to act as a legal currency, many took this as an opportunity to buy the dip, including President Nayib Bukele himself.
As the Bitcoin Law went into effect, Starbucks, McDonald's and Pizza Hut announced they are now accepting bitcoin in El Salvador.