Bitcoin becomes unit of account in the private city and special economic zone of Próspera on the island of Roatán: the implications of the move.
Próspera ZEDE (Zone for Employment and Economic Development), a private city and special economic zone in the state of Honduras, has officially recognized Bitcoin as unit of account. The decision will allow the use of Bitcoin for commercial, tax, and financial transactions.
The announcement by Jorge Colindres
The Chief Operating Officer of the zone and Tax Commissioner, Jorge Colindres, made the announcement on January 5, outlining the conditions under which legal entities can adopt Bitcoin as the unit of account. Colindres stated that Próspera ZEDE recognizes the right of legal entities organized or registered under the authority of the ‘Prospera Entity Registry Statute’ to use Bitcoin as the unit of account.
In a post on January 7 on X, Colindres stated that the reason for this decision is to provide greater financial freedom to individuals and businesses operating in the area.
“At @ProsperaZEDE we believe in the right to financial freedom and monetary freedom. People should be free to carry out transactions, do their accounting and report taxes in the currency of their free choice.”
The conditions for the adoption of Bitcoin as the unit of account
Entities interested in using Bitcoin as the unit of account must submit a notice to the Tax Commissioner within 30 days of the relevant tax period. The submitted document should reference the use of one of the major cryptocurrency exchanges, such as Kraken or Coinbase.
Due to technological limitations of the existing e-Governance system in Próspera, in addition to some regulatory issues, until the implementation of the ‘Final BTC Tax Payment Procedure,’ the tax obligations of entities adopting Bitcoin will be determined in Bitcoin for internal accounting purposes but will be declared to Próspera ZEDE in US dollars or the local currency, Lempira.
Once the ‘Final BTC Tax Payment Procedure’ is implemented, tax obligations will be declared in Bitcoin, and entities will pay the corresponding amount to Próspera ZEDE in Bitcoin.
Implications of the decision
The move, centered around individual freedom to choose the currency that best suits their needs, does, however, come with risks.
In practice, according to the new regulations, taxes would be paid on the equivalent in dollars of the taxable amount. If the equivalent is calculated at a specific time of the year – for example, at the time of declaration or on December 31 – the practice exposes the taxpayer to the volatility risk of Bitcoin, which is much more pronounced than that of the US dollar. In essence, if the price of Bitcoin in dollars increases during the year, it is likely that the taxpayer would end up paying more taxes than they would have paid if they had kept their accounts in dollars. Naturally, the opposite example holds as well.
The volatility risk would be mitigated if the equivalent is not calculated based on the price of Bitcoin at a specific time of the year but instead considers the average values of income and expenses throughout the entire year of activity. However, the calculation methods have not yet been specified.
