Virtual Currencies Comparative Guide -

1 Legal and enforcement framework

1.1 In broad terms, which legislative and regulatory provisions govern virtual currencies in your jurisdiction?

Unfortunately, there is no specific legislation governing virtual currencies in Poland. Virtual currencies were first mentioned in Polish law in the Anti-Money Laundering and Counter-Terrorism Financing Act of 1 March 2018 (Journal of Laws of 2020, Item 971 as amended) (‘AML Act'), which set out the first legal definition of this term and recognised cryptocurrency exchanges as obliged entities under the anti-money laundering (AML) and counter-terrorism financing (CTF) rules, subject to several obligations in this field.

Moreover, as of 1 January 2019, virtual currency trading and brokerage are taxed in Poland and are regulated in Polish tax law (see question 10) – in particular, under:

the Corporate Income Tax Act of 15 February 1992 (Journal of Laws of 2020, Item 1406 as amended); and
the Personal Income Tax Act of 26 July 1991 (Journal of Laws of 2020, Item 1426 as amended).

On 10 December 2020 the Polish Financial Supervision Authority (PFSA) issued its Position on Issuing and Trading in Crypto Assets. The position of the PFSA does not constitute a source of law, but a source of information on the laws applicable to the creation and trading of crypto assets. It refers only to selected legal and regulatory issues, which remain within the competence of the PFSA.

The Polish regulators (eg, the PFSA and the National Bank of Poland) remain sceptical and hesitant towards virtual currencies, as evidenced by the joint position issued by these two bodies on 7 July 2017, in which they warned potential users about the risks associated with virtual currencies.

1.2 In broad terms, which legislative and regulatory provisions govern entities that provide services relating to virtual currencies? Must they be registered or licensed by a regulatory authority?

There is no specific legislation that governs the legal position of virtual currency service providers. Nonetheless, those entities are considered as obliged entities under the AML Act. Therefore, those entities are subject to AML/CTF obligations and restrictions.

However, there is no regulation that comprehensively defines the rules and requirements for undertaking and conducting business activity in this area. Thus, conducting business in the field of virtual currency trading or brokerage remains subject only to the general rules on conducting business activity in Poland and these entities may, in principle, operate in any form.

1.3 Which bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?

No authority has been directly designated as responsible for supervising virtual currencies.

Past practice indicates, however, that it is the PFSA, as the entity that supervises the financial market as broadly understood, which has thus far taken positions in this area.

However, this stands in opposition to its Position on Issuing and Trading in Crypto Assets, which states that: "Due to their decentralized nature, native cryptocurrencies, as well as their trading, or intermediation in this respect, are not elements of the financial market and are not subject to the regulations applicable on this market, and therefore they are not subject to the supervision of the PFSA."

As cryptocurrencies are subject to the AML Act, virtual currency trading and brokerage are supervised by the General Inspectorate of Financial Information, which exercises supervisory rights in these field.

The tasks of the general inspectorate include taking steps to combat money laundering and terrorist financing, in particular by:

analysing information on property values which the general inspectorate suspects are linked to an offence of money laundering or terrorist financing;
suspending a transaction or blocking an account;
demanding the provision of information on transactions and making the same available;
handing over to the relevant authorities information and documents that substantiate a suspicion of the commission of an offence;
exchanging information with cooperating units;
preparing a national assessment of the risk of money laundering and terrorist financing and a strategy to combat such offences in collaboration with cooperating units and obliged institutions;
ensuring compliance with the AML/CFT provisions;
issuing decisions on inclusions and removals in relation to the list of persons and entities with respect to which specific restrictive measures referred to in Article 117 are applied, and maintaining this list;
cooperating with the competent authorities of other states, and with foreign institutions and international organisations dealing with combating money laundering or terrorist financing;
imposing administrative penalties under the act;
disseminating knowledge and information on the provisions on combating money laundering and terrorist financing in the official gazette, Biuletyn Informacji Publicznej (Public Information Bulletin), and on a dedicated website of the office supporting the minister for public finance;
processing information under the procedure set out in the act; and
initiating other activities for the purpose of combating money laundering and terrorist financing.

1.4 What is the regulators' general approach to virtual currencies?

Regulators consider virtual currencies as legal (or perhaps more accurately, ‘not prohibited'), but as involving a number of risks for potential buyers (eg, the risk of theft or loss of funds and fraud).

The PFSA has stated that trading and brokerage (intermediation) of virtual currencies are not elements of the financial market; therefore, they are not subject to the regulations applicable to this market and are not subject to the PFSA's supervision.

As a result, there are no coordinated legislative or regulatory actions aimed at implementing or promoting virtual currencies in Poland.

1.5 Has there been any notable enforcement action relating to virtual currencies?

Currently, no targeted legislative measures aimed at the comprehensive regulation of virtual currencies are envisaged.

The only manifestation of the authorities' interest in this regard is the PFSA's Position on Issuing and Trading in Crypto Assets of 10 December 2020.

Unfortunately, on the one hand, the position seems to exclude virtual currencies from the supervision of the PFSA; while on the other, it leaves the legal assessment and definition of crypto assets (including virtual currencies) within the jurisdiction of common courts, which are entitled only to interpret the generally applicable law in relation to specific factual states that are the subject of dispute.

2 Definitions

2.1 How are ‘virtual currencies' defined in your jurisdiction? Have there been any judicial decisions which have helped to define virtual currencies or their interplay with the existing body of laws (eg, contracts law, property law)?

Article 2, item 2, point 26 of the Anti-Money Laundering and Counter-Terrorism Financing Act (‘AML Act') states that a ‘virtual currency' shall be understood as a digital representation of a value which:

is not:
- legal tender issued by the National Bank of Poland (NBP), a foreign central bank or another public administration authority;
- an international clearing unit established by an international organisation and accepted by individual countries belonging to or cooperating with such organisation;
- electronic money within the meaning of the Payment Services Act of 19 August 2011 (Journal of Laws of 2020, Item 794, as amended);
- a financial instrument within the meaning of the Act on Trading in Financial Instruments of 29 July 2005; or
- a bill of exchange, promissory note or cheque;
is convertible in business dealings for legal tender and accepted as a means of exchange; and
may be electronically stored or transferred or may be the object of electronic trade.

In addition, the Polish tax acts – in particular, the Corporate Income Tax Act and the Personal Income Tax Act – define ‘virtual currencies' by reference to the above definition.

There is no legal definition of ‘virtual currencies' used for the purpose of civil or property law; and to date, no judicial decisions have been issued that consider the issue of virtual currencies under civil or property law.

2.2 How are ‘initial coin offerings' and ‘security token offerings' defined in your jurisdiction?

Neither initial coin offerings (ICOs) nor security token offerings are regulated or defined in Polish law.

However, ICOs were the subject of the Polish Financial Supervision Authority's (PFSA) Position on the Sale of So-called Coins or Tokens (Initial Token Offerings – ITOs or Initial Coin Offerings – ICOs) of 22 November 2017, in which they were defined as a new way of obtaining funds in a public way, using so-called tokens or coins, created and distributed using distributed ledger technology.

Furthermore, ICOs (ITOs) were defined in the PFSA's Position on Issuing and Trading in Crypto Assets of 10 December 2020 as a method of financing business ventures in which the entity issues tokens (coins) in exchange for funds with a specific economic value, both in the form of fiat currency and in the form of other crypto assets; while funding is directly denominated in fiat currency or other cryptocurrency.

Nonetheless, neither definition is binding or effective in Polish law.

2.3 Are stablecoins treated as virtual currencies in your jurisdiction or do they fall under an existing category (eg, electronic money)?

There are no special regulations on stablecoins under Polish law and the PFSA has not directly addressed the issue of stablecoins.

According to the Polish definition of ‘virtual currency' introduced in Article 2, Item 2, point 26 of the AML Act, a ‘virtual currency' shall be understood as digital representation of a value which:

is not:
- legal tender issued by the National Bank of Poland (NBP), a foreign central bank or another public administration authority;
- an international clearing unit established by an international organisation and accepted by individual countries belonging to or cooperating with such organisation;
- electronic money within the meaning of the Payment Services Act;
- a financial instrument within the meaning of the Act on Trading in Financial Instruments; or
- a bill of exchange, promissory note or cheque;
is convertible in business dealings for legal tender and accepted as a means of exchange; and
may be electronically stored or transferred, or may be the object of electronic trade.

Considering the above, as long as none of the exclusion conditions contained in Article 2, Section 2 Item 26 of the act is met, stablecoins should be considered virtual currencies under Polish law. In this context, however, it is crucial to verify whether stablecoins cannot be considered as electronic money.

The relevant definition of ‘electronic money' is set out in Article 2, Section 2, Point 21a of the Payment Services Act. According to this definition, ‘electronic money' is monetary value that is:

stored electronically (including magnetically);
issued, with the obligation to redeem it, for the purpose of making payment transactions; and
accepted by entities other than solely the issuer.

On this basis, we can identify several key features of electronic money, such as:

electronic storage;
representation of monetary value;
the embodiment of a specific right in relation to the issuer;
the existence of an obligation to redeem;
use in trading to make payment transactions; and
acceptance by entities other than the issuer.

Virtual currencies created in a decentralised manner and not issued in exchange for traditional money should not be treated as electronic money within the meaning of the Payment Services Act. At the same time, this does not preclude the recognition of virtual currencies that do not meet these criteria as electronic money within the meaning of the act.

There is therefore a chance that certain stablecoins – especially those whose value is directly translated into fiduciary currencies – may in certain situations qualify as electronic money and may consequently be subject to the legal restrictions applicable to electronic money institutions.

One argument in favour of this stance was expressed by the PFSA in its latest Position on Issuing and Trading in Crypto Assets of 10 December 2020, in which it considered that even non-native payment tokens (understood by the PFSA as tokens generated by an identified entity under terms defined by it, such as Ripple) may be considered as electronic money in some situations.

In the same position, the PFSA recognised as electronic money a payment token issued by Entity X which, within the scope of its activity, dealt with the issuance of non-native payment tokens, which could be used to transfer a specific value to the recipient that was related to the value of the Polish zloty, for which the buyer could buy them from Entity X. In the case under consideration, Entity X had comprehensive security for the value of Polish zloty tokens in a dedicated bank account, which was exempt from enforcement (collection) against Entity X; and each time the holder of these tokens was entitled to demand from Entity X payment of the amount in Polish zloty corresponding to the payment tokens it held.

As, in the opinion of the PFSA, such non-native tokens as described above may be considered as electronic money, it is possible that stablecoins may be considered as such as well.

Unfortunately, however, this issue has not yet been clearly defined.

3 Virtual currencies market

3.1 Which virtual currencies have become most embedded in your jurisdiction? Does this vary depending on the specific use?

Bitcoin remains the prevalent virtual currency in Poland, although Ether, Ripple and Litecoin are also popular. However, no market analysis has been conducted that clearly verifies the share of particular virtual currencies in the Polish market.

3.2 What different products and services are offered?

There are numerous entities in Poland that deal with trade and intermediation in virtual currencies, as broadly understood. Several virtual currency exchanges are in operation on the Polish market; until recently, the largest were BitBay, BitMarket, oraz and BitMarket24. However, BitBay ultimately decided to move its seat outside Poland due to alleged disputes with the Polish Financial Supervision Authority (PFSA) and the lack of proper regulation. Meanwhile, BitMarket was the subject of a major collapse, with over PLN 100 million allegedly evaporating from the exchange overnight. The case is now under investigation by the Polish Prosecutor's Office. BitMarket24 also ceased operations in 2019 due to its inclusion on a list of public warnings published by the PFSA, as a result of which it was cut off from the traditional financial system by Polish banking institutions.

Although more entities providing services in the field of virtual currency exchange are appearing on the Polish market, it is difficult to identify the dominant players and none has yet secured a position similar to those mentioned above.

The Blockchain and New Technologies Chamber of Commerce is an initiative of entrepreneurs that represents the interests of the industry under the applicable Polish law.

According to the Blockchain and New Technologies Chamber of Commerce, initial coin offerings are practically non-existent in Poland; while initial exchange offerings remain more of a marketing gimmick than a real project financing method.

In Poland, Bitcoin ATMs (so-called ‘Bitomats') – which enable the quick exchange of Polish zloty to bitcoin, well as the purchase and sale of bitcoin for cash – are becoming increasingly popular. The largest cities in Poland already have a few dozen Bitomats.

3.3 How are virtual currency service providers generally structured? How are they generally financed?

The practice to date shows that most cryptocurrency exchanges in Poland – as long as their registered offices are located in the country – operate in the form of limited liability companies or joint stock companies.

It is difficult to point to a uniform model of financing or obtaining operational funds by similar entities that is considered the standard on the market.

3.4 Are virtual currency trading platforms subject to a specific regulatory regime in your jurisdiction? Must they be registered or licensed by a regulatory authority? Does this vary depending on whether the platform accepts legal currency or whether the platform is custodial? Are virtual currency trading platforms subject to any form of ‘market abuse' regulation?

There are no regulations that comprehensively define the rules and requirements for undertaking and conducting business activities in this area. Thus, conducting business in the field of virtual currency trading and brokerage remains subject only to the general rules on conducting business activities in Poland; and these entities may, in principle, operate in any form.

However, virtual currency service providers in Poland are subject to the Anti-Money Laundering and Counter-Terrorism Financing Act; and virtual currency trading and brokerage are subject to taxation in Poland.

4 Crossover with banking

4.1 How are virtual currencies positioned within the broader banking landscape in your jurisdiction?

The latest actions of Polish banks indicate that the Polish banking sector views virtual currencies as risky and susceptible to fraud. Polish banks generally do not offer or accept virtual currencies, and don't consider them as legal tender.

One good example of this is a position issued on 4 September 2020 by Powszechna Kasa Oszczêdnoœci Bank Polski Spó³ka Akcyjna (PKO BP) – the largest bank in Poland – in which it warned users that virtual currencies are not money and, in the opinion of PKO, are associated with the following risks, among others:

theft of money;
lack of warranty;
lack of universal acceptability;
fraud; and
significant price changes.

In another case, a branch of another Polish bank (Bank Zachodni WBK Spó³ka Akcyjna), concerned about the use of virtual currencies for illegal or unethical activities, decided not to establish relations with entities that deal in virtual currency trading, and to withdraw from such relationships that already existed.

Both moves reflect the views of the National Bank of Poland, which issued a joint position together with the Polish Financial Supervision on 7 July 2017 in which they warned potential users about the risks associated with virtual currencies and cautioned consumers against buying virtual currencies or investing funds in them.

Reportedly, other banks – such as Santander Bank, Bank PEKAO, MBank and PKO BP – have terminated the bank accounts of virtual currency players.

4.2 What impact could mainstream adoption of virtual currencies have on the ability to control inflation in your jurisdiction?

Due to the ongoing COVID-19 pandemic and the associated economic turmoil, it is difficult to predict the impact of any factors, including virtual currencies, on inflation.

4.3 What other implications could the mainstream adoption of virtual currencies have for the banking system in your jurisdiction (eg, with respect to payment services)?

It is hoped that the introduction of virtual currencies will benefit society and the economy – for example, by lowering transaction costs and reducing corruption. The mainstream adoption of virtual cryptocurrencies should also increase the percentage of international transactions, thus accelerating economic growth.

If it is possible to minimise the risks associated with virtual currencies and reduce the scale of abuses, their mainstream adoption should have a positive impact on financial markets.

4.4 Regarding decentralised finance, do the banking regulations in your jurisdiction apply to loans of virtual currencies or interest-bearing deposits of virtual currencies? Does this vary depending on whether stablecoins are loaned or deposited?

Polish banking law, like Polish law in general, has no specific regulations on the lending of virtual currencies. Pursuant to Article 5, Section 1, point 3 of the Banking Law of 29 August 1997 (Journal of Laws of 2020, Item 1896, as amended) – read together with Article 69, Section 1 and Article 5, Section 2, point 1 of the law, in connection with Article 78 of the law – only pecuniary credits and loans are considered as banking facilities governed by the Banking Law.

Thus, these activities will be considered to have a pecuniary nature when their subject is money, understood as a monetary unit embodied in a monetary mark (cash) and as a dematerialised monetary unit detached from a monetary mark (non-cash money), taking the form of entries in the books of accounts of banks (money banking) or electronic or magnetic pulses stored on suitable carriers (electronic money).

Even in non-banking transactions, it is difficult to speak of a ‘virtual currency loan' in Polish law, as Article 720 § 1 of the Civil Code of 23 April 1964 (Journal of Laws of 2020, Item 1740, as amended) provides: "By a contract of loan, the lender shall assume the obligation to transfer to the borrower the ownership of a specified sum of money or a specified amount of things designated only as to their kind, and the borrower shall assume the obligation to return the same sum of money or the same amount of things of the same kind and the same quality." As virtual currencies are not money or things designated only as to their kind, a contract under which one party undertakes to transfer to the other a certain amount of a specified virtual currency, while committing the counterparty to return the same amount, does not constitute a loan agreement. However, due to the similarity of this agreement to a loan agreement, the provisions regulating the named agreement should be applied by analogy.

5 Technology

5.1 Is blockchain technology in itself regulated in your jurisdiction and what specific legal issues are associated with its use?

There are currently no rules on blockchain technology in Poland.

The attitude of the Polish legislature to the regulation of blockchain in Polish may be discerned from the Polish Blockchain and Cryptocurrencies Stream Overview of Polish Law in the Context of the Application of the Technology of Disclosed Registers and Digital Currency of 19 January 2017. This states that under Polish law, blockchain – as a specific database – may be used to communicate in the conventional sense, and thus may also be a medium used to make and receive declarations of intent within the meaning of private law, primarily the Civil Code.

For this reason, it was deemed unnecessary to establish a new form of legal action based on blockchain. It has been stated that a sufficient legal framework is provided by:

the general wording of the provisions of the Polish Civil Code on the rules of interpretation of declarations of intent;
the broad definition of a ‘document' ("information carrier allowing to get acquainted with its content") in Polish private law; and
the introduction of a new form of document whose preservation may be effected simply by making a declaration of intent in a manner that allows the person making the declaration to be identified.

5.2 What other implications could the mainstream adoption of virtual currencies have from a technological perspective?

The widespread use of virtual currencies should accelerate the development of technology in the fintech industry. We are on the verge of a blockchain revolution, to which the growing popularity of virtual currencies will make a significant contribution. It may be assumed that the use of blockchain technology, and a payment system that is decentralised and independent of the Polish banking and state institution payment system, will be conducive to the rapid development of new financial technologies based on virtual currencies.

This provides considerable scope for development in areas such as technical sustainability, anti-money laundering and anti-terrorist financing. Ensuring the security and safety of virtual currency trading is an issue that will have to be addressed by the technology, and will certainly be the basis for further rapid development.

The adoption of virtual currencies will also be a catalyst for the smart contract sector, and should contribute to the development of technologies aimed at facilitating international trade.

6 Data security and cybersecurity

6.1 What is the applicable data protection regime in your jurisdiction and what specific implications does this have for virtual currencies?

Poland is a member of the European Union. Hence, the processing and protection of personal data in Poland are regulated by the General Data Protection Regulation (2016/679) (GDPR).

In theory, the GDPR was intended as a technologically neutral statute. However, after further consideration, a number of drawbacks can be observed, which result from the fact that the principles of personal data processing according to the GDPR are based on a system of ‘two-way' information exchange (between the controller and the data subject). Obviously, this assumption does not correspond to the architecture of distributed databases (and distributed ledger technology (DLT) as a whole), such as blockchain. Hence, difficulties arise in determining the compatibility of some solutions based on blockchain technology with the GDPR.

Moreover, whereas the GDPR aims to protect the data subject from privacy and data breaches, blockchain was designed to guarantee that data will be stored on a distributed ledger in an incorruptible way, which is publicly open and accessible to the public. This contradiction makes it seem that both systems are non-compatible.

The first difficulty relates to the identification of the roles defined by the GDPR and, for example, the determination of who in a given situation should be considered as the controller or processor of personal data. The answer to this question will affect the responsibilities of the participants in the blockchain network.

The second difficulty relates to the obligation to ensure the rights of data subjects, including:

the right to be informed;
the right of access;
the right to rectification;
the right to erasure;
the right to restrict processing;
the right to data portability; and
the right to object.

In particular, there are many doubts about how to ensure the right to be forgotten and the right to rectification, as in blockchain, data is designed to be immutable. Thus, it may be difficult or even imposible to fulfill the aforesaid rights.

The transfer of personal data outside the European Union, which is subject to restrictions under Article 44 of the GDPR, also poses problems. In the case of DLT, it seems almost impossible to ensure that data is transferred only to countries with the same level of data protection requirements as EU member states.

The storage of personal data in registers based on blockchain presents a significant risk for the natural persons to whom the data refers, and makes the full execution of rights and obligations under the GDPR impossible. Therefore, the recording of personal data on blockchain-based registers should be reduced to the necessary minimum.

6.2 What is the applicable cybersecurity regime in your jurisdiction and what specific implications does this have for virtual currencies?

Cybersecurity in Poland is primarily regulated by the National Cybersecurity System Act of 5 July 2018 (Journal of Laws of 2020, Item 1369 as amended), which transposed into Polish law Directive (EU) 2016/1148 of the European Parliament and of the Council of 6 July 2016 concerning measures for a high common level of security of network and information systems across the Union.

The National Cyber Security System Act imposes several obligations relating to the provision of cybersecurity on numerous public entities that perform duties associated with the security of information systems.

The National Cyber Security System is intended to facilitate a national level of cybersecurity in Poland, through the implementation of several objectives. The first is to achieve an ‘appropriate' level of security of the information systems used to provide these services (ie, key and digital); and the second is to ensure that incidents are handled correctly.

The act does not regulate criminal issues or combat cybercrime, which is rather subject to the general regulations of Polish criminal law. However, these are often inadequate for combating crimes committed in cyberspace. Therefore, it seems that the criminal law requires revision in this respect, to take account of blockchain technology and virtual currencies.

7 Financial crime

7.1 What provisions govern money laundering and other forms of financial crime in your jurisdiction and what specific implications do these have for virtual currencies?

Money laundering and terrorist financing are considered a criminal offence in Poland. Both prohibited acts also apply to virtual currency trading, which falls under the scope of the Anti-Money Laundering and Counter-Terrorism Financing Act (‘AML Act').

As regards money laundering, under Article 299 § 1 of the Criminal Code of 6 June 1997 (Journal of Laws of 2020, Item 1444, as amended), anyone who undertakes the following activities is liable to imprisonment for between six months and eight years:

receiving, transferring or transporting abroad, or assisting in the transfer of title or possession of legal tender, securities or other foreign currency values, property rights or real or movable property obtained from the profits of offences committed by other people; or
taking any other action that may prevent or significantly hinder the determination of criminal origin, place of location, detection or forfeiture of such funds etc.

Moreover, anyone who, as the employee of a bank, financial or credit institution, or any other entity that is legally obliged to register transactions and the people performing them, unlawfully receives an amount of cash or foreign currency, or who transfers or converts it, or receives it under other circumstances that raise a justified suspicion as to its origin from the offences specified in § 1, or who provides services aimed at concealing the criminal origin of such amount or securing it against forfeiture, is liable to the penalty specified in § 1 (Article 299 § 2 of the Criminal Code).

If the offender commits the act specified in Article 299 §§ 1 or 2 of the Criminal Code in concert with other people, or gains significant material benefit by committing the act, he or she will be liable to imprisonment for between one and 10 years (Article 299 §§ 5 and 6 of the Criminal Code).

As regards the financing of terrorism, according to Article 165a of the Criminal Code, anyone who collects, transfers or offers means of payment, financial instruments, securities, foreign exchange, property rights or other movable or immovable property in order to finance a terrorist offence is liable to imprisonment for between two and 12 years.

Regardless of the provisions of the Criminal Code and criminal law, the violation of certain obligations referred to in the AML Act by an obliged institution may result in the imposition of an administrative penalty by the General Inspectorate of Financial Information, up to the amount of PLN 1 million.

8 Consumer protection

8.1 What consumer protection provisions apply to virtual currencies in your jurisdiction?

There are no specific rules on consumer protection in connection with virtual currencies under Polish law. The Consumer Rights Act of 30 May 2014 (Journal of Laws of 2014, Item 827), which is applicable in this regard, contains no specific provisions on transactions using alternative means of payment. Therefore, all transactions using virtual currencies will be subject to the same rules as other transactions on the market.

The Consumer Rights Act regulates the operations of entrepreneurs that conclude contracts with consumers regardless of how their transactions are settled. A trader that concludes a contract with a consumer using virtual currencies should therefore comply with the Consumer Rights Act like any other market participant. For example, it should:

meet its information obligations (including, in particular, information about the total remuneration for the service and the method and date of payment); and
respect the right to withdraw from the contract in the cases indicated in the act (in this case, it should return to the consumer all payments made by it (ie, an appropriate amount of virtual currency)).

As the circulation of virtual currencies is not considered a payment service (as long as they do not qualify as electronic money), this is not subject to the additional protection afforded by the Payment Services Act.

With regard to the position of investors, the provisions of the Polish law that implemented the Second Markets in Financial Instruments Directive are not adjusted to the trading of virtual currencies. Therefore, this law should be supplemented by regulations on virtual currencies imposing extended information obligations that make it possible for investors to conduct adequate investment awareness research. The adoption of such a solution would, however, impose numerous obligations on issuers and cryptocurrency exchanges stemming from MIFID II, such as fulfilling stricter information obligations towards consumers, developing order policies or introducing internal regulations on managing conflicts of interest. Thus, this would significantly hinder the development of virtual currencies, by introducing a need to obtain expensive licences.

8.2 What other implications could the mainstream adoption of virtual currencies have from a consumer perspective?

It is difficult to predict the impact of the development of virtual currencies on consumer rights. On the one hand, distributed ledger technology presents a great opportunity to increase the digitalisation of society. Virtual currencies will surely be appreciated by consumers seeking greater privacy from the watchful eyes of governments and private businesses. They may also help to transform traditional contracts into self-executable smart contracts.

On the other hand, many risks are associated with virtual currencies; and they are also vulnerable to abuse. Hence, the overly rapid adoption of virtual currencies, if not accompanied by immediate legal changes, may increase the risks posed to consumers, who will not be adequately protected by law.

9 Competition

9.1 Do virtual currencies present any specific challenges or concerns from a competition perspective?

Polish law does not provide for separate solutions in the areas of competition or antitrust law. Therefore, the provisions of the Act on the Protection of Competition and Consumers of 16 February 2007 (Journal of Laws of 2020, Item 1076, as amended) will apply accordingly.

This act sets out the conditions for:

promoting and protecting competition;
protecting the interests of entrepreneurs and consumers in the public interest;
preventing anti-competitive practices;
preventing practices that infringe collective consumer interests;
preventing the application of wrongful provisions of model forms of contracts; and
preventing anti-competitive concentrations of entrepreneurs and combinations thereof, where such practices, the application of wrongful provisions or concentrations produce or are capable of producing effects in the territory of Poland.

Blockchain presents an opportunity to more fully develop free competition, for many reasons. This technology is underpinned by the principles of decentralisation (ie, the absence of an entity that controls the activities of others) and transparency. For this reason – at least in theory – the adoption of this technology should help to reduce the number of abuses of a dominant position or anti-competitive agreements.

The development of virtual currencies may also result in some entrepreneurs securing monopoly positions: an entity that issues, trades or intermediates such currencies could establish a position that affords it significant scope to operate independently of competitors, contracting parties and consumers, thus allowing it to prevent effective competition on the market (in particular, where its market share is in excess of 40%).

10 Taxation

10.1 How are transactions in virtual currencies treated from a tax perspective in your jurisdiction?

As from 1 January 2019, the Polish tax regulations have provided for the taxation of virtual currencies.

Corporate income tax: Article 7b, Section 1, point 6, letter f of the Corporate Income Tax Act states that revenues from the exchange of virtual currency for legal tender, goods, services or property rights other than the virtual currency, or from the payment of other liabilities with the virtual currency, shall be considered revenues from capital gains.

In the case of taxpayers whose activities involve the exchange or intermediation of virtual currencies (as referenced in Article 2, paragraph 1, subparagraph 12 of the Anti-Money Laundering and Counter-Terrorism Financing Act (‘AML Act')), the revenues referred to in paragraph 1, subparagraph 6, letter f will be included in the revenues other than revenues from capital gains.

At the same time, according to Article 12, Section 4, point 27 of the Corporate Income Tax Act, the value of virtual currency obtained in exchange for other virtual currency shall not be considered as revenue.

Under Article 15, Section 11 of the Corporate Income Tax Act, the revenue earning costs referred to in Article 7b, Section 1, point 6, letter f of the act constitute documented expenses incurred directly for the acquisition of virtual currencies and costs relating to the transfer of virtual currencies, including documented expenses incurred for the benefit of the subjects referred to in Article 2, paragraph 1, subparagraph 12 of the AML Act – that is, entities carrying out business activities involving:

exchange between virtual currencies and means of payment;
exchange between virtual currencies;
intermediation in the exchange referred to the points above; or
retention of the accounts referred to in paragraph 2, subparagraph 17, letter e.

These revenue earning costs will be deducted only in the tax year in which they were incurred; Article 12, Section 13 of the Corporate Income Tax states that any surplus of revenue earning costs referred to in paragraph 11 over the revenues earned in a tax year will increase the revenue earning costs incurred in the following tax year.

As in the case of revenues, expenses incurred in relation to the exchange of virtual currency for another virtual currency will not be considered as revenue earning costs (Article 16, Section 1, point 75 of the Corporate Income Tax Act).

According to Article 22d, Section 1 of the Corporate Income Tax Act, income from the transfer of virtual currencies against consideration shall be taxable at a rate of 19%.

Income from the transfer against consideration of virtual currencies will constitute the difference gained in a given tax year between the total revenues referred to in Article 7b, paragraph 1, subparagraph 6, letter f and the revenue earning costs determined under Article 15, paragraphs 11 to 13.

The provisions of paragraph 1 will apply taking into account the double tax treaties to which Poland is a party. To avail of the preferential tax rate or tax exemption under a relevant double tax treaty, the location of the taxpayer's seat for tax purposes must be documented by a certificate of residence obtained from the taxpayer.

Income from the transfer of virtual currencies against consideration may not be combined with other income of the taxpayer.

At the end of the tax year, the taxpayer must show, in the tax statement referred to in Article 27, paragraph 1 of the Corporate Income Tax Act, the income earned in that tax year from the transfer of virtual currencies against consideration and calculate the income tax due.

In the tax statement referred to in Article 5, the taxpayer must show the revenue earning costs referred to in Article 15, paragraphs 11 to 13 – including where, in a given tax year, the taxpayer earned no revenues from the transfer of virtual currencies against consideration.

Personal income tax: According to Article 17, Section 1, point 11 of the Personal Income Tax Act, revenues from the transfer of virtual currency against consideration are considered revenues from money capital. The transfer of virtual currency against consideration is understood as the exchange of virtual currency for legal tender, goods, services or property right other than the virtual currency or payment of other liabilities with the virtual currency (Article 17, Section 1f of the Personal Income Tax Act).

These provisions will also apply to revenues obtained through the economic activity pursued, with the exception of activity referred to in Article 2, paragraph 1, subparagraph 12 of the AML Act; in this case, the revenues earned will be included in the revenues from non-agricultural economic activity.

As in the case of corporate income tax, revenue earning costs incurred in the transfer of virtual currency against consideration will constitute documented expenses incurred directly for the acquisition of virtual currency and costs relating to the transfer of virtual currency, including documented expenses incurred for the benefit of the subjects referred to in Article 2, paragraph 1, subparagraph 12 of the AML Act (Article 22, Section 14 of the Personal Income Tax Act).

Once again, the revenue earning costs referred to in paragraph 14 will be deducted only in the tax year during which they were incurred; Article 22, Section 16 of the Personal Income Tax Act states that any surplus of such revenue earning costs over the revenues from transfer against consideration of virtual currency that are earned in a tax year will increase the revenue earning costs on account of transfer against consideration of virtual currency incurred in the following tax year.

As in the case of corporate income tax, expenses incurred in relation to the exchange of virtual currency for another virtual currency will not be considered revenue earning costs (Article 23, Section 1, point 38d of the Personal Income Tax Act).

Income from the transfer against consideration of virtual currencies is the difference gained in a given tax year between the total revenues earned from the transfer of virtual currencies against consideration and the revenue earning costs determined under Article 22, paragraphs 14 to 16 of the Personal Income Tax Act. This income will be subject to tax at a rate of 19%.

Income from the transfer of virtual currencies against consideration must not be combined with other taxable income. In addition, where a Polish tax resident earns income from the transfer of virtual currency against consideration both within and outside the territory of Poland, that income will be combined and the amount equal to the income tax paid in a foreign state will be deducted from the tax calculated for the total income. However, this deduction may not exceed that part of the tax calculated before the deduction and proportionally corresponding to the income earned in a foreign state. The same rules apply where a Polish tax resident earns income from the transfer of virtual currency against consideration exclusively outside the territory of Poland.

At the end of the tax year, the taxpayer must include in his or her tax statement the income earned in that year from the transfer against consideration of virtual currencies and calculate the income tax due.

Tax on civil law transactions: Before 1 July 2020, the most controversial topic in relation to virtual currencies concerned the tax on civil law transactions. Previously, in the opinion of the tax authorities and the Polish Ministry of Finance, trading in virtual currencies was subject to this tax as:

a sale of property rights (where cryptocurrency units were sold in exchange for cash); or
a change of rights (where units of cryptocurrency were sold in exchange for another cryptocurrency).

This position was controversial, because the tax base was:

in case of the sale of virtual currencies, the market value of the virtual currencies sold; and
in case of the exchange of virtual currencies, the market value of the virtual currency which was liable to the higher tax.

The tax – at a rate of 1% of the tax base – was borne by:

the buyer, in case of the sale of virtual currencies; or
both parties to the agreement, in case of the exchange of virtual currencies.

Thu, as the tax on civil law transactions is payable on each transaction, taxpayers carrying out many transactions involving the purchase and sale of virtual currencies units each day had to pay tax multiple times on the full market value of the virtual currencies obtained.

Due to this controversy, the Polish Ministry of Finance decided to temporarily cease collecting tax on civil law transactions against this type of instrument. This solution was introduced by the Regulation of the Minister of Finance of 11 July 2018 on the withdrawal of tax on civil law transactions on the contract of sale or conversion of virtual currencies, which entered into force on 13 July 2018.

The Polish legislature then decided to resolve this issue from 1 July 2020. On that date, Article 9, point 1a was introduced to the Tax on Civil Law Transactions Act of 9 September 2000 (Journal of Laws of 2020, Item 815), pursuant to which the sale and exchange of virtual currencies, as understood under Article 2, paragraph 2, subparagraph 26 of the AML Act, are exempt from tax.

Value added tax: From the point of view of the Goods and Services Tax Act of 11 March 2004 (Journal of Laws of 2020, Item 106, as amended) (‘VAT Act'), trading in virtual currencies will be considered as the provision of services.

The issue of the taxation of cryptocurrency trading on the basis of VAT was resolved at the European level by the Court of Justice of the European Union (CJEU) in its judgment of 22 October 2015 in Case C-264/14 (Skatteverket v David Hedqvist), in which the CJEU found that the provision of services involving the exchange of cryptocurrencies into traditional currencies and the exchange of traditional currencies into cryptocurrencies should be subject to the exemption set out in Article 135, Section 1, letter e of the EU VAT Directive (2006/112), implemented in Article 43, Section 1, point 7 of the Polish VAT Act.

Thus, in Poland, trading in virtual currencies remains exempt from VAT. Where virtual currencies are sold to a taxpayer established in a territory outside the European Union (export of services), the trade will not be subject to VAT in Poland, while the taxpayer retains the right to input a VAT deduction (Article 86, Section 9 of the VAT Act).

11 Trends and predictions

11.1 How would you describe the current landscape and prevailing trends in your jurisdiction as regards virtual currencies? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

There are no legislative developments pending that could result in more extensive regulation of virtual currencies in Poland. According to the position presented by the Blockchain and Cryptocurrencies Work Stream, there is no justification for making proposals or undertaking work on the assumption that a separate legal act on virtual currencies will be introduced.

The position of the Polish Financial Services Authority (PFSA) also indicates that it does not consider itself responsible for the supervision of this kind of activity. Given the recent liquidation of the Polish Ministry of Digitisation, which previously supervised work streams devoted to blockchain and cryptocurrencies, it seems that this issue will remain unregulated for the foreseeable future.

The PFSA's scepticism towards cryptocurrencies and the reluctance of Polish banks to support the development of cryptocurrency traders suggest that legislation in this area may not be forthcoming any time soon.

12 Tips and traps

12.1 What are your top tips for virtual currency providers seeking to enter your jurisdiction and what potential sticking points would you highlight?

Businesses that intend to commence activities in Poland relating to the issue, trading or intermediation of virtual currencies should monitor the position of the Polish Financial Supervision Authority (PFSA) in this regard. Due to the lack of any explicit legislative initiatives, it seems that the position of the PFSA will determine the line of interpretation concerning these types of activities.

Given that entities that intend to commence activities relating to virtual currencies in Poland are subject to the anti-money laundering and counter-terrorist financing rules, the commencement of activities in this area should be preceded by the establishment of proper procedures and solutions in the area of know your customer/anti-money laundering.

If a business's activities involve the sale or intermediation of stablecoins, the commencement of such activities should be preceded by a legal analysis concerning the possibility to recognise such currencies as electronic money. The trade of electronic money in Poland is subject to the regulations of the Payment Services Act and the business may thus require authorisation as a small payment institution or a national payment institution. It is thus advisable for such businesses to verify the need to obtain the relevant permissions in this regard.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Poland: Virtual Currencies Comparative Guide