Crypto License in Cyprus

COST OF CRYPTOCURRENCY LICENSE

BENEFITS OF OBTAINING A CRYPTOCURRENCY license IN CYPRUS

The popularity of Cyprus amongst financial service providers can be attributed to a number of factors. First of all, the legislation and regulation in the country are in a clear and proven system, allowing service providers to choose from hundreds of licenses for various investment services. Further distinguishing features of these licenses are that they are divided into different levels, allowing for case-sensitive application requirements and faster application approval rates. A wide variety of financial instruments is also recognized and supported in Cyprus, including crypto derivatives. The island’s diverse business environment is further reflected in this. As a result, Cyprus’ taxation scheme is more attractive to corporate growth and development than most continental European countries. Regulatory bodies also keep foreign investors in good conditions when they open companies here, by providing them with extensive rights. As a final advantage, Cyprus does not impose any restrictions on cryptocurrency mining compared to other international jurisdictions.

The licensing system and financial services for cryptocurrencies in Cyprus

A Crypto Asset Service Provider (CASP) in Cyprus offers money exchange services between crypto currencies and fiat currencies. Trading operations involving crypto assets require authorization from a regulatory body in order to be carried out.

CASP applications are issued (or rejected) by the Securities and Exchange Commission (CySEC), which also controls authorized cryptographic asset providers in Cyprus. A SAP is defined by legislation as a person who provides the following services to another person without being bound by legal measures to prevent money laundering:

• Cryptocurrency trading against fiat (traditional) currencies
• Cryptographic asset exchange
• Obtaining, transferring, possessing, or storing cryptographic assets, cryptographic keys, or the means through which cryptographic assets can be obtained
• Cryptographic asset offers and sales, including initial offers
• Distributing, supplying and/or selling cryptographic assets (including the original proposal) and/or providing financial services.

As per the regulator, cryptographic assets are distributed, supplied and/or sold through financial services such as:

• Receiving and transferring instructions
• Client-side execution of orders
• Business owned and operated independently
• Management of cryptocurrency portfolios
• Advice on investments
• Placement and/or underwriting of crypto-assets based on liability types
• Cryptoassets can be placed without creating liabilities
• Manage a multilateral trading platform where crypto assets can be bought and sold.

As far as crypto assets are concerned, there are no clear regulations in Cyprus. It is still necessary to comply with legislative requirements when it comes to operations involving crypto assets. Law does not apply to territories beyond the jurisdiction, but the following operations are permitted:

• Investing in mining
• The functioning of ICOs
• Various digital currencies can be transferred and owned
• Fiat-to-crypto exchange operations
• Cryptographic services creation.

FORMAL REQUIREMENTS FOR OBTAINING A CRYPTOCURRENCY LICENSE

CySEC requires applicants to meet the following primary conditions before they can apply and be approved:

• Managing and owning a company in Cyprus. An executive director shall be one of at least two members of the Board of Directors. Having knowledge and expertise in this area is a prerequisite for all CySEC directors. A CySEC test is also required of them.
• To ensure the smooth operation and functioning of the company, appropriate internal controls must be established.
• Policy and procedure development in compliance with the Prevention and Suppression of Money Laundering and Terrorist Financing Directive.
• The company intends to have a functioning office in Cyprus and to hire full-time employees who can fulfill the company’s core functions.
• The management mechanisms should be transparent and clearly defined so that high-quality management can be achieved.

FORMAL REQUIREMENTS FOR OBTAINING A CRYPTOCURRENCY LICENSE

CySEC requires applicants to meet the following primary conditions before they can apply and be approved:

• Managing and owning a company in Cyprus. An executive director shall be one of at least two members of the Board of Directors. Having knowledge and expertise in this area is a prerequisite for all CySEC directors. A CySEC test is also required of them.
• To ensure the smooth operation and functioning of the company, appropriate internal controls must be established.
• Policy and procedure development in compliance with the Prevention and Suppression of Money Laundering and Terrorist Financing Directive.
• The company intends to have a functioning office in Cyprus and to hire full-time employees who can fulfill the company’s core functions.
• The management mechanisms should be transparent and clearly defined so that high-quality management can be achieved.

LICENSE-SPECIFIC CAPITAL REQUIREMENTS

There are three levels of authorization when it comes to the authorization process. Crypto asset services provided by the company are the basis for their definition. Consequently, capital requirements vary based on the authorization level.

Class 1

Investment advice is provided by CASP, which falls under this category. Initially, they must raise €50,000 in capital.

Class 2

As part of their class 1 license, CASPs are authorized to provide the following cryptographic asset services:

• Cryptographic asset exchange and/or fiat currency exchange
• Without a fixed liability, cryptographic assets can be placed
• Performing functions on behalf of clients, including receiving and executing orders from customers.
• Management of crypto portfolios
• Distributing, supplying, and/or selling cryptographic assets (including the original offer) or providing financial services related to such activities.

EUR 125,000 is the minimum capital requirement for companies receiving such a permit.

Class 3 license

Among the services provided by CASPs, which fall into this category, are those included in Class 1 and Class 2 licenses, and cryptographic asset services such as:

• A firm commitment to underwrite and/or place crypto assets
• Operations relating to cryptographic assets, cryptographic keys, or cryptographic asset controls, including administration, transfer of ownership, transfer of site, storage, and/or storage (including storage).
• Multiple third parties buying and selling interests in crypto assets as a result of a multilateral system.

The initial capital requirement for receiving such a permit is 150,000 euros.

Cryptographic services must be provided by companies that meet any of these three criteria.

FORMAL REQUIREMENTS FOR ESTABLISHING A FINANCIAL SERVICES COMPANY IN CYPRUS

Applicants for cryptocurrency licenses must be registered as financial service providers in order to offer crypto asset services. As a result, the following requirements must be met in order for the company to be established:

• The presence of a virtual office space is not enough to obtain a CASP license if you own or rent a physical office space
• Allocating capital through a bank account
• For senior positions, relevant financial sector experience is required) and a sufficient number of employees
• Implementing EU directives in internal instructions and policies
• Description of available capacities, services, software and disclosure of personal information that are clear, detailed, and accurate
• To comply with relevant KYC regulations, it is essential to acquire and implement accurate software, tools, and practices.

THE PROCESS OF ESTABLISHING A COMPANY IN CYPRUS

Establishing a company in Cyprus involves four main steps. All the documents required for application must be gathered in the first step. Reports and statements regarding a company’s registration and registered office space are included in those documents. Additionally, an Articles of Association (MAA) and statement of capital must be submitted with the application. Additionally, a formal company name must be selected and submitted by the applicant. The name of the company must be unique and different from those of other Cyprus companies registered with the company registrar. Lastly, the application must be submitted to the Registrar of Companies in Cyprus. The registrar’s decision is the final step. An approval or denial is usually delivered within five working days of submitting an application of this type.

Before applying for CASP authorization, here are some steps to ensure success

The applicant must meet the following criteria in order to submit a CASP application:

• Possess a Cyprus-registered company that is fully functional and compliant, as well as an office space there
• Ensure that beneficiaries and service providers are in compliance with the law – particularly regarding their reputation
• Identify the beneficiaries and policies of the company and prepare a report about them
• Ensure that all forms and questionnaires are included in the documents package
• Ensure their intended CASP license class meets the capital requirements
• Ensure KYC procedures are followed
• Determine the economic profile of buyers and assess various risks associated with them
• Determine how operations will be funded
• Detect and report suspicious transactions as soon as they occur, by continuously monitoring transactions
• In order to avoid potential conflicts of interest with clients, ensure that their internal policies and procedures are in place.

Based on the availability of the required documents, it is expected that the application and supporting documentation will take 1–2 months to prepare

Crypto regulation in Cyprus overview

APPOINTING INDIVIDUALS TO MANAGEMENT POSITIONS

In order for a CASP to be registered, at least one of the Executive Directors must live in Cyprus. The fit and proper test must also be passed by executive directors.

A background check is also required for shareholders so that it can be declared that they are clean criminally. Similar to the executive directors, the shareholders must pass a fit and proper test and complete a background check. Relevant experience in the business area is another requirement for individuals in management positions.

Forms and documentation needed for CASP authorization applications

An applicant must submit the following documents in order to submit an authorization application:

• Form for applying to CASP
• Documents pertaining to the company (incorporation certificate, director/secretary certificate, shareholders information, Memorandum & Articles, etc.).
• A manual of internal procedures, an anti-money laundering manual, and a guide to knowing your clients
• Providing evidence that the CASP owns sufficient funds (amount, sources, relevant contracts)
• Information about the financial situation (forecasts and financial statements if applicable)
• Information about organizational and operational aspects (initial three-year operations plan, organizational structure, internal procedures) demonstrating that the company is committed to the best interests of its customers and will minimize risks of loss or imprudence.
• Financial and accounting workflows and marketing strategy
• Customer onboarding workflow documentation for internal AML/KYC procedures
• Crypto asset wallet and public key addresses managed by the CASP
• Workflows and procedures for data management documentation

In the following six months, CySEC may approve or deny the application based on its submission date.

CYSEC APPLICATION FEES

Application for a Crypto Asset Services Provider (CASP) authorisation costs 10,000 euros, following an annual license renewal fee of 5,000 euros.

If the application is declined, the license fee will not be refunded.

COMPLIANCE REQUIREMENTS

Providers of crypto assets must keep following these duties and practices in order to maintain compliance, operate in accordance with regulatory requirements, and avoid losing their CASP licenses:

• Combating money laundering and terrorism financing by developing and implementing appropriate policies, procedures and controls
• Managing associated risks regularly and assessing them as needed
• Forming a customer profile and updating customer information by collecting personal and other data
• Accounting within an organization
• Providing regular reports to the Anti-Money Laundering Group (MOKAS) about business operations
• Assessing each suspicious transaction on the basis of its nature, especially when there are large transactions or transactions with no apparent economic or legal purpose
• Preventing money laundering and terrorism financing through internal controls
• Compliance managers are appointed
• Employees who handle cryptographic assets should receive continuous training

Transactions involving exchange, transfer, participation, and provision of services related to the offer or sale of assets are subject to the above compliance requirements.

PHYSICAL PRESENCE OF THE FOUNDER

There is no specific requirement for the founder of Cyprus-based CASP to be physically present in the country. It is formally required for at least half of the company personnel to be in Cyprus. This requirement involves Executive Directors.

REGISTERING STRUCTURAL / INTERNAL CHANGES

The following amendments can be requested by registered CASPs for a cost between 1,000 and 5,000 euros:

• Provider changes services or activities related to them
• Address update for the crypto wallet
• Any member of management or the board of directors’ details have been updated
• Beneficiaries’ new information
• Website updates from the provider

CRYPTOCURRENCY TAX RATES IN CYPRUS

As briefly noted above, in contrast to other countries in Europe, Cyprus has low corporate income tax rates. Crypto currencies are recognized by local authorities as a taxable asset, subjecting CASPs to standard corporate tax rates. Currently income from trading cryptocurrencies is taxed at a rate of 12.5%. Income received from cryptocurrency trading can be reduced by expenses that are incurred for the production of such income.

Regulated United Europe is a team of experts who will help you open a company and obtain a cryptocurrency license in Cyprus. We provide legal guidance and ensure strong preparation for business and licensing applications, working hand in hand with our clients to help them navigate the administrative side of their business with confidence.

Also, lawyers from Regulated United Europe provide legal support for crypto projects and help with adaptation to MICA regulations.

Crypto Licensing in Cyprus 2024: A Gateway to the European Market

Cyprus, known for its strategic geographic location and business-friendly regulatory environment, is becoming a go-to destination for cryptocurrency businesses looking to tap into the European market. This guide provides an in-depth look at obtaining a crypto exchange license in Cyprus, highlighting the necessary steps, costs, and benefits of establishing a regulated crypto operation.

Regulatory Framework for Crypto Exchanges in Cyprus

The Cyprus Securities and Exchange Commission (CySEC) is primarily responsible for the oversight of crypto-related activities within the jurisdiction. Cyprus aligns with European Union regulations but also provides a framework that encourages innovation while ensuring the security and transparency of cryptocurrency transactions.

Types of Crypto Licenses in Cyprus

Cyprus offers a range of licenses to accommodate various crypto business models:

• Crypto exchange license in Cyprus: Allows for the exchange of cryptocurrencies for fiat currencies or other cryptocurrencies.
• Crypto broker license in Cyprus: Enables entities to act as intermediaries in crypto transactions.
• Crypto trading license in Cyprus: Specifically for businesses engaged in trading digital assets.
• VASP crypto license in Cyprus: Aimed at providers offering a broader spectrum of virtual asset services.

Application Requirements for a Crypto License

Applicants must demonstrate compliance with AML/CFT regulations, have robust operational protocols, and maintain transparent financial records. The application process includes a thorough review of business plans and security measures to protect customer assets.

Cost of Crypto Licensing in Cyprus

The crypto exchange license in Cyprus cost is competitive within the European Union, making Cyprus an attractive jurisdiction for crypto startups and established businesses alike. Financial planning should account for both licensing fees and ongoing compliance costs.

Benefits of Securing a Crypto License in Cyprus

Securing a crypto license in Cyprus offers significant advantages, including access to the entire EU market under a regulated framework, enhanced business credibility, and the trust of customers and investors.

Investment Opportunities in the Cypriot Crypto Market

Cyprus’ favorable tax regime and strategic location offer unique investment opportunities. The potential for lower licensing costs makes it particularly attractive; indeed, the cheapest crypto license in Cyprus can provide a cost-effective entry point for new market entrants.

Purchasing an Existing License

For those looking for a faster entry into the market, acquiring an existing crypto exchange license in Cyprus for sale might be an attractive option. This approach can save time but requires thorough due diligence to ensure that the license meets all current regulatory standards and business needs.

Conclusion: As Cyprus continues to refine its cryptocurrency regulations, securing a crypto exchange license in Cyprus not only enables compliance with local and EU regulations but also positions businesses to capitalize on extensive market opportunities. With strategic planning and adherence to regulatory requirements, businesses can successfully navigate the thriving Cypriot crypto market.