Estonia Crypto License

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Overview of cryptocurrency licensing in Estonia

Estonia is one of several developed countries that developed legislative framework for conducting a business related to operations with virtual assets, including cryptocurrency. Still this country remains one of Europe’s leading destinations for cryptocurrency companies, even after strengthening the conditions to obtaining authorization followed by latest amendments to the Money Laundering and Counter-Terrorist Financing Act (“MLTFPA”). Throughout this article we use “crypto license” in meaning of “authorization under AML/CFT legislation” to make it easier to percept.

The Rahapesu Andmebüroo (Financial Intelligence Unit of Republic of Estonia, “FIU”) is a state body empowered to grant a crypto license. In that matter, crypto license covers activities related to the provision of the following services:

By following this article, you will find out why getting Estonian crypto license will definitely benefit your business, how you can receive permission for crypto operations and what we can expect in the future.

Advantages of obtaining Estonia crypto license

Estonia is an excellent jurisdiction to carry out there activities connected with cryptocurrencies. This state presents numerous advantages for businesses aiming to enter the crypto market through its territory. Here are some key benefits:

Global Market Access

Obtaining a crypto license in Estonia allows to legally access to the European and global markets, providing extensive opportunities for expansion and outreach.

Tax Policy

Enjoy some tax incentives for investing money in Estonia, including absence of corporate tax on all undistributed profits (both active (e.g. trading) and passive types of income (e.g. dividends, interest, royalties). But if your Company will distribute profits, they will be subject to the 20% Corporate Income Tax (“CIT”). If a company makes regular profit distributions, CIT applies at the rate of 14%.

Efficient Process

The authorization process for an Estonia crypto license typically takes within 60 days, ensuring a swift setup for businesses.

Fintech Hub Registration

Estonia is one of the European leading fintech centers that has a convenient business environment to conduct activities within this sector.

Transparency in Requirements

The Estonia establishes clear and concise requirements, facilitating a smooth and transparent compliance process for crypto-related activities.

Requirement for obtaining crypto license in Estonia

If you plan to receive an Estonia cryptocurrency license, first you need to register a company or a branch in Estonia and conduct business activities in way that have significant connection with Estonia, as well as the seat of the management board and place of business of the undertaking should be Estonia. Also, take into account that a place of business (office) must ensure that the representative of a supervisory or investigative body will have access to the data the company stores and collects.

In addition to be able to receive Estonia cryptocurrency exchange license, this company should be ready to meet six minimum requirements established under MLTFPA that concern minimum amount of share capital, own funds, conducting annual audit, internal control and data retention, corporate structure, and business reputation.

Let’s have a glance at Estonia crypto license requirements in a more detailed way.

Share capital

The MLTFP set forth the minimal amount of share capital of virtual services provider. Depending on the type of activity you plan to conduct, the minimum amount of share capital may differ. In that way, for providing virtual currency wallet service, exchange service or ICO the share capital of a virtual currency service provider must be at least 100,000 euros in the future and for providing a virtual currency transfer service – at least 250,000 euros. Where virtual currency service provider registers as a new undertaking, the Estonia FIU requires share capital to be paid in cash.

Own funds

The virtual services provider must maintain the minimum amount of own funds. Own fund consists of capital instruments, retained earnings, accumulated other comprehensive income and other. In addition to that, the virtual currency services provider must implement measures that permit, at any time, to calculate its own funds with sufficient precision. Depending on the services the Company provide, method of minimum amount of own fund calculation may differ.

There are 2 methods of calculation of the minimum amount of own funds, namely, overall costs method and transaction volume method.

Companies planning to provide virtual currency wallet service or carry out ICO must use overall costs method. In essence, the Company should reckon than 25% of the fixed overhead costs of the previous financial year and compare this sum with the minimum amount of share capital. The amount which is larger is your minimum amount of own funds.

Companies planning to provide virtual currency exchange or transfer service must use transaction volume method. In essence, Company’s must reckon the following sum of part-transaction volumes:

The basis for calculating the part-volume of transactions is 1/12th of the total amount of the transfer and exchange transactions carried out by the provider of virtual currency service during the preceding year. Further, the Company should compare a sum calculated by this method with minimum amount of share capital, consequently, the sum, that is larger, is your minimum amount of own funds.

Annual audit

A virtual currency service provider is required to conduct an audit of annual accounts to verify compliance with the requirements established in respect of its own funds. In addition to that, a virtual currency provider must present the corresponding opinion to the FIU annually.

Internal control and data retention

In addition to the requirement of conducting annual audits, the virtual currency service provider must appoint an internal auditor that will monitor and evaluate the functioning of critical processes and systems. The purpose of the internal audit is to provide internal assurance and advice designed to add value to and improve an organization’s performance.

Corporate structure

The MLTFPA set forth some requirements concerning management board members of virtual currency service provider and appointment of compliance officer.

A member of the management board of a virtual currency service provider must possess a higher education and at least two-year specialized work experience and cannot be a member of the management board of more than other two virtual currency service providers.

Each virtual currency service provider must have a compliance officer or a head of a relevant structural unit that is not the compliance officer of another virtual currency service provider or the head of the relevant structural unit. The compliance officer must be employed on the basis of a contract of employment.

Proper business reputation

Business reputation is one of the factors inspected by the FIU, and proper business reputation of the Company, its members of management body, the beneficial owners and owners is one of the conditions for granting the crypto license.

Under MLTFPA a person does not possess a proper business reputation when:

The process of obtaining a cryptocurrency license in Estonia

The procedure of receiving Estonia crypto exchange license consists registering of a Company or a branch in Estonia, prelicensing preparation, application for a license, consideration of application by FIU and deciding whether to grant or refuse to grant a license, and ongoing compliance support and maintenance. Let’s consider each stage of the crypto-license obtainment in Estonia.

Registering a Company or a branch

Before carrying out the registration of the Company owners must be prepared to make the contribution of share capital and pay the state fee. Then, owners should prepare and file the following documents with the Commercial Register:

After that the Company must be registered with the Estonian Tax and Customs Board as a VAT payer.

Prelicensing preparation

To receive a crypto license the Company before authorization should meet six minimum requirements established under MLTFPA that concern minimum amount of share capital, own funds, conducting annual audit, internal control and data retention, corporate structure, and business reputation. After being formally prepared, the Company should pay attention to preparation of documents that should be filled with application for authorization.

Application for authorization

You may apply for authorization of a virtual currency service provider via the web portal of the register of economic activities or via a notary. When submitting the application, you should properly fill in the fields indicated by the portal and select type of the authorization and the sub-category of the authorization in way that corresponds to the area of activity planned to conduct (whether it is virtual currency wallet services, exchange services, transfer services or ICO).

To apply for authorization you must submit the following:

  • documents that prove the amount of the assets and share capital and the payment (for instance the payment can be proved by a bank account statement, a payment order or other document).
  • the applicant’s initial balance sheet and an overview of its revenue, expenditure, profits and cash flows.
  • the balance sheet and profit statement as of the end of the month preceding the filing of the application for authorisation.
  • the annual reports for the last three years, if available.
  • a business plan that meets the MLTFPA requirements: it must provide information on out the nature of the applicant’s envisaged business activity, a description of its organisational and management structure, a description of the rights, obligations and responsibilities of persons related to providing the envisaged services, as well as a description, forecast and analysis of the following:
    • a magnitude of revenue and expenditure for each area of activity;
    • any obligations relating to provision of the service;
    • the amount of the applicant’s assets and of its share capital;
    • its strategy, competitors and the market segment in which operations are envisaged;
    • its envisaged activities, services to be provided, products to be offered and prospective customers, including the proportion of customers who are Estonian residents and of those who are residents of other countries, as well as the volumes of envisaged services;
    • plans for its balance sheets and financial indicators which, among other things, mention revenues, expenditures, profits and cash flows as well as the preconditions for these;
    • general principles for risk management and a risk management strategy;
    • mediators and any other persons and services that will be used in the applicant’s business activity;
    • any other material circumstances.
  • documentation that ascertains the risk appetite, and concerning the risk analysis: The risk appetite and the risk assessment must be in compliance with the economic activity planned for the undertaking, as well as should establish undertaking’s fields of a lower and higher risk of money laundering and terrorist financing and assessment of these risks, the risk appetite, including the volume and scope of products and services provided during business activities, the risk management model, including simplified and enhanced due diligence measures, in order to mitigate identified risks.
  • particulars concerning information technology systems and other technical means and systems required to provide the envisaged services, including a description of security measures used to ensure service resilience and protection of customers’ assets, a description of measures to ensure business continuity and the level of technical organisation of operations.
  • a description of information technology systems and other technical means and systems which are to be used to provide the envisaged service as well as that used for identification of the customer and the customer’s beneficial owners, the assignment of risk level to customers and the identification and monitoring of transactions and customers.
  • the number of shares or votes held or to be acquired by each shareholder or member.
  • particulars of the audit undertaking retained by the internal auditor, including the name and personal identity code (where the person does not possess one, their date and place of birth) or registry code.
  • particulars of any persons who possess a significant holding, including their name, personal identity code or, where they do not possess one, their date and place of birth, citizenship, residential address, employment position and contact particulars.
  • particulars concerning companies in which the holding of a member of the applicant’s management body or of a person possessing a significant holding in the applicant exceeds 20 per cent, including its name, seat, registry code and the number of shares or votes held by a member of the applicant’s management body or by a person possessing a significant holding in the applicant.

All foreign language documents must be submitted together with a translation into Estonian.

Consideration of application and granting a license

After submitting applications for authorization, the FIU must decide whether to grant the authorization or to refuse to it within 60 days. The date of the submission of the application shall be deemed to be the day on which the applicant for authorization has submitted to the FIU all relevant particulars and documents. Upon the FIU’s decision, the time limit for granting the authorization may be extended to up to 120 days.

Ongoing compliance support and maintenance

In order to operate in the field of virtual currency the Company must maintain the compliance with requirements indicated in MLTFPA, otherwise the FIU can withdraw this license. Also, a virtual currency service provider must implement and apply customer due diligence measures as required by the MLTFPA since this Law establishes some separate requirements regarding customer due diligence measures for crypto providers.

Notwithstanding the above, building a strong compliance framework is one of prerequisites of your successful prosperity and your business advantage since it impacts the Company’s reputation.

Changes in Legislation and Compliance Requirements

In March 2022, significant changes to the Estonia regulatory framework for virtual currency service providers became effective and significantly tightened crypto regulation. Additionally, the Estonian crypto legislation will be amended by reflecting provision the recently adopted Regulations 2023/1114 on Markets in Crypto Assets Regulations (“MiCA”) that regulates the matters connected with activities with crypto assets among the EU. At the same time, the current regulation in Estonia is so developed that companies with an operating license in Estonia have largely met the relevant MiCA requirements. Additionally, MiCA will expand a list of activities for which a license may be granted.

At the same time, virtual currency service providers will still be required to apply for a new “MiCA license” after MiCA regulation replaces the Estonia regulatory framework. In that way, Mica allows virtual currency service providers that provided their services and were licensed before 30 December 2024, to continue their activities under license until 1 July 2026 (MiCA will become effective from 30 December 2024). Some of publicly available resources proclaims that the Estonian new MiCA implementation law will shorten the period mentioned above up to July 1, 2025, but we should wait until official information will be presented.

In comparison with effective Estonian crypto license framework, MiCA mostly implements some new requirements that concern, for instance, the minimum amount of share capital, information that must be present in application for authorization, and some separate requirements with regard to separate virtual assets activities. Also take into account that MiCA will also bring some additional compliance obligation for virtual currency services providers that must be adhered to during your activities in crypto ecosystem on territory of the EU, for instance implementing measures for safeguarding clients’ assets.

Therefore, the companies must be prepared to revolution in field of crypto regulation and follow the enhance their reliability.

How InteliumLaw can help you?

Our Team can help you by carrying out a comprehensive or partial accompaniment of your business through the procedure of receiving crypto license in Estonia. If you want to have an acquittance with our Team regarding receiving crypto license in Estonia or on ready-made company with crypto-license in Estonia, you may contact us via our email [email protected]. Also, if you have any questions on MiCA compliance feel free to contact us, we are glad to consult you and prepare your Company for future amendments.

Frequently Asked Questions

Are Crypto Regulated in Estonia?

Estonia is one of the first countries in the EU that has adopted rules for conducting crypto-related business on its territory. Up to now you may receive a license for providing virtual currency wallet, exchange, transfer services and conducting ICO. But the list of services for which Estonia crypto licence may be granted will expand when the Regulation Markets on Crypto Assets become effective.

What Are the Tax Implications for Crypto Businesses?

Estonia is a state that has convenient business climate and implement an investment-encouraging tax policy. In this matter, all corporate profit is not taxable if it is undistributed. This exemption covers both active (e.g. trading) and passive (e.g. dividends, interest, royalties) types of income.

 If your Company will distribute profits, they will be subject to the 20% Corporate Income Tax (“CIT”). If a company makes regular profit distributions, CIT applies at the rate of 14%.

Can Non-Residents Obtain a Crypto License?

No, foreign Companies cannot receive a crypto license, if they have no branch registered in Estonia. But if you and your partners are non-Estonian shareholders, you may register an Estonia company and apply for a license.

What Are the Key Compliance Requirements?

If you strive to receive a crypto license in Estonia, your Company must be registered in Estonia and adhere to six minimum requirements established under MLTFPA that concerns minimum amount of share capital, own funds, conducting annual audit, internal control and data retention, corporate structure, and business reputation.

How Long Does the Licensing Process Take?

After submitting applications for authorization, the FIU must decide whether to grant the authorization or to refuse to it within 60 days. But you must be ready that upon the FIU’s decision, the time limit for granting the authorization may be extended to up to 120 days. But at the same time, you should take into account time which should be spent on Company incorporation, its compliance preparation and other operative activities connected with Company foundation and management.

How long is a crypto license issued for?

Estonia FIU issue a crypto license for unidentified amount of time, but it may make a revocation of a license if the virtual assets service provider does not comply with applicable laws.

How much does a Estonia crypto license cost?

When applying for the authorization of a virtual currency service provider must pay 10,000 EUR. But you also should take into account indirect spendings, like costs for company incorporation, cost for creating a minimum amount of share capital, etc.

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