Virtual currencies can be exchanged tax free in the European Union, following a ruling from the highest court in Europe on Thursday.
Bitcoin and its alternatives can now be treated in the same way as traditional money, according to the European Court of Justice.
It said in a statement Thursday morning that bitcoin transactions "are exempt from VAT (value-added tax) under the provision concerning transactions relating to currency, bank notes and coins used as legal tender."
The ruling comes after a dispute in a Swedish court when David Hedqvist, a Swedish national, applied for permission to operate his online bitcoin exchange. The Swedish Revenue Law Commission initially told Hedqvist that bitcoin was exempt from VAT but the Swedish Tax Authority appealed against that decision.
Bitcoin is a virtual currency that allows users to exchange online credits for goods and services. While there is no central bank that issues them, bitcoins can be created online by using a computer to complete difficult tasks, a process known as mining.
The ruling paves the way for potentially cheaper transactions within the EU and therefore a boon for the nascent industry. Jonathan Rogers, partner in the financial services regulatory group at international law firm Taylor Wessing sees it as an opportunity for emerging forms of financial services.
"(The ruling is) a shot in the arm – bringing growth and consolidation.," he told CNBC via email.
"Greater clarity can now emerge in the debate about how to regulate virtual currencies, leading to increased credibility and consumer confidence; in turn, virtual currencies will have a much greater critical mass in the financial services system."
The price of bitcoin saw a slight increase after the news, rising around 3 percent, close to $8, during Thursdays' session.
In September, the U.S. Commodity Futures Trading Commission (CFTC) said that bitcoin would be classed as a commodity in the country along with gold and oil.
The announcement came as the regulator ordered bitcoin options trading platform Coinflip, and its CEO Francisco Riordan, to cease trading due to it not registering and complying with its regulations. It added that it had also filed, and simultaneously settled, charges against the San Francisco-based firm.
—CNBC's Arjun Kharpal contributed to this article.
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