Crypto License in Slovakia

CRYPTO LEGISLATION IN SLOVAKIA

As a rule, the law applied by the NBS does not define or regulate cryptographic assets and related economic activities unless they are covered by any other regulatory framework developed for the financial market.

The NBS and other national authorities refer to EU and national legislation to decide whether each individual commercial case may fall within the definition of electronic money, financial instruments or other regulated units. However, the existing types of authorizations granted by the NBS (for example, a license to trade in foreign currency or a permit to issue electronic money) do not include activities in the field of cryptography.

NBS also refers to a report issued by the European Banking Authority (EBA) discussing cryptographic assets against the backdrop of EU legislation. Although the EU has yet to develop a comprehensive regulatory framework for crypto enterprises, authorities argue that there are cases where existing legislation in financial markets is being applied. For example, if cryptographic assets fall within the definition of electronic money, the Second Payment Services Directive should be taken into account.

A report published in 2019 by the European Securities and Markets Authority (ESMA) identified features and functions of virtual assets and their possible classification.

According to ESMA, where cryptographic assets are considered financial instruments, the following EU law should apply to crypto-asset issuers and service providers:

• Directive 2014/65/EU (MiFID II)
• Prospectus regulation
• The Market Abuse Directive
• Short-sale regulation
• Central Securities Depository Regulation (CFIS)
• Final Settlement Directive

However, in Slovak legislation, pursuant to Act 566/2001 on securities and investment services, crypto-assets are not considered financial instruments or securities. If you need help in understanding the relationship between the EU and national legislation, our legal advisers will be happy to provide individual advice.

Although many aspects of regulation have yet to be clarified, you can already be sure that the EU AML/CFT legislation on cryptographic enterprises has been transposed into the national legislation of Slovakia. The last three EU directives adopted by the member country are the Fourth Anti-Money Laundering Directive (AMLD4), the Fifth Anti-Money Laundering Directive (AMLD5) and the Sixth Anti-Money Laundering Directive (AMLD6). They have established a clear legal definition of cryptographic assets, as well as a regulatory framework for companies engaged in cryptography-related economic activities.

In addition, EU authorities have recently agreed new anti-money laundering rules for crypto operations, which are expected to provide greater transparency without impeding innovation. According to the new rules, customer identities should be checked for any size of transactions between two regulated digital wallet providers. On the other hand, unoccupied private purses will remain outside the scope.

To comply with AML/CFT rules, cryptographic companies must adhere to the following principles:

• Determining the nature and complexity of cryptographic operations and types of clients in the context of relevant rules
• Development and implementation of policies and procedures to manage risks related to money-laundering and the financing of terrorism
• Ensure that personnel are adequately trained and able to navigate legislation relating to money-laundering, the financing of terrorism and the protection of data relating to the mitigation of financial crime, as well as the identification of clients and situations, high risk
• Development and implementation of CDD and KYC policies that ensure customer identification throughout the business relationship
• Implement internal procedures for the identification of political actors
• Ongoing monitoring of operations in accordance with risk assessment principles
• Report suspicious transactions and customers to the competent authorities in accordance with the national Law 297/2008 on the Prevention of the Legalization of the Proceeds of Crime and the Financing of Terrorism (Slovak AML Act)

Compliance with AML/CFT rules determines the stability of the crypto business. There have been cases where the bank accounts of Slovak cryptographic companies have been closed due to non-compliance with the legislation aimed at combating money laundering and the financing of terrorism. It is important to bear in mind that local law enforcement agencies have access to information about cryptocurrency companies and can implement stringent measures.

Crypto regulation in Slovakia overview

TYPES OF CRYPTO LICENCES IN SLOVAKIA

All companies planning to offer cryptocurrencies services (involving cryptocurrencies and fiat money) or crypto purse services in or from within Slovakia must register with the Trade Licensing Bureau before starting their business in Slovakia as crypto-Related economic activities are considered regulated trade. This requirement is based on Law No. 279/2020 Coll., which is an amendment to Law No.

Based on the type of crypto activity, the Trade Licensing Authority provides the following licenses:

• license for Crypto Exchange Services for Companies That Facilitate Cryptocurrency Trading for Other Cryptocurrencies, Fiat Money, and Other Assets, Including Equipment Such as Crypto ATMs
• license for Wallet Services for Companies That Provide Services to Protect Cryptassettes or Private Cryptographic Keys on Behalf of Their Customers, or Store and Transfer Cryptoassets

Since these crypto transactions fall under the category of regulated transactions, in addition to general requirements (at least 18 years, proven legal capacity and no criminal record), crypto-entrepreneurs must meet educational and other criteria, related to financial market participants (e.g. introduction of internal AML/CFT policy and data protection models). Professional competence in regulated industries is determined by the rules laid down in Schedule 2 of the Trade Licensing Act.

A EU/EEA national or a foreign entrepreneur based in the EU/EEA who does not meet the criteria of professional competence required for participation in regulated trade such as cryptocurrency development activities, The Trade Licensing Act and other relevant Slovak laws may request the Ministry of the Interior of the Slovak Republic to compare their knowledge and skills supported by diplomas; certificates or other certificates of competence; Extradited in another member country in accordance with the relevant Slovak regulations. The process of recognition of a non-Sovac qualification may take up to three months.

CRYPTO LICENSING PROCESS IN SLOVAKIA

The licensing process usually takes four to six weeks, and if all required information and documentation is provided correctly, the Trade Licensing Authority issues a license within three working days. Any changes made to the licensee’s structure or activities should be brought to the attention of that authority. Relevant documents reflecting this change should be submitted within 15 days of its introduction.

Key steps of obtaining a regulated trade license for your crypto activities in Slovakia:

Required documents:

• An application form
• Articles of Association and other corporate documents
• Proof of the premises obtained for the registered office in Slovakia (a virtual office is permitted)
  • It can be either a lease agreement stating the explicit business purpose or a written consent of the property owner signed by a notary
• Proof of permanent residence of company’s founders and directors
• Proof of relevant professional competence enabling the founders and senior management to carry out crypto activities
• Certificates issued by the General Prosecutor’s Office (or by the authorities of the home country) proving that the founders and senior management haven’t been sentenced for committing an economic crime or another crime related to the intended business activities (it must not be issued earlier than 90 days ago)

All the documents must be translated into Slovak language by a translator certified by the Ministry of Justice of the Slovak Republic. If you need such a service, we’ll be happy to arrange it for you.

HOW TO OPEN A CRYPTO COMPANY IN SLOVAKIA

If you wish to obtain a cryptographic license in Slovakia, you must first establish a local company governed by the Commercial Code. There was no citizenship requirement and foreigners were subject to the same rules and were entitled to the same benefits as Slovak citizens.

One of the most common types of legal structures is a private limited company, which can be established within 3-4 weeks provided that all necessary documentation is well prepared in advance.

Requirements to a private joint-stock company:

The following documents are required for the establishment of a private limited liability company in Slovakia:

• Copies of identity cards (passports) of founders, directors and beneficiaries
• Confirmation of permanent residence of founders and directors (either utility bills or a document issued by the competent authorities)
• Articles of association
• Either a registration act (for a single founder) or a memorandum of association (for several founders)
• Detailed business plan including operational structure and principles as well as financial details
• Certificate of criminal record issued by the competent authorities
• Secondary education diploma and proof of other qualifications required to run a crypto company
• Apostille power of attorney if the company is registered by a third party

The main steps to be taken to establish a private limited liability company are:

• Check availability and reserve the name of the selected company in the Trade Register
• Apply for a cryptographic license at the Trade Licensing Office
• Submission of all necessary documents to the trade register
• Tax registration
• Register with a health insurance company of your choice and the Social Insurance Agency within eight days of the start of the crypto business

When a company is successfully registered in the Trade Register, an electronic mailbox (www.slovensko.sk) is automatically created on the Central Government portal. Company directors are required to communicate electronically with the national authorities and are also required to send electronic messages and notices.

You can start your cryptographic activities as soon as the certificate of registration is issued by the Trade Register.

CRYPTO TAXATION IN SLOVAKIA

All Slovak companies engaged in crypto-related economic activities must register with the tax authorities that collect and collect taxes in Slovakia. Like any other company, they can either choose a standard tax year that coincides with a calendar year or choose another 12-month period.

Slovak crypto-companies are obliged to pay the following taxes:

• Corporate Income Tax (CIT) – 21
• Value Added Tax (VAT) – 20
• Withholding Tax (GSP) – 0%-35
• Social Security Contributions (SCP) – 25.2
• Health Insurance Contributions (CHF) – 10

The tax regime of cryptocurrencies was clarified in a manual published by the Ministry of Finance in 2018. According to the authorities, income received from cryptocurrencies is taxable, and any kind of exchange associated with cryptocurrencies (for example, exchange of virtual currency for other virtual currency or goods or services) is taxable transfer. For tax purposes, cryptocurrencies are treated as short-term financial assets other than fiat money, and they are valued at market value at the time of transaction.

To ensure consistent interpretation of the taxation of income derived from the sale of virtual currencies, the Ministry of Finance has also issued amendments to the Tax Administration Act and the Income Tax Act, where the definition of virtual currencies was included in the category of other income, as well as new rules governing the taxation of income derived from the sale of virtual currencies introduced currency.

In the context of taxation, virtual currency is defined as a digital store of value that is not issued or guaranteed by a central bank or public authority. It is not normally associated with a legal tender, is not considered a legal tender, but is accepted by natural or legal persons as a payment instrument that can be transferred, retained or sold.

The sale of virtual currencies is defined as the exchange of virtual currencies for assets or other virtual currencies, or for the provision of services or virtual currency conversion.

Income is taxed from the following activities:

• Exchange virtual currencies for other types of virtual currencies
• Exchange of virtual currencies for the provision of services
• Exchange of virtual currencies for assets
• Provision of paper storage services

Under the amended Income Tax Act, some cryptographic transactions are not included in the tax base, i.e. income received from virtual currencies acquired through mining during the tax period of its use. Instead, it should be included in the tax base of the tax period of the sale of virtual currencies.

The Income Tax Act also regulates tax expenditures on virtual currencies. As a tax expense, the costs can be used to calculate the total value of the virtual currencies’ entry price in the taxable period during which they are sold, up to the amount of revenue from their sales. The entrance price of a virtual currency is the purchase price (in case of purchase) and the real value (in case of exchange of virtual currencies for other virtual currencies).

It is worth noting that Slovak crypto companies also have access to various tax benefits. For example, they may use an R&D discount of 200 per cent if R&D project expenditures can be deducted from the tax base twice.

Slovakia has about 70 international agreements on the elimination of double taxation, which allow resident taxpayers to protect their income from double taxation in different countries.

ACCOUNTING AND AUDIT REQUIREMENTS FOR CRYPTO COMPANIES

The Accounting Act specifies which companies are required to audit their financial statements.

Auditing is mandatory for companies that satisfy at least two of the following criteria:

• Total assets in excess of EUR 1 million
• Net turnover more than 2 million. Euro
• Average number of staff exceeds 30

In 2018, the Accounting Act was amended to establish accounting rules for virtual currencies and companies engaged in cryptography-related economic activities. One obligation is the conversion of virtual currencies into euros on accounting day.

The Accounting Act also regulates the method of estimating the so-called real value of virtual currencies. The real value of the virtual currency is the market price on the valuation day. It is determined by the accounting company using the selected public market of virtual currencies. During the reporting period, the company should use the same method of determining the real value of processed virtual currencies.

If you want to get a cryptography license in Slovakia, our team of experienced and dedicated lawyers will be happy to assist you in this process. We are well prepared to offer company creation and crypto licensing services as well as to consult you on taxation matters. In addition, if you need accounting services or virtual office, we will be happy to help. Contact us now to book a personalized consultation.