The European population is one of the most prosperous economies with just above 750 million people, over 17% of which use digital assets. This makes the continent the largest cryptocurrency market in the entire world, accounting for 25% (approx. 939,4 bill. EUR in 2021) of all crypto activities globally. In this context, you can certainly find vast opportunities for building a lucrative cryptocurrency business of your own.
Start by learning about the European crypto regulatory framework that’s been setting high standards for the rest of the globe and then explore various European jurisdictions, which currently have different levels of crypto regulations. This means that while some countries require to meet very strict crypto licensing requirements, others still don’t treat crypto businesses as a separately regulated area which makes it relatively easy to obtain a crypto licence.
EU Crypto Regulations
Although the EU hasn’t recognised cryptocurrencies as legal tender, it’s been working tirelessly to transform the crypto industry into a stable and reliable market by introducing and elaborating a variety of regulations. While some EU crypto regulations apply directly across the member states, others have to be transposed into the national legislation of every EU member and therefore you should take a good look at the overall crypto regulatory framework of the EU prior to delving into the specificities of a particular country and even applying for a crypto licence.
The EU’s anti-money laundering directives have been consistently tightening anti-money laundering and counter-terrorist financing regulations that involve higher and clearer requirements for crypto businesses. In 2020, the Sixth Anti-Money Laundering Directive (6AMLD) came into effect with the aim to improve the rules and clarify the definitions laid out in the Fifth Anti-Money Laundering Directive (5AMLD). New changes should essentially strengthen the corporate responsibility of the crypto businesses operating from within the EU. It’s worth noting that the 6AMLD addresses the lack of supervision by company leadership which is bound to have legal ramifications.
In 2022, the European Commission’s Economic and Monetary Affairs Committee approved the Markets in Crypto-Assets (MiCA) regulation for a vote by the full European Parliament and the member states as the EU seeks to form a comprehensive crypto regulatory framework aimed at encouraging innovation and fair competition by ensuring legal certainty, as well as enhancing consumer protection by making the crypto industry a safer and more stable area of business.
When this law comes into effect, it will apply directly across the EU and virtual asset service providers will be allowed to offer their products and services within the union under the condition that they register with the national authorities in accordance with appropriate legal requirements. However, MiCA also has its limitations as it currently excludes decentralised finance (DeFi) and non-fungible tokens (NFTs), which, on the other hand, should be duly included in the near future.
The latest MiCA updates include:
- Significant crypto asset service providers (CASPs) will be obligated to publish their energy consumption levels on their websites and share the data with appropriate authorities in order to contribute to the reduction of the high carbon footprint of cryptocurrencies; regulatory technical standards are to be prepared by European Securities and Markets Authority (ESMA)
- MiCA won’t duplicate the anti-money laundering rules as these are stipulated in anti-money laundering and counter-terrorist financing (AML/CFT) legislation
- Nevertheless, the European Banking Authority (EBA) will be responsible for the maintenance of a public register and enhanced AML checks of non-compliant CASPs whose parent company is registered in countries that are identified by the EU as a) third countries which are considered high-risk for anti-money laundering activities, and b) non-cooperative jurisdictions for tax purposes
- Stablecoins will be supervised by the European Banking Authority (EBA); stablecoin issuers will have to have an EU presence and they’ll be obligated to build up a sufficient liquid reserve, with a 1:1 ratio
Other regulations aside, the clarification or adaptation of the taxation framework is currently in its infancy stage but some aspects have already been defined. For instance, according to EU law, VAT doesn’t apply to conversions between fiat money and cryptocurrencies but it may be applied to various other crypto-related products and services.
All of these novel and swiftly-evolving regulations should help the EU in shaping a leading crypto market where crypto and generally blockchain entrepreneurs can continue to innovate and investors can confidently entrust their money. Knowing that the EU currently represents around one-sixth of the global economy, being part of it can bring unprecedented success. Of course, you shouldn’t underestimate such non-EU countries as Switzerland which offer undeniably attractive conditions to crypto entrepreneurs.
Benefits of the EU Crypto Regulations
A lot has been done but a comprehensive, single legal framework for cryptocurrency businesses that will apply across the EU is still being gradually developed by the authorities of the block. The two essential principles of these continuously enhanced regulations are the encouragement of the development and use of blockchain-based technologies via updated legislation and various support, as well as the protection of consumers and investors through the fight against market manipulation and financial crime.
You can view these principles as highly advantageous for several reasons. First of all, as a crypto entrepreneur, you’ll be supported by the ever-growing number of governmental and non-governmental national and transnational initiatives that will help you grow and navigate the market. Second of all, your crypto company will be considered trustworthy by investors and clients due to the thorough regulations designed to safeguard market integrity.
Other undeniable advantages of the single regulatory framework are clear, consistent and transparent rules for your crypto company which can gain access to the entire single market of the EU. Once the regulations are harmonised across the block, you will be able to navigate the market with ease without having to adapt to widely varying requirements in different countries.
As for the recent improvements of MiCA, Stefan Berger (EPP, DE), the lead MEP, has called MiCA a success of the continent as Europe is the first entire continent to introduce crypto regulations and to become a global standard setter. According to the MEP, MiCA will harmonise the market, where cryptoasset issuers and crypto service providers will have legal certainty, and customers will be protected to the highest standards.
If growing a crypto business within the European regulatory framework is an aspiration to you, read on as further in the article, our team of trusted lawyers here at Regulated United Europe highlights the most progressive European countries that use cryptocurrencies in everyday life and put every effort to create a welcoming and safe environment for crypto entrepreneurs and consumers.
In 2018, Lithuania was one of those forward-looking European countries that introduced Initial Coin Offering (ICO) rules and it’s now been recognised as one of the friendliest blockchain-supporting countries in Europe. So far, Lithuanian blockchain startups have raised more than 1 bill. EUR which is a clear indicator of success for a country with less than three million people.
Moreover, Lithuania is ranked among countries offering the world’s fastest and most reliable internet connection which is crucial for the smooth and safe operations of a crypto company. On top of that, Lithuania is recognised as a safe business environment among global investors and ranks 9th among the lowest-risk jurisdictions. These are clear indicators that you don’t really need to look any further if you’re in search of a modern and reliable jurisdiction for your innovative crypto project.
In Lithuania, a virtual currency is considered an instrument that has a digital value, but isn’t considered legal tender, and is therefore not authorised or guaranteed by any national institution. If a virtual currency is recognised by natural or legal persons as a means of exchange, it can be legally transferred, stored, sold, exchanged, invested and used for paying for purchases electronically.
The Bank of Lithuania is Lithuania’s financial market regulator issuing crypto licences among other regulatory activities. It has also developed a blockchain-based technological sandbox LBChain with the goal to serve Fintech market participants by providing regulatory and technological infrastructure designed to test innovative business solutions in a controlled environment. All businesses – startups and more mature companies – can carry out blockchain-related research, experiment with new solutions, and offer their novel products and services to consumers.
In Lithuania, you can apply for one of the following crypto licences:
- A Crypto Wallet Licence allows crypto companies to provide crypto wallets to consumers and administer them on their behalf
- A Crypto Exchange Licence allows crypto companies to offer cryptocurrency-to-fiat-money exchange services and vice versa, as well as cryptocurrency-to-cryptocurrency exchange services
The main benefits of the Lithuanian crypto licence:
- A crypto licence can be issued within a month
- You won’t have to pay any application and annual supervision fees
- You’ll be subject to relatively low Corporate Income Tax (5–15%)
- Your company will be included in the publicly available register of all licensed Lithuanian cryptocurrency companies, the main aim of which is to increase transparency and infuse trust within the industry by enabling verification of crypto licences
- You’ll have access to the pool of disciplined, multilingual, driven and highly qualified talents who can be instrumental in growing your crypto company
- Audit exemptions apply to small businesses that meet certain conditions
- A senior manager who is a permanent resident of Lithuania
- Registered authorised capital of at least 125,000 EUR for a Private Limited Liability Company (UAB) or a Public Limited Liability Company (AB)
- The essential functions of a crypto company must be carried out in Lithuania and their core services must be supplied to clients in Lithuania
To obtain such a licence, you can either establish a new Lithuanian company or buy a fully licensed ready-made crypto company. Both options have their own advantages and if you wonder which one suits your needs, don’t hesitate to reach out to our team who will be delighted to provide a personalised consultation.
The Lithuanian taxation system is undoubtedly among the most favourable ones in Europe as the Lithuanian economy is ranked 6th in the EU for ease of paying taxes. Lithuanian taxes are administered by The State Tax Inspectorate which hasn’t introduced any crypto-specific taxes yet and therefore all cryptocurrency companies are subject to paying general taxes. Furthermore, Lithuanian crypto businesses can avail of such tax reliefs as a 200% allowance on eligible R&D expenses.
Estonia was the first European country who provided clear rules and guidelines for virtual currencies. Today, it’s known as the jurisdiction that’s issued the biggest number of crypto licences in Europe and it has over 200 blockchain solution providers. So far, Estonian blockchain companies have raised 285 mill. EUR which is rather remarkable for a nation of fewer than 1,5 million people.
In Estonia, you can obtain only one type of crypto licence, called a Virtual Currency Service Provider Licence. It’s issued by The National Financial Intelligence Unit and it can allow you to provide cryptocurrency exchange services and crypto wallet services. Keep in mind that you can either apply for it by opening a new Estonian company or buy it along with a ready-made crypto company. Contact us today and we’ll share more insights on this solution.
Key requirements to take into consideration before obtaining an Estonian crypto licence:
- You’ll be asked to pay an application fee of 10,000 EUR (but no annual supervision fee)
- Authorised share capital – from 100,000 EUR
- You’ll be obligated to open a local physical office and hire local staff (although that can be turned into a plus due to the pool of highly qualified, multilingual talents)
- Company audit is a must
As per national legislation, virtual currencies are considered values represented in a digital form, and they can be transferred, stored or traded digitally, and individuals can accept them as payment instruments. However, they aren’t recognised as legal tender. That said, Estonia remains a supporter of such blockchain initiatives as cryptocurrencies at the national and European levels.
A large number of blockchain applications are being implemented in the public sector. The country has a highly scalable and privacy-focused keyless signature blockchain infrastructure that is used in health, property, business, and inheritance registries, as well as the country’s state newspaper and digital court system. Such widespread use of innovation shows you that Estonia is serious about the adoption of blockchain-based solutions and you could certainly benefit from conducting a business from within the country and serving Estonian consumers.
One of the most notable initiatives you can take advantage of is the e-Residency programme which allows crypto and other blockchain entrepreneurs to set up and manage a company in the EU entirely online. It’s one of the reasons Estonia boasts a plethora of companies offering blockchain-based solutions, including cryptocurrency trading and crypto wallets.
The Estonian tax system is administered by the Estonian Tax and Customs Board (ETCB) which hasn’t yet introduced any taxes specific to cryptocurrency businesses and therefore your Estonian crypto company would be subject to paying general taxes. The good news is that due to the low tax burdens on business investments and an effective level of neutrality enabled by a well-structured framework of tax codes, Estonia has been repeatedly ranked first in the International Tax Competitiveness Index and the Estonian tax policy is one of the most competitive in the world.
For tax purposes, virtual currencies are treated as. The standard Corporate Income Tax rate is 20% but all undistributed corporate profits are tax-exempt. When it comes to paying VAT, the exchange of cryptocurrencies isn’t subject to VAT.
Switzerland is one of those non-EU countries that are almost formidable in the development of a stable and prestigious crypto regulatory framework that attracts the biggest players in the industry. Its famous Crypto Valley was home to 14 blockchain unicorns – companies with a valuation of over 1 bill USD (approx. 912 mill. CHF or 949 mill. EUR) – right at the start of 2022. Although the past year has been challenging for crypto businesses, the application of blockchain-based solutions has been spreading across various Swiss industries.
For instance, blockchain-based smart contracts are being increasingly adopted by fintech and insurtech sectors, and such crypto-related services as exchange, custodian wallets and asset management continue to be developed and offered in Switzerland. Basically, if you’re looking for the most prosperous, prestigious and friendliest jurisdiction to implement your crypto project, this might be it.
But before you begin to take any concrete steps, take the time to learn about the crypto regulatory framework, particularly the types of Swiss crypto licence which were introduced in 2021 and are granted by the Swiss Financial Market Supervisory Authority (FINMA) which is also responsible for the safety and integrity of the Swiss crypto industry.
FINMA has distinguished and recognised the following types of virtual currency:
- Payment tokens are a means of digital payment that can be used for the transfer of monetary value (e. g. Ether or Bitcoin)
- Asset-backed tokens are backed by tangible assets and are often issued during the security token offering (STO) stage to raise funds (they’re further divided into debt tokens, equity tokens and participation tokens)
- Utility tokens provide access to a digital system or service, they’re usually available on a specific DLT platform and might be classified as securities
In Switzerland, the following licences are available:
- Fintech licence (or financial intermediary licence) – the most popular licence which authorises crypto companies to accept public deposits of up to 100 mill. CHF (approx. 96 mill. EUR) or store and trade crypto assets
- Banking licence – allows collecting and storing an unlimited number of deposits from natural or legal persons
- Investment funds licence which allows fund managers to administer a collective fund’s assets on behalf of clients
- DLT trading facility licence which enables multilateral trading of DLT securities
If your crypto-related economic activities don’t fall within any of the regulated categories of cryptoassets and therefore aren’t eligible for any of the above licences, you may be required to register your crypto business as a Self-Regulated Organisation (SRO) that will also have to meet certain requirements.
The main piece of legislation elaborating the rules for Swiss crypto businesses is the Federal Act on the Adaptation of Federal Law to Developments in Distributed Ledger Technology (the DLT Act). It’s where you’ll find detailed descriptions of the financial market infrastructure for trading cryptocurrencies, anti-money laundering procedures, bankruptcy procedures, liability for any damage made to the investors, and, of course, licensing. These focus areas support the ultimate aim of the DLT Act which is to safeguard the integrity and stability of the prestigious Swiss financial market.
While Swiss crypto regulations are getting tighter, Switzerland still remains one of the most welcoming countries for crypto entrepreneurs and blockchain innovators. The national authorities have already adopted blockchain-based solutions to issue digital sovereign identities and vote at the regional level. Moreover, in the Canton of Zug, taxpayers can pay their taxes in virtual currencies. One of the most notable initiatives is the Zug-based Crypto Valley Association which strives to accelerate innovation by facilitating collaboration between entrepreneurs and national authorities mainly through networking and educational events, working groups, and the publication of relevant topics. Such organisations as the Swiss Crypto Investor Association and the Bitcoin Association also create significant impact by bringing the most-forward looking minds together.
When it comes to paying taxes in Switzerland, there are national rules and regional rules that vary depending on the canton. The Swiss tax administration system is multilayered, meaning that taxes are administered by the Federal Tax Administration (FTA), the cantons, and the municipalities. While federal tax rates are stable, cantonal tax rates are reviewed annually and are published on every canton’s official website.
For Wealth Tax purposes, virtual currencies are usually considered foreign currencies, and their exchange value is determined by the Federal Tax Administration at the end of the year. Individuals aren’t subject to paying Personal Income Tax on capital gains in digital currencies, and purchases using virtual currency aren’t subject to VAT.
The Czech Republic has been lately going through rapid growth in cryptocurrency trading, although the country doesn’t currently have a comprehensive or at least maturing legal framework to regulate cryptocurrency businesses. This means that if you engage in crypto-related economic activities in the Czech Republic, your company will have to operate within the general regulatory framework. That said, certain EU rules will still apply since the Czech Republic is an EU member.
For instance, the Czech Republic’s Financial Analytics Office (FAU) supervises crypto companies to combat money laundering and terrorist financing as per the EU’s directives. For these purposes, a virtual currency is defined as a digitally stored unit that doesn’t fall under the category of fiat money but is still accepted as a means of payment by persons who aren’t the issuers of the unit.
The absence of a crypto-specific regulatory framework hasn’t stopped the adoption of crypto-related products and services. In the Czech Republic, you’ll find Bitcoin ATMs, invest in Initial Coin Offerings (ICOs), and trade cryptocurrencies for a living. The government of the Czech Republic has proposed to put all types of cryptocurrencies into one category regardless of the purpose or function of a cryptocurrency and keep detailed records of any type of cryptocurrency. However, at this stage cryptocurrencies aren’t recognised as legal tender by The Czech National Bank (CNB), the supervising authority of the Czech financial market.
To start engaging in crypto-related economic activities in the Czech Republic, you must apply for a regular trade licence, issued by the Trade Licensing Register. You can do so by submitting an electronic application that contains information about your crypto company and its founders to one of the general Trade Offices in the Czech language and paying a state application fee of 6,000 CZK (approx. 243 EUR) to complete your registration.
The following types of trade licences are available to crypto businesses:
- Classic which allows an exchange between cryptocurrencies for a commission
- Fiat which allows an exchange between cryptocurrencies and fiat money for a commission
- Traditional which authorises intermediation in the exchange of currencies of all types
- Specialised licence is issued for specific crypto-related products and services (crypto wallets, encrypted client keys, etc.)
Key requirements for crypto businesses:
- A registered physical office in the Czech Republic
- Hiring full-time staff, including director (not necessarily residents of the Czech Republic) and an AML Officer (it could be one person)
- Internal AML/CFT policies must be developed by the company
- Internal data protection procedures, ensuring compliance with GDPR, are a must
- A crypto company can’t operate without policies ensuring the safety of client funds
While striving to meet all the legal requirements, make sure to avail of the support offered by the following local initiatives:
- CzechInvest – a government-backed agency offering a seven-month incubator programme CzechStarter where startups can apply for funding, as well as participate in workshops and receive advice from experts
- The Blockchain Connect Association / Czech Alliance – an organisation promoting the development and use of blockchain technology across the country, as well as combating fraud and corruption in the financial industry
- The Institute of Cryptoanarchy – an organisation that aims to promote the development of decentralised economy, their main focus is unrestricted dissemination of information and widespread adoption of blockchain-based products and services
- CNB’s FinTech contact point – a streamlined communication channel with a dedicated contact form, launched to improve the functioning of the innovative financial market participants
In the Czech Republic, taxes are administered by the Tax Offices and all crypto companies are regular taxpayers regardless of the type of trade licence. Generally, standard tax rates apply (e.g., a 19% Corporate Income Tax and 24,8% Social Security Insurance). However, there are such exceptions as VAT exemption since the Court of Justice of the European Union (CJEU) has ruled out that cryptocurrencies are treated as fiat money for VAT purposes. This means that crypto exchange services are exempt from VAT.
If you’ve decided to apply for one of these cryptocurrency licences, or you’re not sure which European crypto licence suits your unique crypto project best, contact us now to schedule a personalised consultation where our experienced lawyers will share actionable insights to help you kick off your project. We’ll be pleased to provide you with tailored, value-added support in obtaining a crypto licence, including the preparation, translation, certification, and submission of required documents. From the very start of the process, you’ll be backed with expertise in the swiftly evolving European crypto legislation, crypto licensing, corporate reporting, and taxation.
At the moment, the main services of our company are legal and compliance solutions for FinTech projects. Our offices are located in Tallinn, Vilnius, Prague, and Warsaw. The legal team can assist with legal analysis, project structuring, and legal regulation.