Cryptocurrencies – licencing

Some jurisdictions have relegated the issue to a fringe economic issue (Belize, Vanuatu, Seychelles, etc.) Other jurisdictions are attempting to regulate, regulate and license at least the trading of cryptocurrencies.

Estonia

Estonia has been referred to as the world’s first “crypto-country”. It has made the most progress in Europe in terms of digitisation of public administration, the Estonian government actively supports blockchain technology and is supportive of cryptocurrencies and business plans related to cryptocurrencies, ICOs or e-money exchanges.

In contrast to the cautious and uncertain approach of European institutions and national banks, Estonia is ready for blockchain and has adopted a very welcoming and progressive attitude towards cryptocurrencies.

For example, Estonian legislation allows for a fully regulated offering of digital currency tokens (ICO cryptocurrency). Thus, through an Estonian company, digital currency can be issued through a member state of the European Union.

Estonia also offers a fully regulated license for the exchange of cryptocurrencies. This license allows it to provide the exchange of fiat currency for digital currency and vice versa.

Another licence that can be obtained from the local regulator is a licence to provide an e-wallet service. In this way, key areas for those interested in doing business with cryptocurrencies can be legally and regulatorily addressed.

These licenses can be a good vehicle for developing your business and ensure a fully regulated entry into the digital currency market.

The process of setting up a company and obtaining a DLT licence

Application for the above license(s) must be made through a company registered in Estonia or through a registered branch of a foreign company in Estonia. The easiest way is to establish a local company.

In case you want to establish a company remotely (without visiting Estonia), the establishment usually takes 2-3 weeks.

If you choose a ready-made company that is already established and will be transferred to your name, you will have to visit Estonia for 1 day. During this day, we will transfer the shares and membership of the company to you. The changes will be visible in the commercial register within a few days (max 1 week).

The above mentioned DLT licenses can be obtained in a very short time (usually the licensing process takes 2 to 3 weeks). Once the company is registered and we receive all the necessary information and documents from you, we will take care of the rest ourselves and complete the license application process.

Once licensed, the company qualifies as a financial institution but has no special reporting requirements to the tax authorities. The accounts must be kept in the same way as for other companies. No special reporting to the regulator is required, but the FIU may from time to time raise questions about the company’s activities.

Preliminary fees

Once a local company is registered and all required documents have been collected, a state fee of EUR 345 must be paid and a licence (licence) applied for.

Obtaining a legal opinion

The Estonian Financial Supervisory Authority (EFSA) states that coins and tokens may in some cases qualify as securities, which means that regulations and licenses to operate may be different.

If you believe that your company’s planned business does not fall under the scope of the above licenses, we recommend you conduct a preliminary legal analysis to determine what activity licenses or registrations your business model requires.

Licence with the Estonian Financial Intelligence Unit (FIU)

The Financial Intelligence Unit (FIU) will process an application for a business license with the intention of granting or denying a business license within 30 business days of the date of application. During the process, the FIU has the right to request further information and explanations on the planned activity. The licence will be issued once all required information has been provided and all conditions have been met.

Documents to be submitted to the authorities

• Certified copies of passports of all related persons (shareholders, board members, ultimate beneficial owners and responsible persons)
• Certified proof of address of all the above persons
• Certificate of conviction (or extract from the criminal record) of the above persons

All documents must generally be in English (or Russian) and must be apostilled. These documents must not be older than 3 months. The applicant is also required to submit operating rules for AML (Anti-Money Laundering) purposes. Officials have the right to ask for additional information and often request:

• CVs of related persons
  A description of the planned activity

Gibraltar

In light of the current trend in cryptocurrencies, it is highly advisable to own a licensed company that has all the authorisations to conduct cryptocurrency business (a so-called DLT licence). The cryptocurrency industry is now a very growing segment and further and more stringent regulation of the industry can be expected.

In many countries, the market and business of cryptocurrencies is restricted as the very nature of these means of payment is elusive and unwelcome in most countries. In the years to come, this medium will be regulated to a much greater extent, as it represents, among other things, a very welcome vehicle for the so-called underground economy.

How to set up a cryptocurrency with a DLT license?

As cryptocurrency companies must have the appropriate license to operate their business, it is ideal that the company structure is fully transparent. For this purpose, it is possible to use a so-called “nominee” executive, who is appointed and installed in a particular company, and formally acts as an executive there.

Since the approval process consists of screening all persons involved in the company, it is necessary to appoint as managing director a person who does not act as managing director in a large number of companies.

The process of setting up a company and obtaining a DLT licence

The first step is to incorporate the company in Gibraltar, however, when incorporating the company it is necessary to consider the focus of the company on the virtual currency business. The fees for setting up a cryptocurrency company here are exactly the same as for a traditional Gibraltar company. As for the fees for obtaining a DLT license, these can vary depending on a number of different aspects.

Upfront fees

When applying for a license, a non-refundable risk assessment fee must be paid during the approval process. Our Gibraltar office is required to review a full description of the company’s business activities and determine the likelihood of being granted a DLT licence in relation to the acquisition of a DLT licence. This fee is €1,000 – €1,700.

Obtaining a legal opinion

We are required to obtain a legal opinion from a local lawyer who specialises in this area before proceeding with the application. The cost of this is approximately EUR 2,600.

The fee for assistance with the licence application is from EUR 4,800.

Licensing with the Gibraltar Financial Services Commission (GFSC)

Once all of the above steps have been taken, a fee needs to be paid to the GFSC for the licence itself. The amount of the fee is decided by the GFSC and depends on the complexity and risk associated with the company’s activities and assets.

The amount of the fee is a minimum of EUR 13,000 and can be up to EUR 40,000 or more in certain complex cases. Once the licence is obtained, this fee, but often only part of it, must be paid annually in order to renew the licence.

A DLT licence is required for companies that mine, exchange or store virtual currencies

• Obtaining a DLT licence can take several weeks, perhaps even months
• The client is required to make representations about its business to the authorities in Gibraltar and will also need to make a presentation detailing the company’s intended activities (usually at the end of the licensing process)
• The client is obliged to have a physical office and employees in Gibraltar and will be required to provide the authorities with an address showing the address of their office
• Annual requirements include the usual requirements for ordinary Gibraltar companies which include filing annual returns, accounts and tax returns. The client will also need to renew their DLT licence annually
• Once the company is licensed, it is possible to open a company bank account
• If you are interested in applying for a licence, you must first carry out a risk assessment of the company and an evaluation of the business. For this, we need the following documents: a detailed business plan covering all aspects of the planned activities over the next two years, including the scope of activities and all processes to be undertaken, including cash flows.
• In addition, the following documents are required at the start of the process: history/resume of the directors, source of start-up capital, website address, identification numbers of all managing directors including a copy of passport and a copy of a current bank statement.

The GFSC may also request other documents and supporting documents during the licensing process.

Please be aware that licensing can be a lengthy process and we cannot guarantee success at any stage of the application process. The GFSC has very broad powers in this regard and there is no legal entitlement to be granted a licence. Please note that all prices are approximate.

Do not forget the issue of taxation of cryptocurrencies.