Crypto Licence in Cyprus
Cyprus crypto licence
BENEFITS OF OBTAINING A CRYPTOCURRENCY LICENCE IN CYPRUS
There are multiple reasons why Cyprus is so popular amongst financial service providers. Firstly, in terms of legislation and regulation, it has a clear and proven network, allowing service providers to choose from hundreds of licenses for various investment services. In further distinction, many popular licenses are split into different levels, allowing for case-sensitive application requirements and higher application success rates. Cyprus also recognizes and supports a wide range of financial instruments – including crypto derivatives. This further contributes to a very diverse business environment in the island. Finally, the taxation scheme in Cyprus bears lower tax rates than most countries in continental Europe, allowing better conditions for sustainable corporate growth and development. Regulatory bodies also work to offer good conditions to foreign investors, who have extensive rights when opening companies here. And as a final significant advantage, compared to other international jurisdictions, Cyprus poses no restrictions on cryptocurrency mining activities.
Cryptocurrency licence in Cyprus: regulatory system and licensed financial services
In Cyprus, companies that offer money exchanges between crypto currencies or between crypto and fiat currencies are categorized as Crypto Asset Service Providers (CASPs). In order to carry out trading operations that involve crypto assets, companies need to obtain an authorization from a regulatory body.
The Securities and Exchange Commission (CySEC) is the regulatory body that handles licensing procedures, issues (or rejects) CASP applications and controls authorized cryptographic asset providers in Cyprus. For the purposes of legislation, SAPs are defined as persons who provide the following services to another person or on behalf of another person who is not bound by legal measures to prevent money-laundering:
- Exchange between cryptographic assets and fiat (traditional) currencies
- Exchange between cryptographic assets
- Control, transfer, possession and/or storage of cryptographic assets, cryptographic keys or the means by which cryptographic assets are controlled
- Offer and/or sale of cryptographic assets, including initial offers
- Participation and/or provision of financial services with respect to the distribution, supply and/or sale of cryptographic assets (including the original proposal).
According to the regulator, financial services related to the distribution, supply and/or sale of cryptographic assets include:
- Instructions for reception and transfer
- Execution of orders on behalf of clients
- Independent business
- Crypto portfolio management
- Investment advice
- Underwriting and/or placing crypto-assets based on the form of liability
- Placing crypto-assets without creating liabilities
- Managing a multilateral trading center to buy and sell crypto assets.
In Cyprus, there is no clear regulation for working with crypto assets. Even so, any operations related to crypto assets must be carried out in accordance with legislatory force. Territories beyond the jurisdiction are not regulated by law, but the following operations are allowed:
- Functioning of ICO projects
- Transfer and possession of various digital currencies
- Exchange operations between fiat currencies and crypto assets
- Creation of crypto services.
FORMAL REQUIREMENTS FOR OBTAINING A CRYPTOCURRENCY LICENCE
In order to apply and be successfully approved by CySEC, applicants must first ensure that they meet the list of primary conditions:
- Ownership and management of a company in Cyprus. It shall have at least four members on the Board of Directors, of whom at least two shall be officially appointed Executive Directors. All CySEC directors must have CySEC approval for their knowledge and experience in this area. They are also required to undergo CySEC testing.
- Establishment of appropriate internal controls necessary for the smooth operation and functioning of the company.
- Development of appropriate policies and procedures consistent with the Act and the Directive on the Prevention and Suppression of Money Laundering and the Financing of Terrorism.
- To have a fully functioning office, which is located in Cyprus, and to hire full-time employees who are sufficient and fully capable of satisfying the key functions of the company.
- Ensure high-quality management mechanisms using transparent and clearly defined criteria.
LICENCE-SPECIFIC CAPITAL REQUIREMENTS
When it comes to the authorization process, there are 3 different levels of authorization. The basis for their definition is the scope of crypto asset services provided by the company. Accordingly, all three levels of authorization are subject to varying capital requirements.
This category includes CASP, which provides investment advice. They are subject to an initial capital requirement of €50,000.
Class 2 licence
The CASP, which fall into this category, is authorized to provide services included in a class 1 license, plus the following range of cryptographic asset services:
- Exchange between cryptographic assets and/or exchange between cryptographic and fiat currencies
- Placing cryptographic assets without a fixed liability
- Receiving and executing customer orders (including performing on behalf of clients)
- Crypto portfolio management
- Participation or provision of financial services related to the distribution, supply and/or sale of cryptographic assets (including the original offer)
Companies receiving such a permit must have an initial capital of EUR 125,000.
Class 3 licence
The CASP, which fall into this category, is authorized to provide services included in Class 1 and Class 2 licenses, plus the following range of cryptographic asset services:
- Underwriting and/or placing crypto assets with a firm commitment
- Administration, transfer of ownership, transfer of site, storage and/or storage (including storage) of operations related to cryptographic assets, cryptographic keys or cryptographic asset controls
- Functioning of a multilateral system that brings together multiple third parties to buy and sell interests in crypto assets in a way that leads to a transaction.
Companies receiving such a permit must have an initial capital of 150,000 euros.
Companies that want to provide cryptographic services to assets that fall under any of these three categories must apply for CySEC permission.
FORMAL REQUIREMENTS FOR ESTABLISHING A FINANCIAL SERVICES COMPANY IN CYPRUS
In order to apply for a cryptocurrency licence, individuals who intend to offer crypto asset services must be registered as financial service providers. That entails establishing a company which fulfills the following requirements:
- Renting/owning and operating in a physical office space having a virtual one is not enough to obtain a CASP licence
- Owning an account in a local bank for allocating capital
- Hiring company management (relevant experience in the financial sector is mandatory for senior positions) and a sufficient number of staff
- Setting up internal instructions and policies in accordance with relevant EU directives
- Creating a clear, detailed and accurate description of available capacities, services, software for operation and prevention of money laundering, and disclosure of personal data
- Obtaining and setting up accurate software / tools / practices for functioning in full accordance with relevant KYC regulations.
THE PROCESS OF ESTABLISHING A COMPANY IN CYPRUS
There are four main steps that individuals must complete in order to establish a company in Cyprus. The first step entails gathering all the documents necessary for application. Those include reports and statements regarding the type of company and its registered office space. The application must also include a statement of capital and a Memorandum and Articles of Association (MAA). Secondly, the applicant must settle on and submit the formal title of the company. It must be unique and different from the names of other companies registered with the company registrar of Cyprus. Thirdly, the applicant must submit the application to the Registrar of Companies in Cyprus. The final step includes the decision of the registrar. This type of application usually takes around 5 working days to process, resulting either in an approval or a denial.
Setting up for success: steps to complete before before applying for CASP authorization
In order to apply for CASP application, the applicant must fulfill the following criteria:
- Own a fully functional and compliant company that is registered in Cyprus and has a physical office space that is located in the country
- Evaluate and ensure the compliance of the beneficiaries and the management of the service provider with the requirements of the law – in particular on their reputation
- Prepare a report on the company, its beneficiaries and local policies
- Compile a documents package which includes all the necessary forms and questionnaires
- Fulfill the capital requirements for their intended CASP licence class
- Comply with the requirements of KYC procedures
- Form the economic profile of buyers and assess various risks regarding their customers
- Determine the source of funds for the implementation of operations
- Conduct a constant monitoring of transactions, detecting and reporting any suspicious transactions that may occur
- Ensure that their internal procedures and policies are set to avoid any potential conflict of interest with clients.
The expected time frame for the preparation of the application and supporting documents is around 1-2 months, depending on the availability of the required documents
APPOINTING INDIVIDUALS TO MANAGEMENT POSITIONS
At least one Executive Director of a CASP must be a registered resident of Cyprus and reside in the country. Executive directors must also pass the fit and proper test.
Similarly to the executive directors, the shareholders must pass a fit and proper test and complete a background check whereby they will be declared as having a clean criminal record. Another strict prerequisite for individuals in management positions is relevant experience in the business area.
Documentation and forms necessary for CASP authorization application
To successfully submit an application for authorization, applicants are obliged to submit the following documents:
- CASP application form
- All corporate documents of the company (incorporation certificate, certificate of directors/secretary, shareholders, address, Memorandum & Articles, etc)
- An internal procedures manual, anti money laundering manual and know your client procedures
- Information about the capital (amount, sources, relevant contracts) proving that the CASP owns funds required by law
- Financial details (forecast information and financial statements where applicable)
- Organizational and operational information (initial three-year operations plan, organizational structure and internal procedures) proving that the company will act in the best interests of its customers and will act to minimize risks of loss or imprudent operations
- Business plan, including marketing strategy and financial/accounting workflows
- Documentation of internal AML/KYC procedures, including customer onboarding workflows
- Addresses of all crypto asset wallets and public keys managed by the CASP
- Documentation of data management workflows and procedures
Following the submission date, CySEC may take up to 6 months to either approve or deny the application.
CYSEC APPLICATION FEES
Application for a Crypto Asset Services Provider (CASP) authorisation costs 10.000 euros, following an annual licence renewal fee of 5,000 euros.
If the application is declined, the licence fee will not be refunded.
To remain compliant, operate in accordance with regulatory requirements and avoid the risk of losing the CASP license, crypto asset providers must remain consistent in fulfilling the following duties and practices:
- Development and implementation of appropriate policies, procedures and controls to combat money-laundering and the financing of terrorism
- Regular assessment and mitigation of associated risks
- Customer identification by requesting personal and other data to form a customer profile and to update customer information
- Internal accounting
- Preparation and submission of regular reports on business operations to the Anti-Money Laundering Group (MOKAS)
- Assessment of each suspicious transaction based on its nature, especially in cases of large transactions and transactions that are different from ordinary transactions and do not appear to have a clear economic or legal purpose
- Internal controls to prevent money-laundering and the financing of terrorism
- Appointment of compliance managers
- Continuous training of employees who work with cryptographic assets
The above-mentioned compliance requirements apply to transactions involving the exchange, transfer, participation and provision of financial services related to the offer of the issuer and/or the sale of assets.
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
Registered CASPs are allowed to request the following amendments that may cost between 1,000 and 5,000 euros:
- Changes in the services or related activity of the provider
- Update of the crypto wallet address
- Updated details of a board member or any member of management
- New details about beneficiaries
- Updates of the provider’s website
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 licence 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.
COST OF CRYPTOCURRENCY LICENSE
PACKAGE «COMPANY & CRYPTO LICENSE IN CYPRUS»
- Consultation on the registration and authorization of the CASP
- Consultation on the organizational structure Consultation on the appropriate business model
- Consultation and review of counterparty contracts
- Guidance on the internal process flow manual assuming client provides an assigned individual
- Preparation of the ‘Promoter’s Application File’
- Preparation of a customized Internal Operations Manual
- Preparation of customized Risk Management and Internal Procedures Manual and Compliance Manual
- Review and assisting in preparation of the Business Plan
- Preparation of the application forms
- Assisting and advice in preparation of the Financial Forecasts
- Testing of the Company’s front-back end in terms of compliance
- Review of the shareholders’ and directors’ questionnaires
- Shareholder suitability papers
- Capital statement preparation for the shareholder (signed by the client and assigned auditors)
- Assistance in providing all the necessary documentation and certificates
- Post Application submission follow up and response to communication with the CySEC
- Assistance in personnel appointments and reviewing their credentials
- Advise on fees payable to the CySEC
- Support on inquiries concerning the application process
- Incorporation services
- Incorporation of a Cyprus based company
- Registered office of Company secretary
At the moment, the main services of our company are legal and compliance solutions for FinTech projects. Our offices are located in Tallinn, Vilnius, and Warsaw. The legal team can assist with legal analysis, project structuring, and legal regulation.