1 Introduction
Since the signing of a memorandum of understanding between the Kyrgyz Republic's National Investment Agency and Binance co-founder Zhao Changpeng (CZ) in early April, aimed at collaborating on crypto assets and blockchain technology, the Kyrgyz government has been frequently interacting with CZ. On May 5, CZ shared a local license plate reading "888BNB" on social media, praising it in the caption. Coinciding with this post, the President of Kyrgyzstan tweeted about meeting CZ and invited him to join the National Crypto Committee, to which CZ suggested that Kyrgyzstan include BNB and BTC in its national cryptocurrency reserves. So, why is CZ so fond of Kyrgyzstan? What are the characteristics of the country's tax and regulatory system regarding crypto assets? This article will reveal the answers.
1.1 National Overview
The Kyrgyz Republic (English: Kyrgyz Republic, abbreviated as "Kyrgyzstan") is located in the northeastern part of Central Asia, at the junction of Central Asia, Western Europe, and East Asia, with its capital being Bishkek. The official language is Kyrgyz, while Russian is also recognized as an official language. The currency is the Kyrgyzstani Som (abbreviated as "Som"). In recent years, Kyrgyzstan has made significant progress in the field of crypto assets, actively formulating regulations for crypto assets and supporting the development of digital technology and blockchain ecosystems, making it a leader in digital asset regulation and market scale development in Central Asia and a core area of the crypto industry.
1.2 Definition of Crypto Assets
According to the definition in Kyrgyzstan's "Virtual Assets Law," virtual assets are a set of electronic data in digital form that have value, serve as a digital expression of value, and are a means of proving property or non-property rights, created, stored, and circulated using distributed ledger technology or similar technologies, rather than being currency units (money), means of payment, or securities. Crypto assets are a type of virtual asset.
2 Tax Policy
2.1 Overview of the Tax System
Kyrgyzstan's legal system has developed within the framework of the laws of the former Soviet republics and shares similarities with the legal systems of the Russian Federation and other former Soviet republics in many aspects. Overall, its legal system can be divided into four levels: constitutional laws, codes, laws, and regulations. After gaining independence, Kyrgyzstan's legal system has undergone further revisions and improvements, enacting a series of new laws covering various fields, including the new "Constitution," "Civil Code," "Foreign Trade Law," "Tax Law," and "Investment Law."
Specifically regarding taxation, Kyrgyzstan's tax authorities manage taxpayers according to the tax collection and management procedures outlined in the "Kyrgyzstan Tax Code" (hereinafter referred to as the "Tax Code"). Taxpayers are also required to comply with the various requirements of the Tax Code and fulfill their tax obligations in accordance with the law. Kyrgyzstan's taxes mainly consist of income tax, turnover tax, and other minor taxes, including corporate income tax, personal income tax, value-added tax, sales tax, excise tax, and underground resource usage tax as central taxes, as well as property tax and land tax as local taxes. Additionally, the Tax Code introduces various tax systems, including a simplified tax system based on a single tax type, crypto mining tax, e-commerce tax, entertainment tax, special business license tax, special trade zone operating tax, free economic zone special tax system, and high-tech park special tax system.
Corporate Income Tax: 1) Resident Enterprises. Legal entities and individual entrepreneurs established and registered under Kyrgyzstan law are considered resident entities (including resident enterprises and non-enterprise units, institutions, and organizations). Partnerships are regarded as transparent entities under Kyrgyzstan law, and profits derived from partnerships are considered profits of the participating parties, with the partnership itself not required to pay corporate income tax. The tax is levied on the total annual income earned globally. Economic special zones typically offer preferential policies to reduce corporate tax burdens and implement a free currency management system. However, a special incentive fee ranging from 0.1% to 2% of income is charged based on the location of the enterprise. Kyrgyzstan exempts resident enterprises in qualifying innovative technology parks from corporate income tax. 2) Non-resident Enterprises. Enterprises established under foreign law and non-resident individuals who need to register as individual entrepreneurs in Kyrgyzstan are considered non-resident enterprises for tax purposes. This includes non-resident enterprises with a permanent establishment in Kyrgyzstan and those without a permanent establishment but earning income sourced from Kyrgyzstan. The tax is levied on income sourced from Kyrgyzstan.
Personal Income Tax: 1) Resident Taxpayers. Any individual residing in Kyrgyzstan for 183 days or more within any consecutive 12 months is considered a resident taxpayer. Individuals performing duties for Kyrgyzstan abroad are also regarded as resident taxpayers. Kyrgyz citizens and foreign citizens who obtain permanent residency or repatriation certificates among resident taxpayers must pay personal income tax on their globally sourced income in Kyrgyzstan. Individuals meeting the criteria for resident taxpayer status who do not hold Kyrgyz citizenship and have not obtained permanent residency or repatriation certificates are only required to pay personal income tax on income sourced from Kyrgyzstan. Individual entrepreneurs do not need to pay personal income tax but should pay corporate income tax. 2) Non-resident Taxpayers. Individuals residing in Kyrgyzstan for less than 183 days within any consecutive 12 months are considered non-resident taxpayers. Non-resident taxpayers must pay personal income tax on income sourced from Kyrgyzstan.
Value-Added Tax: Taxpayers include enterprises and individuals selling taxable goods and providing taxable services within Kyrgyzstan; enterprises importing taxable goods; and foreign enterprises providing services and labor within Kyrgyzstan, including e-commerce services to Kyrgyz residents. According to tax law, unless enjoying VAT preferential policies, sales of VAT taxable goods and provision of taxable services and labor within Kyrgyzstan are subject to VAT. Additionally, imported taxable goods are also subject to VAT, calculated based on the customs value of the imported goods. The sale of crypto assets is exempt from VAT.
Simplified Tax Based on a Single Tax Type: Starting from January 2024, the income cap of 30 million Som will be removed, allowing any individual entrepreneur and enterprise (excluding foreign enterprises without a permanent establishment in Kyrgyzstan) to apply for the simplified tax system based on a single tax type, except for a few industry entities that still cannot apply. The tax base for the single tax is generally based on sales revenue, with special provisions for tax bases for taxpayers engaged in specific business types.
Special Tax System Tax Incentives: 1) Special Tax System for Free Economic Zones. Taxpayers registered in free economic zones are subject to the special tax system of free economic zones. Except for some special cases, taxpayers under the special tax system of free economic zones are exempt from all tax obligations and only need to fulfill their obligation to pay social security contributions. The special tax system for free economic zones does not create new tax obligations, thus it does not involve tax declaration and payment. 2) Special Tax System for High-Tech Parks. Taxpayers registered in high-tech parks are subject to the special tax system for high-tech parks. Taxpayers in high-tech parks are exempt from corporate income tax, sales tax, and VAT obligations, but must still fulfill tax obligations for other taxes according to general regulations. The special tax system for high-tech parks also does not create new tax obligations, thus it does not involve tax declaration and payment.
Overall, to better promote economic development, Kyrgyzstan continuously simplifies its tax system, optimizes the tax structure, and introduces digital tools to establish a more efficient and fair tax system, enhancing the transparency and compliance of taxation.
2.2 Crypto Tax Policy and Latest Developments
According to a government decree issued on August 1, 2020, Kyrgyzstan has implemented a special tax system for entities engaged in mining activities in the crypto asset field, introducing a crypto mining tax. The Tax Code stipulates that companies and individuals engaged in mining activities using software and hardware must pay the crypto mining tax instead of income tax. Taxpayers must submit an application to the tax authorities at their tax registration location to be recognized as crypto mining tax payers. The tax base for the crypto mining tax is the amount of electricity consumed during the mining process, including VAT and business tax, with a tax rate set at 15%.
Excess income from the sale of crypto assets exceeding their purchase cost, as well as the value of crypto assets obtained without compensation, are components of the taxpayer's total annual income and must be taxed according to regulations. The definition of selling crypto assets in the country is: exchanging crypto assets for domestic or foreign currency. The exchange of one crypto asset for another is not considered a sale. The applicable income tax rate is 10%.
Sales of crypto assets in Kyrgyzstan are exempt from VAT. However, when selling goods, projects, or services that are exempt from VAT, the trade and production sectors pay a 2% sales tax, while the remainder is subject to a 3% sales tax. According to Islamic finance regulations, when selling stocks, organizational rights, currency, crypto assets, fixed assets, or goods, the tax base is the sale proceeds minus the purchase cost.
It is noteworthy that on October 15, 2024, the Financial Market Supervisory Authority of the Ministry of Economy and Commerce of Kyrgyzstan announced the commencement of discussions regarding legislative regulation and soliciting feedback from relevant parties on the Kyrgyz Cabinet's resolution to amend the government's resolution No. 159 of April 15, 2019, "On Approving National Tax Rates." The aim is to ensure the state's non-tax revenue by increasing the national tax rates for enterprises operating in the non-bank financial sector (such as crypto asset exchange operators, insurance institutions, securities market participants, pawnshops, and organizations engaged in crypto asset mining). In particular, the goal is to enhance financial stability by imposing higher taxes on participants in high-risk industries such as crypto assets, insurance companies, and securities.
3 Crypto Asset Regulatory Dynamics
3.1 Crypto Asset Regulatory Policy
In 2022, Kyrgyzstan passed the "Virtual Assets Law," laying the regulatory foundation for the creation, issuance, storage, and circulation of crypto assets. This has promoted the vigorous development of Kyrgyzstan's crypto asset industry, distinguishing it among Central Asian countries due to its positive attitude towards crypto assets and blockchain. The "Virtual Assets Law" clearly establishes a licensing system for crypto asset service providers (VASPs), which is uniformly regulated by the National Financial Market Regulatory Service. This allows service providers to easily enter the market while enabling regulators to better oversee the industry. As of January 31, 2025, the Financial Regulatory Authority has issued 144 operating licenses for crypto asset service providers, of which 8 licenses were granted to crypto asset trading operators, and the remaining 138 licenses were issued to crypto asset exchange operators.
On January 10, 2025, to improve the efficiency of crypto asset service providers, the Kyrgyz Republic's Cabinet of Ministers passed Resolution No. 823 on December 31, 2024, "On Amending Certain Resolutions of the Kyrgyz Republic Cabinet of Ministers in the Field of Virtual Asset Circulation." The main changes include:
Increased Requirements for Crypto Asset Trading Operators: This includes requirements for customer identity verification, publication of exchange rules, and verification of the reputation of beneficial owners; trading through unlicensed operators is prohibited, and the use of more secure crypto asset wallets is mandated; a minimum authorized capital requirement of 2,000,000 calculation indicators is set for operators trading crypto assets.
Activity Requirements for Crypto Asset Exchange Operators: Requirements have been introduced for verifying the reputation of beneficial owners, conducting annual audits, and notifying authorized agencies of changes; the use of prepaid cards from foreign financial institutions and the transfer of crypto assets to online casinos and decentralized system addresses are prohibited; the minimum authorized capital for crypto asset exchange operators is set at 1,000,000 calculation indicators.
Changes in Crypto Asset Issuance Regulation: The possibility of issuers issuing crypto assets through private placements has been excluded; the potential for nominating foreign currency crypto asset issuers has been established.
Since the enactment of the "Virtual Assets Law" in 2022, which established a clear legal framework for crypto activities, Kyrgyzstan has also progressively demonstrated its proactive and open stance towards the crypto industry by promoting the integration of crypto banking technology into its banking system, digital payments, and financial regulations. In October 2024, the Ministry of Economy of Kyrgyzstan initiated and submitted a bill to the parliament regarding the establishment of crypto banks in Kyrgyzstan. The bill proposes amendments to the current crypto asset legislation, requiring crypto banks to provide one or more crypto asset-related banking services under a license issued according to the Kyrgyz Republic's "Banking and Banking Activities Law" for legal entities registered in Kyrgyzstan. Once licensed, crypto banks are authorized to conduct any type of digital asset-related activities specified by law without needing additional licenses. Crypto banks can operate without a separate license for banking activities. The establishment of crypto banks will ensure the protection of user rights, thereby reducing the risks of fraud and unauthorized access to funds. Crypto banks will also serve as platforms for the implementation of new financial technologies such as smart contracts and DeFi, aiding in the modernization of the financial system.
It is noteworthy that in February 2025, the Financial Market Supervisory Authority of the Ministry of Economy and Commerce of Kyrgyzstan announced the commencement of discussions on the legal regulation of crypto asset service provider activities and the collection of suggestions from relevant parties. The overall policy for regulating the crypto asset market aims to ensure transparency, security, and protection for market participants. The proposed regulations will involve modifications and revisions to regulatory norms to adapt the legal framework to the dynamic developments in the crypto asset market and create a clearer and more stable legal environment for participants. It will also promote the establishment of internal controls for crypto asset service providers. This indicates that Kyrgyzstan will introduce stricter regulatory policies to further enhance the transparency of crypto asset trading. The introduction of the proposed regulations will also help combat terrorism financing and money laundering while improving operational efficiency.
3.2 Latest Developments in the Local Crypto Industry
The Ministry of Finance of Kyrgyzstan has created the first national crypto asset exchange, Coin National Exchange, making it the first country in Central Asia to establish a national crypto asset exchange. The exchange was officially registered in the Ministry of Justice on December 30, 2024, with its main business being financial market management. The Kyrgyz Stock Exchange, BTS Exchange, EVDE General Exchange, and many crypto asset exchanges currently fall under this category. According to documents from the Ministry of Finance, 100 million KGS has been allocated from the national budget as the initial authorized capital for Coin National Exchange.
To continue consolidating its position as a regional crypto hub, Kyrgyzstan actively supports the development of stablecoins. In April 2025, the Kyrgyz company Old Vector issued a stablecoin A7A5 pegged to the Russian ruble, maintaining a 1:1 peg with the ruble. A7A5 was issued under Kyrgyzstan's newly enacted crypto regulations and is supported by the government. According to the official white paper, the project's reserve fund report is updated weekly, and an independent company conducts external audits quarterly to ensure adequate accountability and trust. A7A5 generates income from interest revenue and automatically allocates 50% of the income to all token holders when bank deposit funds are received daily, allowing holders to receive these distributions without any action required on their part.
Regarding stablecoins and CBDCs, Kyrgyzstan previously launched a stablecoin, Gold Dollar (USDKG), pegged to gold and the US dollar. Unlike other stablecoins, USDKG is a stablecoin that is 1:1 dollar-pegged and backed by gold, with the Ministry of Finance's role limited to providing gold reserves. The remaining development, auditing, and maintenance are carried out by private companies and individuals. This initiative may better promote the regulatory transparency of the crypto ecosystem, modernize infrastructure, facilitate cross-border trade, and attract international investment. Additionally, in mid-April of this year, the President of Kyrgyzstan signed a bill granting legal status to the "Digital Som," and if Kyrgyzstan ultimately decides to issue a CBDC, the Digital Som will become the country's legal tender.
4 Conclusion and Outlook
Kyrgyzstan is actively promoting the development of the crypto industry, focusing on optimizing the tax policies for crypto assets. The clear tax system and competitive tax rates not only enhance Kyrgyzstan's attractiveness in the global crypto asset market but also create stable and favorable operating conditions for investors and market participants. Furthermore, both the previous regulatory reforms and the frequent interactions with CZ demonstrate Kyrgyzstan's friendly attitude towards crypto assets. We believe that against the backdrop of rapid growth in the global crypto asset industry, Kyrgyzstan's relevant tax and regulatory systems will help create a competitive advantage in the crypto asset field, especially with the development of the country's crypto banks, national exchanges, and stablecoins. Kyrgyzstan's crypto assets will further integrate with the traditional financial system, driving the development of innovative infrastructure in the country and the overall flourishing of the industry in Central Asia.
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