Wire transfers?

[Elwar]

I was driving down the road and I saw a "Western Union" sign and thought...why do we still have those places around?

Bitcoin could easily replace Western Union all over the world. You just become a Bitcoin exchanger in your store and if someone wants money transferred they just go to an exchanger and send their money to the recipient's Bitcoin address. You go to one of any exchangers and exchange your BTC for your currency and you are all set. The exchangers could charge a fee that is cheaper than sending a wire transfer. Then bam...good-bye Western Union.

Am I missing something here?

[1714054443]

1714054443

[DeathAndTaxes]

You aren't missing anything.  It just comes down to infrastructure.

The more places you can send money the more useful the network is.  A network of merchants willing to do BTC:FIAT conversions in meatspace is very powerful.  Maybe even the killer app for Bitcoin.

However a network of 10,000 locations is far more useful than a location of 200 or 12.

[ovidiusoft]

I started this discussion a while ago and we reached a point where it became apparent that it's very difficult to do it legally: https://bitcointalk.org/index.php?topic=48704.0

If you have any expertise in this area, please jump in!

[dancupid]

I was driving down the road and I saw a "Western Union" sign and thought...why do we still have those places around?

Bitcoin could easily replace Western Union all over the world. You just become a Bitcoin exchanger in your store and if someone wants money transferred they just go to an exchanger and send their money to the recipient's Bitcoin address. You go to one of any exchangers and exchange your BTC for your currency and you are all set. The exchangers could charge a fee that is cheaper than sending a wire transfer. Then bam...good-bye Western Union.

Am I missing something here?

Yep - that's what many companies are gearing up to. Alternatively you can do it yourself - I regularly transfer money to China and usually make a slight profit using Bitcoin (because there are fewer Bitcoins in China so the demand is slightly higher).

[DeathAndTaxes]

I started this discussion a while ago and we reached a point where it became apparent that it's very difficult to do it legally: https://bitcointalk.org/index.php?topic=48704.0

If you have any expertise in this area, please jump in!

You will still need to comply w/ same AML requirements of both countries (sending & receiving country).  So just because Bitcoin itself is anonymous doesn't mean that cash transfers can be anonymous.  Still there is no reason why you can't require ID at both ends and essentially work like a non-monopoly Western Union network of peers.

Granted because of the legality bootstrapping a venture like this isn't something 2 college kids w/ $800 are going to be able to pull off but for someone with proper venture capital backing the huge profit margins of WU make it a tempting target to decentralize.

[dancupid]

I started this discussion a while ago and we reached a point where it became apparent that it's very difficult to do it legally: https://bitcointalk.org/index.php?topic=48704.0

If you have any expertise in this area, please jump in!

You will still need to comply w/ same AML requirements of both countries (sending & receiving country).  So just because Bitcoin itself is anonymous doesn't mean that cash transfers can be anonymous.  Still there is no reason why you can't require ID at both ends and essentially work like a non-monopoly Western Union network of peers.

Granted because of the legality bootstrapping a venture like this isn't something 2 college kids w/ $800 are going to be able to pull off but for someone with proper venture capital backing the huge profit margins of WU make it a tempting target to decentralize.

I think it can be done fairly cheaply (Western Union have to open operations in many countries - with bitcoin you just need to integrate with the API's of all the exchanges and let the exchanges do the work locally - the local exchange can deal with local legal issues). I think the advantage of bitcoin is that you don't need a vast amount of backing to make this kind of operation work.
I think BitInstant look to be the company to watch in this regard.

[DeathAndTaxes]

I started this discussion a while ago and we reached a point where it became apparent that it's very difficult to do it legally: https://bitcointalk.org/index.php?topic=48704.0

If you have any expertise in this area, please jump in!

You will still need to comply w/ same AML requirements of both countries (sending & receiving country).  So just because Bitcoin itself is anonymous doesn't mean that cash transfers can be anonymous.  Still there is no reason why you can't require ID at both ends and essentially work like a non-monopoly Western Union network of peers.

Granted because of the legality bootstrapping a venture like this isn't something 2 college kids w/ $800 are going to be able to pull off but for someone with proper venture capital backing the huge profit margins of WU make it a tempting target to decentralize.

I think it can be done fairly cheaply (Western Union have to open operations in many countries - with bitcoin you just need to integrate with the API's of all the exchanges and let the exchanges do the work locally - the local exchange can deal with local legal issues). I think the advantage of bitcoin is that you don't need a vast amount of backing to make this kind of operation work.
I think BitInstant look to be the company to watch in this regard.

Legal, compliance, and reporting are the big issues.  If you are running the network you need to ensure each storefront in each country is in compliance w/ the host nation's legal requirements related to currency flows.  Not impossible but it is going to require a legal team.  You will also want some mechanism to accurately record Identification and have it available for law enforcement.  Not being able to do that will get you closed and likely charged with money laundering.

Convincing merchants to join the network will be easier if they see some serious commitment to legal compliance, and reporting.  Any merchant participating in the network is potentially liable for AML fines.  In the US you can not only pay a stuatory fine but if found to be willfully noncompliant can face in-reim forfeiture (govt becomes the owner of your assets).  Most businesses of any sizable value would want some sort of insurance to protect them in the event of accidental violation of the law.  Any insurance company would be glad to write such a policy but not without reasonable due diligence into your legal framework.

So the technical aspects are almost trivial compared to the compliance/regulator/legal issues.  Certainly do-able but would require "real" funding, business plan, incorporation, insurance, etc.

[Stephen Gornick]

Related: http://en.wikipedia.org/wiki/Informal_value_transfer_system

[ovidiusoft]

Legal, compliance, and reporting are the big issues.  If you are running the network you need to ensure each storefront in each country is in compliance w/ the host nation's legal requirements related to currency flows.  Not impossible but it is going to require a legal team.  You will also want some mechanism to accurately record Identification and have it available for law enforcement.  Not being able to do that will get you closed and likely charged with money laundering.
So the technical aspects are almost trivial compared to the compliance/regulator/legal issues.  Certainly do-able but would require "real" funding, business plan, incorporation, insurance, etc.

Unfortunatly you are so right. I did some more research after I started the other thread and starting this business will most likely require 7 figures funding. It's a little too much considering the current Bitcoin ambiguous legal status. I can only hope that in a few years the situation will change.

[Jered Kenna (TradeHill)]

Legal, compliance, and reporting are the big issues.  If you are running the network you need to ensure each storefront in each country is in compliance w/ the host nation's legal requirements related to currency flows.  Not impossible but it is going to require a legal team.  You will also want some mechanism to accurately record Identification and have it available for law enforcement.  Not being able to do that will get you closed and likely charged with money laundering.
So the technical aspects are almost trivial compared to the compliance/regulator/legal issues.  Certainly do-able but would require "real" funding, business plan, incorporation, insurance, etc.

Unfortunatly you are so right. I did some more research after I started the other thread and starting this business will most likely require 7 figures funding. It's a little too much considering the current Bitcoin ambiguous legal status. I can only hope that in a few years the situation will change.

7 figures and a few months (or longer in some states) can get the US taken care of.
Then you need to research the other countries and get that done if it can even be done.
Far more likely that someone like WU adopts BTC.

By all means try to get it done, it would be great for BTC.
Illegally it's pretty simple assuming BTC grows and you have the people to convert.
Doing it legally is a hell of a lot of work and very expensive. You're trying to undercut one of the most competitive / highly regulated industries in the world. I believe BTC would allow you to do that but they're going to do everything they can to stop you.
We're concerned about complying with the law. Companies you're taking on like Visa literally (not even joking at all) write these laws (to protect consumers..).

I'm all for it, I will cheer you on. I think the whole world can benefit from Bitcoin and my only regret with TradeHill is that I'm so focused on the exchange I can't participate as an individual in the other aspects. But personally I get a lot of satisfaction out of the part I'm playing and truly enjoy this community for what it is.

Jered Kenna

[Stn]

Once I though to became an agent for a young and cheaper alternative to WU. Then I found requirements in the country where I am:

- reputable enough history
- over $3 mln capital (for the third world country!)
- having bank license or being shopping mall or large international hotel
- etc.

Don't thing that in other countries it could be very different. In other words it means: "Get off you small Charlies from this game". Nobody will allow you to open office with money transfer business (whatever virtual currency) without proper licensing.

[Jered Kenna (TradeHill)]

Once I though to became an agent for a young and cheaper alternative to WU. Then I found requirements in the country where I am:

- reputable enough history
- over $3 mln capital (for the third world country!)
- having bank license or being shopping mall or large international hotel
- etc.

Don't thing that in other countries it could be very different. In other words it means: "Get off you small Charlies from this game". Nobody will allow you to open office with money transfer business (whatever virtual currency) without proper licensing.

Those are application requirements and don't even guarantee you will be given the license as well.

It's an exclusive club.

[iamzill]

I tried to make a wire transfer 2 days ago, and yet again the banking industry managed to surprise me with their new height of ineptitude.

I gave them clear printed instructions for the wire transfer, but they couldn't do it because "the SWIFT code is invalid". There's a bug in their outdated software that failed to parse a perfectly valid SWIFT code, and yet they kept insisting my information was wrong. So I had no choice but to withdraw everything in cash and deposit them into a second bank.

Bank #2's software managed to recognize the SWIFT code (Well done! ), but before the bank clerk could send out the wire, they had to "confirm with the manager". The "confirmation" wasted me 10 minutes and in the end I was told that the cash deposit would have to be held for 2 business days before the funds can be sent out. Bank #2 couldn't clear bank #1's certified cheque on the same day (there's that ineptitude again) so I had no choice but to do the transfer in cash, and now my money is being held hostage.

Between a bank that can't recognize a valid SWIFT code and a bank that takes 2 business days to check for counterfeits in a cash deposit MADE IN PERSON, I can't tell which one's worst. What do you guys think?

[boonies4u]

I tried to make a wire transfer 2 days ago, and yet again the banking industry managed to surprise me with their new height of ineptitude.

I gave them clear printed instructions for the wire transfer, but they couldn't do it because "the SWIFT code is invalid". There's a bug in their outdated software that failed to parse a perfectly valid SWIFT code, and yet they kept insisting my information was wrong. So I had no choice but to withdraw everything in cash and deposit them into a second bank.

Bank #2's software managed to recognize the SWIFT code (Well done! ), but before the bank clerk sent out the wire, they had to "confirm with the manager". The "confirmation" wasted me 10 minutes and in the end I was told that the cash deposit would have to be held for 2 business days before the funds can be sent out. Bank #2 couldn't clear bank #1's certified cheque on the same day (there's that ineptitude again) so I had no choice but to do the transfer in cash, and now my money is being held hostage.

Between a bank that can't recognize a valid SWIFT code and a bank that takes 2 business days to check for counterfeits in a cash deposit MADE IN PERSON, I can't tell which one's worst. What do you guys think?

Eff the banks, eff wire transfers? I can't really tell you anything that you don't already know, sorry.

[Herodes]

[snip]

Between a bank that can't recognize a valid SWIFT code and a bank that takes 2 business days to check for counterfeits in a cash deposit MADE IN PERSON, I can't tell which one's worst. What do you guys think?

I can tell you what I think, not that it helps for a second though: I think those banks are crooks.

[DeathAndTaxes]

I can tell you what I think, not that it helps for a second though: I think those banks are crooks.

I don't know crooks of utterly incompetent?  Hard to decide. 

[Phinnaeus Gage]

I can tell you what I think, not that it helps for a second though: I think those banks are crooks.

I don't know crooks of utterly incompetent?  Hard to decide. 

...or they're neither. They're just a business. A business consisting of perpetuating debt (=money, or versa visa).

[DeathAndTaxes]

I can tell you what I think, not that it helps for a second though: I think those banks are crooks.

I don't know crooks of utterly incompetent?  Hard to decide. 

...or they're neither. They're just a business. A business consisting of perpetuating debt (=money, or versa visa).

How does that explain the problems the OP had?

[repentance]

I was driving down the road and I saw a "Western Union" sign and thought...why do we still have those places around?

Bitcoin could easily replace Western Union all over the world. You just become a Bitcoin exchanger in your store and if someone wants money transferred they just go to an exchanger and send their money to the recipient's Bitcoin address. You go to one of any exchangers and exchange your BTC for your currency and you are all set. The exchangers could charge a fee that is cheaper than sending a wire transfer. Then bam...good-bye Western Union.

Am I missing something here?

The person you send a WU transfer to generally gets paid in their local currency - you wire money when you want the receiver to have instant access to funds.  Bitcoin might be able to offer fast transfers, but the person receiving them still has to take additional steps to convert them to local currency - either selling them OTC or selling them on an exchange and then withdrawing the proceeds, both of which take time.

There are a ton of money transmitting services apart from WU around and plenty of them have low fees for payments which are transferred to the bank account of the receiver.  These businesses are already licensed and already have the infrastructure to support smooth processing of payments.

Individual merchants aren't going to make enough from Bitcoin to justify the up-front cost of becoming licensed money exchangers/transmitters/deposit takers/whatever.  Merchants in a given location could set up a company and have that company obtain a financial serviced licence under which they could all operate as money transmitters but you'd still need a lot of daily transactions to offset the cost. 

People aren't going to use Bitcoin to receive funds if they can't conveniently liquidate them or spend them.  Merchants operating as Bitcoin>fiat exchangers would need to locate where there's a demand for that service.  If Bitcoin exchangers aren't easy to get to then people will just choose an alternate method of receiving funds.

To become competitive in the instant payment processing market, the whole fiat>Bitcoins>receiver>local currency cycle needs to happen in a much faster time frame.  If people can't spend the funds they've received instantly, then Bitcoin offers no real advantages over existing low cost payment processors - it's more effort to use Bitcoin and people need a significant incentive to use a platform which requires more effort.

[DeathAndTaxes]

I was driving down the road and I saw a "Western Union" sign and thought...why do we still have those places around?

Bitcoin could easily replace Western Union all over the world. You just become a Bitcoin exchanger in your store and if someone wants money transferred they just go to an exchanger and send their money to the recipient's Bitcoin address. You go to one of any exchangers and exchange your BTC for your currency and you are all set. The exchangers could charge a fee that is cheaper than sending a wire transfer. Then bam...good-bye Western Union.

Am I missing something here?

The person you send a WU transfer to generally gets paid in their local currency - you wire money when you want the receiver to have instant access to funds.  Bitcoin might be able to offer fast transfers, but the person receiving them still has to take additional steps to convert them to local currency - either selling them OTC or selling them on an exchange and then withdrawing the proceeds, both of which take time.

There are a ton of money transmitting services apart from WU around and plenty of them have low fees for payments which are transferred to the bank account of the receiver.  These businesses are already licensed and already have the infrastructure to support smooth processing of payments.

Individual merchants aren't going to make enough from Bitcoin to justify the up-front cost of becoming licensed money exchangers/transmitters/deposit takers/whatever.  Merchants in a given location could set up a company and have that company obtain a financial serviced licence under which they could all operate as money transmitters but you'd still need a lot of daily transactions to offset the cost. 

People aren't going to use Bitcoin to receive funds if they can't conveniently liquidate them or spend them.  Merchants operating as Bitcoin>fiat exchangers would need to locate where there's a demand for that service.  If Bitcoin exchangers aren't easy to get to then people will just choose an alternate method of receiving funds.

To become competitive in the instant payment processing market, the whole fiat>Bitcoins>receiver>local currency cycle needs to happen in a much faster time frame.  If people can't spend the funds they've received instantly, then Bitcoin offers no real advantages over existing low cost payment processors - it's more effort to use Bitcoin and people need a significant incentive to use a platform which requires more effort.

I think you might be missing the point.

Local store accepts fiat.  He is part of the network so he has an exchange account w/ fiat already loaded (float).  He uses fiat on exchange to buy Bitcoins (minus half the transaction fee) and sends them to the receiving store/merchant.  He can then use some slow mechanism to refill his exchange account w/ fiat (weekly wire transfers, etc).

Receiving store/merchant account instantly sells Bitcoins once received for local currency on the exchange.   The recipient comes to store shows ID and collects the funds minus the other half of transaction fee.

As long as each store has enough fiat "floating" on their exchange accounts they can process transaction in near realtime (1 hour for 6 confirms).

The technical aspects are not very hard.  The legal/regulatory/reporting aspects is what is tough but not unsolvable.

People aren't going to use Bitcoin to receive funds if they can't conveniently liquidate them or spend them

Sender would pay in local currency
Receiver would get paid in local currency.
Bitcoins would only be used for internal network transfers.
Bitcoin lowers the cost of business for each local "branch" (independent merchant part of money changer network).

Each branch would only need.
a) an exchange account in their local currency.
b) enough fiat floating on exchange account to cover transactions between periodic refreshing (from money paid by sending user).
c) a secure website/console to verify transactions and record Identification provided.

[Dan The Man]

You guys are overthinking it. Bitcoin already replaces the structure of Western Union. If you try to build a business that handles both ends of the transfer, then you are just copying WU's business model and you don't even need Bitcoin. You could use your own internal ledger system. In fact there are a lot of underground money transfer organizations that do just this. The thing about Bitcoin, is that the system is in place. All you need is a way to exchange local currency for Bitcoin. We already have these to an extent. But Bitcoin is Western Union, it doesn't need a Western Union business to be built around it. It just needs exchanges.

[Dan The Man]

You guys are overthinking it. Bitcoin already replaces the structure of Western Union. If you try to build a business that handles both ends of the transfer, then you are just copying WU's business model and you don't even need Bitcoin. You could use your own internal ledger system. In fact there are a lot of underground money transfer organizations that do just this. The thing about Bitcoin, is that the system is in place. All you need is a way to exchange local currency for Bitcoin. We already have these to an extent. But Bitcoin is Western Union, it doesn't need a Western Union business to be built around it. It just needs exchanges.

So what we need is for corner stores to hang a sign out front saying "bitcoin bought and sold here". Person A goes into the store with Country A cash, buys bitcoins from merchant. Person A then sends those bitcoins to person B. Person B walks into corner store near them, transfers bitcoins to merchant, and then walks out with Country B cash.

Anybody have a friend who owns a store? I think this will happen naturally as bitcoin catches on around the world, but you can certainly help the process along by suggesting it to the businesses around you. Maybe even tell them about your cousin in Azerbaijan who you want to send money to, and if they started trading bitcoins they would get commision. Help them see the benefit to themselves: If they charge a commision of the right amount, they could keep more themselves but charge the customer less than using other forms of money transfer.

Well there are already stores that accept Bitcoin as payment. If they aren't hording them, what are they supposed to do with them? Mark them up 2% and sell them back to the public of course. Since there is a generally high general demand for bitcoin right now, this seems like the easiest way to get them into circulation. Most people I talk to want to get one or two to see how it works or whatever. Going through Dwolla and Mt Gox is too much hassle for them. But if they could go to say, that restaurant in New York and buy some of their Bitcoin reserve on the spot, it might be worth while.

[ovidiusoft]

So what we need is for corner stores to hang a sign out front saying "bitcoin bought and sold here". Person A goes into the store with Country A cash, buys bitcoins from merchant. Person A then sends those bitcoins to person B. Person B walks into corner store near them, transfers bitcoins to merchant, and then walks out with Country B cash.

This will not work in countries with VAT. If you want to be legal, you'll have a huge spread between buy and sell price (your markup and the VAT). Minimum 20%, much more in some countries. In order to avoid the VAT issue, you'd have to be registered as an exchange office (but Bitcoin is not a recognized currency...), or as a money transfer/non-banking financial institution, which has its own many issues, costs and regulations.

The only way I could find that might work is as a "commercial intermediary" (sorry if I didn't translate correcly) - a company that introduces two parties who will engage in a commercial exchange. Think auction sites. User A has bitcoins, user B has USD, company C provides the way for them to engage in the exchange, for a small fee. It does have the issue that company C can't be a party of the exchange, both A and B are needed...

It's complicated

[repentance]

So what we need is for corner stores to hang a sign out front saying "bitcoin bought and sold here". Person A goes into the store with Country A cash, buys bitcoins from merchant. Person A then sends those bitcoins to person B. Person B walks into corner store near them, transfers bitcoins to merchant, and then walks out with Country B cash.

This is exactly how a lot of the smaller money transmission companies here operate.  Merchants whose core business is something else entirely offer money transmission services.  They are still required to be licensed in order to do this though, so they operate as agents of a parent company.  They're also required to sight the same ID as larger services like Western Union.

As long as you're taking someone's money in order to transmit it to someone else - even if the means by which the actual transmission happens is through Bitcoins - you're going to need licensing as a deposit-taker/money transmitter/payment processor/whatever.  Being a small corner store offering the service as a sideline isn't going to exempt you from the legal requirements for operating such a service.

And service based taxes are also going to be an issue in some countries. 

[Dan The Man]

So what we need is for corner stores to hang a sign out front saying "bitcoin bought and sold here". Person A goes into the store with Country A cash, buys bitcoins from merchant. Person A then sends those bitcoins to person B. Person B walks into corner store near them, transfers bitcoins to merchant, and then walks out with Country B cash.

This is exactly how a lot of the smaller money transmission companies here operate.  Merchants whose core business is something else entirely offer money transmission services.  They are still required to be licensed in order to do this though, so they operate as agents of a parent company.  They're also required to sight the same ID as larger services like Western Union.

As long as you're taking someone's money in order to transmit it to someone else - even if the means by which the actual transmission happens is through Bitcoins - you're going to need licensing as a deposit-taker/money transmitter/payment processor/whatever.  Being a small corner store offering the service as a sideline isn't going to exempt you from the legal requirements for operating such a service.

And service based taxes are also going to be an issue in some countries. 

The key though is that nobody know what the client is doing with their Bitcoins or where they got them from. The store just exchanges them for dollars. 

[MatthewLM]

But they can't advertise to the government inspectors "bitcoins bought and sold here VAT free" can they?

[Dan The Man]

But they can't advertise to the government inspectors "bitcoins bought and sold here VAT free" can they?

Mt Gox does it.

[repentance]

But they can't advertise to the government inspectors "bitcoins bought and sold here VAT free" can they?

Mt Gox does it.

Nobody's ever suggested that MtGox even tries to comply with financial services laws in the countries in which it operates.  They're operating unlicenced and unregulated and France probably won't be the only country where that bites them on the ass.

The key though is that nobody know what the client is doing with their Bitcoins or where they got them from. The store just exchanges them for dollars.

And how is the merchant going to deal with this from an accounting point of view?  What's he going to explain the outgoing dollar payments as in the books?  If he keeps the transactions totally off the books then he's in for a world of grief if his activity gets discovered.  Plus he needs a legitimate way of converting the Bitcoins transferred to him back to hard currency because there's only so much you can buy with Bitcoins at this point in time.  He doesn't want to be stuck with Bitcoins he exchanged for $2.50 each when they're now only worth $1.50.

[Dan The Man]

VAT stands for Value Added Tax. It means that the government is adding value to everything you buy, but not in the way you would think, by encrusting it with diamonds or something. They add value by making you pay more for it, and since you get what you pay for, you are getting more value for the same product. Pretty ingenious way to make everything more valuable.

[phillipsjk]

My understanding of a VAT, is that the product is taxed whenever "value" is added in the chain. According to the Wikipedia Article, suppliers are able to deduct the tax they pay on inputs, such that they only pay the government tax on the "value" they add.

This is awkward for bitcoin if it is considered a commodity. That implies that in a country with a 20% VAT, 10 BTC of any 50 BTC coin creation transactions should go to the government as tax. If you buy coins low, and sell them high, you would also pay 20% tax on the profit (if your coin supplier also paid the VAT, 20% on the face value otherwise).

This brings up an awkward situation where it may be considered beneficial to consider bitcoin a currency (and all the expensive regulation that entails) in some countries (like where VAT is a concern), and a commodity in others. If it is a commodity, you you need to secure export and import permits to move Bitcoins across borders?

Edit: I also did not mention that informal transactions totalling less than ~$35 thousand a year are often exempt. As BTC prices rise, more and more miners (and informal traders) may flirt with the threshold.

[iamzill]

My understanding of a VAT, is that the product is taxed whenever "value" is added in the chain. According to the Wikipedia Article, suppliers are able to deduct the tax they pay on inputs, such that they only pay the government tax on the "value" they add.

This is awkward for bitcoin if it is considered a commodity. That implies that in a country with a 20% VAT, 10 BTC of any 50 BTC coin creation transactions should go to the government as tax. If you buy coins low, and sell them high, you would also pay 20% tax on the profit (if your coin supplier also paid the VAT, 20% on the face value otherwise).

This brings up an awkward situation where it may be considered beneficial to consider bitcoin a currency (and all the expensive regulation that entails) in some countries (like where VAT is a concern), and a commodity in others. If it is a commodity, you you need to secure export and import permits to move Bitcoins across borders?

Edit: I also did not mention that informal transactions totalling less than ~$35 thousand a year are often exempt. As BTC prices rise, more and more miners (and informal traders) may flirt with the threshold.

Only if your business is trading bitcoins (good luck convincing the tax man). Your scenario is describing a capital gain, so the capital gains tax applies, which is usually much higher than the VAT.

[ovidiusoft]

For those of us who live somewhere without a VAT tax, could you explain what it is, and how it could apply to bitcoins?

Much better explained than I could do: https://en.wikipedia.org/wiki/VAT

Do all these legal requirements apply if you are exchanging local currency for foreign currency?

No. Currency exchange is VAT-exempt.

[ovidiusoft]

Only if your business is trading bitcoins (good luck convincing the tax man).

Well, that's not really a problem, the taxman won't care, as long as he can put a price on that. It will be like selling services, or SSL certificates, or selling the same copy of an MP3 over and over.

The sale of bitcoins for fiat is actually easier for the accounting dept., since it has an evident value attached. It's more complicated to sell products for bitcoins, as this will be a barter (which must have a fiat value attached, too). But I digress.

[ovidiusoft]

If you buy coins low, and sell them high, you would also pay 20% tax on the profit (if your coin supplier also paid the VAT, 20% on the face value otherwise).

Yes, that is the real problem with VAT vs bitcoins. In probably 90% of the cases, bitcoins will be purchased from people, and will not carry VAT, so there's nothing to deduct .

[MatthewLM]

Mt. Gox doesn't sell bitcoin, it sells the service of exchange. They don't have to charge VAT.

Question is: If an individual bitcoin seller trades above the VAT threshold in their country do they legally have to include this? I don't know, if bitcoin exchanges come into legal problems I just hope they can work OK underground.

[ovidiusoft]

Mt. Gox doesn't sell bitcoin, it sells the service of exchange. They don't have to charge VAT.

I don't know what is the procedure for VAT in Japan, but as the general case says, they should charge VAT on their exchange fees.

Question is: If an individual bitcoin seller trades above the VAT threshold in their country do they legally have to include this?

I believe they would have to, yes.

[MatthewLM]

I don't know what the VAT is like in Japan is either but VAT on fees is much different than VAT on the whole thing.

[ovidiusoft]

I don't know what the VAT is like in Japan is either but VAT on fees is much different than VAT on the whole thing.

Of course, it's the difference between selling the coins and being an intermediary for two parties who want to exchange coins. See my post #24.

[byronbb]

I think focusing on a single country would be a good start for such an idea. USA <-> Philippines or Mexico are the obvious to me.

[Stephen Gornick]

I was driving down the road and I saw a "Western Union" sign and thought...why do we still have those places around?

Bitcoin could easily replace Western Union all over the world

$350 billion this year ... just to developing countries.

http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:23058070~pagePK:64257043~piPK:437376~theSitePK:4607,00.html

[boonies4u]

I was driving down the road and I saw a "Western Union" sign and thought...why do we still have those places around?

Bitcoin could easily replace Western Union all over the world

$350 billion this year ... just to developing countries.

http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:23058070~pagePK:64257043~piPK:437376~theSitePK:4607,00.html

It's all about the BRICS.

[cbeast]

I was driving down the road and I saw a "Western Union" sign and thought...why do we still have those places around?

Bitcoin could easily replace Western Union all over the world

$350 billion this year ... just to developing countries.

http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:23058070~pagePK:64257043~piPK:437376~theSitePK:4607,00.html

It's all about the BRICS.

OFWs and mail-order brides. I still think pawn shops around the world should network with bitcoin. Pawn a stereo to send cash to a family member.