(Un)limited possibilities for digital assets placement

We live in the era of digitalization.  Changes in technology inevitably affect our lives.  One such innovation in Serbia are digital assets, which can be virtual / cryptocurrencies or digital tokens.  Although the local legislation has only recently recognized this institute, an increasing number of companies that operate in Serbia now work in the sphere of cryptocurrencies.  The Digital Assets Act (the “Act”) provides options and opens many doors for the use of digital assets, primarily cryptocurrencies.

Therefore, the question whether cryptocurrencies are our future or our present arises.  Opportunities for the use of cryptocurrencies are yet to be fully discovered.  This article will provide insight into only two of them: the purchase of real estate and equity capital investments.

Digital assets are the broadest category considered by the Act. These are defined as “a digital record of value that can be digitally bought, sold, exchanged or transferred and may be used as a medium of exchange or for investment purposes”.  Furthermore, the Act prescribes the virtual currency (which is a legal term for cryptocurrency), as “a type of digital property that has not been issued and whose value is not guaranteed by the central bank or any other public authority and does not have the legal status of money or currency but is accepted by natural or legal entities as a means of exchange and can be bought, sold, exchanged, transmitted and stored electronically”. The most famous example of a virtual currency is bitcoin.  Meanwhile, digital tokens represent intangible property rights in a digital format.

 

Real Estate and Digital Asset Placement

In the Republic of Serbia, cryptocurrencies are not a means of payment.  Apart from the Act, which stipulates that cryptocurrencies do not have the legal status of money or currency, the Foreign Exchange Management Act recognizes only the Serbian dinar and foreign currencies as a legal tender.  The National Bank of Serbia („NBS“) has repeatedly pointed out that bitcoin and other cryptocurrencies are not legal tender and that no public authority stands by their value.

However, this does not necessarily exclude the possibility of acquiring real estate using cryptocurrencies.  Since cryptocurrencies can be a medium of exchange,  the parties may agree for their exchange to take place in cryptocurrencies.  The legal regime of the exchange contract from the Contracts and Torts Act would be applied to such a specific relationship, because cryptocurrencies, according to the Act, are actually objects that can be the subject of an exchange.  Hence, one can’t buy real estate with cryptocurrencies but an exchange of crypto for real estate may be possible.

The Act doesn’t prohibit giving cryptocurrencies in exchange for real estate property rights, but it also doesn’t oblige sellers to accept compensation for real estate in cryptocurrencies.  Therefore, whether real estate can be “bought” with cryptocurrencies or not, depends on each individual seller.  It would be best to check with the seller whether such an option exists.

An owner of digital assets can also use a licensed digital asset service provider to simply convert their digital assets into fiat currencies.  After the digital assets are exchanged for fiat currency, the property can be purchased with the fiat currency.

 

Using Digital Assets for the Incorporation of a Company

 The Companies Act regulates the establishment of a business.  It states that there is no company without capital.  The equity capital of a business is created by investing in the company.  The investor becomes an owner through the acquisition of shares in the business or by contributing in part to the initial capital of the company.

The equity of a company is formed through the individual investments by the future company owners.  Under the Companies Act, there are two types of investments – monetary and non-monetary (in-kind).

Non-monetary investments may be made in property and rights.  In this sense, the Companies Act does not recognize the concept of digital assets.  Therefore, the question is whether it is possible to pay/enter cryptocurrencies and digital tokens into the equity capital of a company.

According to existing regulations, cryptocurrencies may not be paid directly into a company’s capital in the form of a monetary contribution.  However, just as in the case of real estate purchases, cryptocurrencies may be converted (exchanged) for money which can then be lawfully invested into the company.

Cryptocurrencies may not be entered as a non-monetary investment in a company.  Non-monetary contributions to a company’s capital may be made in digital tokens (another type of digital assets, other than cryptocurrencies) that are not related to the provision of services or the performance of work.  In rare cases, non-monetary investments in a partnership and limited partnership can also be made in digital tokens related to the provision of services or the performance of work.  The Securities Commission determines the list of these digital tokens.

 

Currently, real estate cannot be legally purchased in Serbia using cryptocurrencies, but it can be obtained in exchange for cryptocurrencies  Also, cryptocurrencies cannot directly represent a monetary or non-monetary investment in a company.  However, there is an omnipresent tendency to significantly increase the possibilities of using and disposing of cryptocurrencies, which will certainly affect business decisions, and our everyday lives.