CRYPTO LICENSE
To develop a legal and successful crypto business, you need a Crypto License. Many countries offer loyal conditions for crypto-business. If you have not yet decided in which jurisdiction to open a license for the exchange of cryptocurrency, research cryptocurrency regulations by country.
Crypto license in Europe
The European Crypto License allows you to work legally in the EU, makes crypto-business transparent, and increases the trust of customers, partners, and state regulators. This is a promising direction for entrepreneurs to engage in cryptocurrency activities.
The European Parliament approved MiCA on April 20, 2023, making it a groundbreaking global legislation that sets a precedent for other jurisdictions. MiCA is a regulatory framework developed by the European Commission to regulate markets for crypto assets and related services that are not currently covered by EU regulations.
It has been developed since 2018 and aims to provide a single licensing regime for all EU member states to harmonize regulation on the creation and trading of cryptocurrencies in line with the European Digital Finance Strategy. MiCA is expected to become effective sometime between mid-2024 and early 2025.
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The adoption of MiCA will directly affect the regulation of any company that wants to operate in the EU, even if it seeks customers outside the EU. However, MiCA will not affect national regulatory frameworks that are already in force in some EU countries. These frameworks may supplement MiCA regulations and impose additional requirements that companies and crypto-asset service providers will also have to comply with.
Even before the MiCA implementation, European countries' regulations had a single scenario, corresponding to the laws of the EU. However, in practice, they were having significant differences, especially in business models related to crypto-assets.
Therefore, when choosing a jurisdiction, it is important to consider the specifics of regulation, conditions, and advantages of crypto-licensing in EU countries. In addition, you need to clearly define the nature of your project and the types of services provided. In most of the cases, you will need a crypto license.
Lithuania
Lithuania stands out as the top European jurisdiction for the establishment of cryptocurrency-related enterprises. The process of obtaining a Lithuania crypto license is quite simple and fast. The state has the most progressive understanding of the economic future and has already implemented some of the principles of the MiCa Directive. And the current Lithuanian legislation allows registering a cryptocurrency company and paying the required amount of authorized capital (125,000 €) in installments.
Estonia
Crypto license in Estonia has several advantages, including the ability to work in all EU countries and low taxes. Thanks to modern digital infrastructure, the use of electronic signatures, and identification cards, obtaining a license for a cryptocurrency exchange is fast and efficient. Today, virtual currencies are controlled just like fiat money. They have been legalized and put on par with alternative means of payment, which is an advantage compared to the countries where cryptocurrencies operate in a "gray zone".
Poland
In November 2021 Poland introduced regulation of virtual assets. Companies engaged in this sphere must register in a separate state register of cryptocurrency companies (a so-called Poland crypto license). Moreover, a company must meet relatively simple procedural requirements and the registration period is relatively short.
After signing bilateral agreements with 84 countries of the world to avoid double taxation, the country has confirmed the status of a favorable jurisdiction for crypto-businesses in terms of taxation.
Czech Republic
There is currently no special licensing regime for cryptocurrencies in the Czech Republic. However, to legally conduct cryptocurrency activities, it is necessary to register compulsorily with the Trade Licensing Registry administered by the Czech Ministry of Industry and Trade. With this license, companies are allowed to operate in any EU country. There is no requirement to open a corporate account to register a company (in the form of an LLC) and the minimum share capital requirement is 1 CZK per shareholder.
Spain
Crypto regulation in Spain is still in development, but on February 17, 2022, the Spanish government adopted a Circular that defines the status of crypto assets and regulates their advertising. Cryptocurrencies are not banned in Spain but are not recognized as legal tender. Legal activity in crypto-business requires registration as a VASP and obtaining a License in Spain.
Licensed companies can legally provide services related to the exchange and storage of crypto assets, participate in investment projects, and develop their technology platforms.
Switzerland
In Switzerland, the financial supervisory body FINMA is responsible for regulating cryptocurrencies and licensing blockchain projects. This organization actively cooperates with other government agencies to develop a legislative framework in this area. Cryptocurrencies are recognized as legal assets according to the federal tax authorities. There are various initiatives for the development of the crypto industry in the country, including loyal taxation, support for startups, and development of the technological base. For legal cryptocurrency activities, you need to obtain a crypto license in Switzerland.
Slovakia
For the legal activity of cryptocurrency companies, there are 2 types of crypto license: license for the exchange of cryptocurrency and license for cryptocurrency wallet maintenance and storage. The Slovak government has strict requirements for the regulation of cryptocurrency and a license for this activity. Anti-money laundering (AML) legislation and KYC regulations apply to regulation and licensing. In March 2018, Slovakia passed laws on cryptocurrency. Following these laws, all profits that were derived from cryptocurrency transactions fall under taxation. Despite several strict rules, the Slovakia crypto license remains attractive to investors: there are no citizenship requirements, no restrictions on capital flows, and no currency controls. The tax is 22%, but it can be reduced to 0.5% with an agent scheme and proper accounting.
Portugal
Companies wishing to engage in cryptocurrency activities in Portugal are classified as VASPs (virtual asset service providers) and must obtain a license from the Banco de Portugal before starting operations. Unlike most jurisdictions, no minimum share capital is required to obtain a crypto license in Portugal. In addition, there are no restrictions or requirements for the declaration of cryptocurrency assets and taxation of cryptocurrency income for individuals.
Bulgaria
In Bulgaria, there is no need to obtain a special license for crypto activities, as cryptocurrency is not considered a financial instrument and is not regulated by the financial regulator. However, companies have to comply with anti-money laundering and anti-terrorist financing regulations and regulate transactions above 15,000 €. To start, one must register a company or obtain a financial license from the FSC. Bulgaria offers stable foreign trade development, economic security, access to the EU market, and loyal taxation.
Crypto license in other jurisdictions
In addition to European crypto licenses, you can consider registering in other jurisdictions, where the regulation and legal regime are different and there are certain advantages.
Registration in different jurisdictions may differ depending on the regulation of the cryptocurrency market. In Europe, cryptocurrencies and crypto exchanges are strictly regulated by state authorities and regulators, while in other countries, the crypto sector may be freer. In addition, getting a license to exchange cryptocurrencies in other jurisdictions may provide advantages, such as more flexible capital and resource requirements to obtain a license or low tax rates, which may ensure faster company registration and receipt of a crypto license. However, each jurisdiction has its requirements and regulations, and before deciding to register a crypto license in another country, it is necessary to study them carefully.
MSB Canada
FMSBs and MSBs are two types of financial businesses in Canada that must register with The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and comply with their reporting and recordkeeping obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). An FMSB is a non-banking institution that provides financial services outside of Canada and an MSB provides financial services domestically. License holders have advantages such as no minimum registered capital, a high level of economic freedom, a sound banking system, and access to a large domestic market with minimal regulatory costs.
UAE
Registering a cryptocurrency exchange in the UAE is becoming a popular option due to the free zones where businesses can trade and store cryptocurrency. Crypto Licenses can be obtained in the following zones: DMCC, DAFZA, ADGM, and IFZA. The requirements, conditions, and possibilities of the license depend on the chosen zone. The UAE government recognizes the possible risks associated with crypto assets, but the country is attractive for cryptocurrency businesses due to loyal taxation (corporate tax, dividends, and personal income tax - 0%), full legalization of cryptocurrency, and the absence of import and export tax.
Kazakhstan
Kazakhstan now has a complete system for regulating cryptocurrency activities, and the government is actively accepting applications for crypto licenses. On April 1, 2023, the Law on Digital Assets came into force, which created a legal framework to control the issuance and circulation of digital assets in the country. The law allows issuing and circulating unsecured digital assets through the Astana International Financial Center (AIFC). Crypto license in Kazakhstan holders providing financial services through AIFC are exempt from tax payments until January 1, 2066.
Georgia
In Georgia, creating a company to get a license for cryptocurrency is necessary. It is recommended to do it in the Free Industrial Zone (FIZ) because of preferential taxation and other favorable conditions. At the moment, the local cryptocurrency sector is controlled but not regulated. Individuals do not need a special permit to work with virtual currency; commercial companies must obtain a crypto license. The process of registering a company and obtaining a license takes only 2-3 weeks.
Types of crypto licenses
There are two types of crypto licenses:
- Specialized, issued by authorized bodies and allowing the exchange of cryptocurrencies for fiat money.
- Traditional, required for companies that provide ordinary financial services and additionally want to work with cryptocurrency.
The choice of the right license depends on the peculiarities of the cryptocurrency project and on the legal regulations in the country where the activity will take place, as well as on the type of services that you plan to provide.
There are many crypto licenses available in different countries for different types of services. Here are some examples:
- Cryptocurrency exchange license: allows companies to exchange cryptocurrency for fiat money and vice versa. This license usually requires KYC/AML procedures and sufficient capitalization.
- Cryptocurrency storage license: allows companies to store cryptocurrency on behalf of customers. It also usually requires KYC/AML clearance and sufficient security.
- ICO/STO license: allows companies to conduct initial coin or token offerings. A detailed project description, business plan, and reporting are usually required.
- Cryptocurrency bank license: allows companies to provide banking services for cryptocurrency, such as lending, deposits, etc. This license usually requires passing KYC/AML, having sufficient capital, and meeting banking requirements.
- Cryptocurrency mining license: allows companies to mine cryptocurrency. Usually requires compliance with energy and environmental standards.
Differences between crypto licenses may lie in the requirements for the company, mandatory KYC/AML procedures, capitalization, availability of appropriate security systems, and permitted activities. In addition, different countries may have different rules and regulations that can affect the crypto license process.
The standard process for obtaining a cryptocurrency license for a cryptocurrency exchange
The process for obtaining a crypto license can vary from jurisdiction to jurisdiction. Some things may vary from state to state, so it's important to conduct a detailed analysis of the legal framework and requirements of the cryptocurrency industry in the specific jurisdiction where you plan to operate.
In general, the process of obtaining a crypto license in different countries may include the following steps:
- Decide on the jurisdiction in which the company will be registered. It is important to consider the requirements of different states for the legal form allowed for such activities, the size of the authorized capital, the residence of the founders, the ideal reputation of directors and beneficiaries, the number of shareholders, and other nuances.
- Register the company in the selected jurisdiction. Please note: usually large stock exchanges have a complex structure that includes several companies, each of them performs certain functions. This allows you to optimize taxation and reduce the risks associated with doing business.
- Collect and prepare necessary documents and information to submit to the regulator. As a rule, to obtain a crypto license, it is necessary to submit several documents, such as a business plan, a description of services offered, information on the project team, financial statements, etc.
- Open a corporate account (in most cases, with a bank of the selected jurisdiction)
- Hire specialized staff, including certified employees with experience and a reputation in finance and virtual assets. This usually applies to hiring AML officers and Compliance officers.
- Develop and implement security policies and protect users' data.
- Prepare the necessary technical and software for the exchange, by the needs of users and the requirements of regulatory bodies.
- Apply for review by an authorized body for obtaining a license. During the application review process, additional information or documents may be required, and the company may be checked for compliance with requirements and standards.
- Once a company passes all the steps of the review and meets the requirements, it receives a crypto license.
Standard AML requirements
AML (Anti-Money Laundering) is a set of measures and procedures aimed at combating money laundering and terrorist financing. Several standard AML requirements must be complied with when conducting cryptocurrency activities:
- Customer Identification (KYC). Cryptocurrency companies must conduct a KYC process for all of their customers to verify their legitimacy and check for links to criminal activity.
- Transaction Monitoring. Transactions conducted on the platform should be monitored and limits set on the amounts that can be transferred. This helps identify potential money laundering and terrorist financing schemes.
- Risk-based approach. Companies should assess the risks associated with money laundering and terrorist financing and take measures to mitigate those risks.
- Internal acts. It is necessary to develop several rules that will regulate the procedures and measures to comply with the legislation on combating money laundering, as well as minimize the risks of money laundering.
- Training and education. Companies should train their employees on the basics of AML legislation and anti-money laundering and counter-terrorist financing procedures.
- Record Retention. Records of their customers and their financial transactions should be retained for a specified period to ensure they are available for inspection by regulators and law enforcement.
- Reporting. It is a mandatory requirement to provide reports on their anti-money laundering and counter-terrorist financing activities as required by regulators.
Note that standard AML requirements for cryptocurrency companies may vary by jurisdiction. For example, different jurisdictions may have different requirements regarding the collection and retention of customer information, document retention periods, risk criteria, reporting, and other aspects. In addition, some jurisdictions may impose stiffer penalties and sanctions for violations of these rules than others.
Therefore, it is important to consider and comply with local legal requirements to avoid regulatory violations and sanctions.
Comparative table of crypto-regulation by jurisdictions 2023
- Time frames to acquire the license
- Cost of license
- State Duties
- Business Plan
- Local Company
- Cost of company registration
- Share Capital Requirement
- Local Physical Office
- Local AML Officer
- Local Employee
- Financial Audit
- Financial (Accounting) Reporting
FAQ about crypto license
How to get a crypto license?
There is no single algorithm that is suitable for all jurisdictions. The complexity and duration of obtaining a Crypto License depend on the current legislation and regulatory requirements of each country. If we gather the general requirements, they may concern a certain amount and liquidity of the authorized capital, legal form of business, the reputation of owners, legal address, bank account, compliance with AML/KYC rules, etc.
Different jurisdictions may have different state fees, application processing times, documentation packages, and special requirements.
Usually, it takes 1-6 months to review the application and the process of obtaining a license is as follows:
- Selecting a jurisdiction and registering a company.
- Opening a bank account.
- Selection of specialized employees.
- Preparation of technical equipment and software.
- Gathering and submitting documents required by regulators.
- Waiting for the crypto license application to be processed.
- All entrepreneurs must study the requirements of local regulators, the country's legislation, AML/KYC rules, etc.
How much does a crypto exchange license cost?
Like the licensing process, the cost of a legal permit also varies from jurisdiction to jurisdiction. There are relatively expensive permissions like in UAE from $15.000, and there are more budgetary permissions, for example in Estonia, the license costs from 4900Є. In addition, you need to consider the amount of registered capital, the cost of office rent and purchase of equipment, staff recruitment, state fees, software, etc.
To calculate the exact cost of opening a license for a cryptocurrency company in the desired jurisdiction - contact our lawyers for a detailed consultation.
Which jurisdiction is the most profitable for the crypto business?
Each jurisdiction has its advantages and pitfalls. Before opening a License for the exchange of cryptocurrency, it is necessary to study the legislation of the country to choose the best option. The choice may depend on the type of activity, financial capabilities of the company, and business plan.
If you are not ready to spend a lot of money to start a company, you can consider an Estonian license. If you are interested in free economic zones, and the rapid development of the cryptocurrency sector, and you are willing to overpay for these benefits - you will be fine to open a crypto-business in the UAE.
The Czech Republic is strictly regulated, but with the Czech license you can work in all EU countries, it provides more freedom in the variety of services offered and has several other advantages.
In many jurisdictions, there is a necessity for minimum charter capital, while in Canada it is not required at all. At the same time, the Canadian government has introduced a high tax rate of up to 33%.
Every situation is different and it is important to approach the issue constructively. To save time and finances - contact our specialists.
Is there any taxation for cryptocurrency companies?
Every year cryptocurrency becomes more regulated. And along with the regulations, comes taxation. Crypto assets are still part of a new industry, so not all countries have finally approved the mechanism of tax collection. However, this practice is present in almost every jurisdiction and may differ depending on the legislation of the country.
Let's look at some examples:
- The UAE is a very attractive country on the tax side for cryptocurrency businesses that trade: the federal income and corporate tax rates are 0%. However, since the beginning of 2018, the government introduced new rules on the tax rate and it is 5%. Your company can be set up on a zero-tax basis, but regular transactions will be subject to 5% VAT.
- Poland and Slovakia have a stricter tax system but have signed bilateral tax avoidance agreements with more than 70 countries.
- In Canada, cryptocurrency activities may fall under the regulation of the Income Tax Act (ITA). The rate depends on the annual income: from 15 to 33%.
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