Crypto License in Estonia
The National Financial Intelligence Unit (Rahapesu Andmebüroo or RAB) is the regulator responsible for the cryptocurrency licensing in Estonia. For transactions that have now been merged into a single licence of the virtual currency service provider.
The Law on Prevention of Money Laundering and Financing of Terrorism requires a licence called one cryptocurrency licence. This category includes two different services: to work as a virtual currency purse service provider and a virtual currency exchanger. Previously (until March 10, 2020) Two different licences in Estonia:
Cryptocurrency exchange services for fictitious money or vice versa, or cryptocurrency for another cryptocurrency.
Managing Crypto Wallets and Caste Services
Estonia crypto license
Cost of cryptocurrency license
PACKAGE «COMPANY & CRYPTO LICENSE IN ESTONIA»
- Company registration in Estonia
- Review of the business model and the structure of the Cryptocurrency Company
- Assistance in making company share capital contribution
- Bank account opening assistance for crypto-company
- Assistance in selecting and renting an office in Estonia
- Risk assessment, KYC/AML and procedural rules preparation
- State fee for the single cryptocurrency license
- Drawing up a business plan for two years
- Assistance in director employment/KYC/AML officer
- Preparation of legal company documents
- General counselling (5 hours)
|Legal Services for Crypto Projects
Virtual currency wallets are whether offline and online methods that rely on a public key crypto license to allow users to safely upload and get cryptocurrencies over the Internet.
It could be: cold (offline – for example, hardware wallet, paper wallet for cryptocurrency) and hot (online) storage. They differ in the fact that the first ones keep digital coins offline, not using internet connection. Hot wallets are for small-scale storage or for everyday use. Among the wallets for hot storage are regular and multi-currency wallets for cryptocurrencies.
The crypto license in Estonia allows providing cryptocurrency purse service whether cold and hot.
The crypto license in Estonia also allows cryptocurrency exchange for the FIAT and crypto for crypto.
An application for a crypto permit in Estonia may be submitted by someone from the company’s board. If there is an electronic resident card when visiting a notary in Tallinn, the application for a license should be submitted via the Internet. The fee for the application for the license is EUR 10,000. The fee must be paid by the Estonian Ministry of Finance. The Money Laundering Data Office (a separate unit within the Police and Border Police Department) decides whether to issue a licence within 60 working days of the application. The license for cryptocurrency is granted indefinitely.
To obtain a license you must provide the next info:
- Business contacts (telephone number, e-mail and postal address), resume.
- The place where the services are offered, including the website address.
- Name and details of the one who made the proposal.
- Name, personal code (or if impossible date of birth), place of birth and address of residence of the true beneficiary of the company.
- Rules of procedure and internal controls established in sections 29 and 30 of the Prevention of Money Laundering and Terrorist Financing Act and, in the case of persons with particular responsibilities listed in section 6 of the International Sanctions Act, procedural rules, procedure, Section 13 of Part 6 of the International Sanctions Act and monitoring of its implementation.
- Name, personal code (if not possible date of birth), place of birth, national address, position and data on the contact person referred to in article 29, paragraph 3 or paragraph 4, of the Law on Prevention of Money Laundering and Financing of Terrorism.
- Name, personal code (if not possible date of birth), place of birth, nationality, address of residence, position and details of the person who is applying the international financial sanctions imposed by the employer in accordance with article 13.9.
- If the entrepreneur, board member, trustee, actual beneficiary or owner is a foreign citizen, in the case of the businessman being an alien, a certificate from the register of penalties of the country of origin or an other similar document, decision of a judicial or administrative authority stating that there is no punishment for a crime against public authority; Money-laundering offences or other intentional offences committed within three months from the date of their publication; which have been approved by a notary or other equivalent and have been legalized or signed by a new legalization certificate (apostille), unless otherwise provided by the contract.
Crypto regulation in Estonia
|Period for consideration
|up to 6 months
|Annual fee for supervision
|State fee for application
|Local staff member
|Required share capital
|from 100,000 €
|Corporate income tax
Requirements for Estonian cryptocurrency companies in 2022
In October 2021, Matis Mäeker, head of the Money Laundering Bureau (RAB), proposed that the licensing system for cryptocurrency companies in Estonia should be reviewed.
According to proposals from Matis Mäeker, the equity of crypto-companies should be increased to 350,000 euros, and the company should have this money in the form of cash or low-risk securities. Also, the structure of the cryptocurrency company should consist of at least two people and the management of the company (shareholder, director) cannot hold the position of KYC/AML officer – this position must be separated from the direct management of the company to avoid a conflict of interest.
Other RAB recommendations include requiring companies operating in this sector to have safer IT systems and, for example, to use cash for investments rather than refinancing clients’ funds.
Mäeker estimates the turnover of Estonian cryptocurrency companies at more than 20 billion euros per year.
In fact, the FIU had already revoked 1,808 cryptocurrency licenses in 2020, but in September 2020, a risk assessment conducted by the agency showed that the changes made so far were not sufficient to reduce rapidly growing risks.
0% tax on undistributed company profits
No annual license fee
Availability of legislation for accounting declaration of crypto assets
Highest number of licenses issued
Changes in Estonian legislation from 15.03.2022 (new requirements for crypto companies)
The equity of the provider of virtual foreign exchange services
Virtual currency service providers are required to have the following authorized capital:
- A minimum of EUR 100,000 is required if the provider of virtual currency services provides a virtual currency exchange service (a service through which people can exchange virtual currencies for money and virtual currencies for money).
- Providing a virtual currency transfer service (a service whereby you can transfer a virtual currency to a virtual currency wallet or recipient account at least partially electronically on behalf of the initiator) requires a minimum of EUR 250,000 from the virtual currency service provider.
In order to establish a virtual provider of foreign exchange services, the authorized capital of the company must be paid in money.
Preconditions for customer identification and verification
In order to identify and verify identities, service providers should utilize technology that provides true identification and prevents the alteration or misuse of transmitted data.
A natural person who is referred to in paragraphs 1 and 2 of Article 31 of the Law on the Prevention of Money Laundering and Financing of Terrorism, or the legal representative of a legal entity, shall use the document Digital Identification, or another form of electronic identification approved by the Law on Identity Cards, to identify and verify their identity.; in accordance with Article 9 of Regulation (EC) No 910/2014 of the European Parliament and the Council on Trust Services Required for Electronic Identification and Electronic Transactions, repealing Directive 1999/93/EC (OJ L 257, 28.08.2014, pp. 73-114), is included in the list published in the Official Journal of the European Union), furthermore, an information technology tool with a working camera, microphone, and adequate hardware and software for digital identification and Internet connectivity.
The service provider can compare biometric data to identify and verify identity using an information technology tool.
Virtual Currency Service Providers of the exchange and transfer transactions are required to verify each customer’s identity and collect at least the following information regarding the person who committed the exchange and transfer transaction, in accordance with Articles 21 and 22 of this Law.
For a natural person, the name and gender of the person, the unique transaction identifier, the identification number of the payment account or virtual money purse, the identification number of the name and identity card, and the place of birth, date, and address where the person resides;
Virtual currency providers collect unique identification data about the recipient of virtual currency or transfers when facilitating transactions for exchange and transfer of virtual currency. If the payment account data or virtual currency wallet identifier is used for the transaction, the virtual currency provider will also collect the data of the payment account identifier and virtual currency purse identifier.
Plan of Action for Virtual Currency Providers
At least two years of business plans are presented by the virtual currency provider.
A virtual currency provider’s funds must be owned
Virtual Currency Providers must maintain funds that are equal to one of the following at all times:
- Amount of authorized capital
- According to the calculation method, own funds are calculated as follows:
As a minimum, the virtual currency provider’s own funds should be equal to the sum of the following parts of the volume if the provider provides the service specified in paragraphs 101 and 102 of part 3 of this Law:
- A total of 4% of the transactions in the provision of services that exceed or equal 5 million euros;
- More than 5 million euros in transactions in the service sector, but not more than 10 million euros;
- Over 10 million euros in operations carried out in the provision of services, but not exceeding 100 million euros;
- More than 100 million euros in transactions for the provision of the service but not exceeding 250 million euros; 0.5% of that amount;
- This represents 0.25% of more than 250 million euros of transactions conducted within the service.
For Part 6 of this Article, the share of transactions defined as services shall be calculated as 1/12th of the total volume of transactions defined as services in Parts 100 and 101 of this Article. If a venture capital company has operated for less than 12 months in the previous year, the amount of remittances and foreign exchange transactions made during the previous year must be divided by the number of months in the prior year.
It is vital for a virtual foreign exchange provider to take steps to ensure that its own funds are calculated accurately at all times.
In accordance with this law and the legal acts issued on its basis, the Financial Intelligence Unit may establish a timeframe within which virtual foreign exchange service providers must comply with the requirements established by the Law.
Audits of cryptocurrencies providers
Virtual foreign exchange service providers are required to audit their annual reports. Licensing applications should specify auditor data.
IMPORTANT INFO AND REQUIREMENTS FOR LOCATION, LOCATION, BOARD MEMBERS, AND CONTACT PERSON
Applicants must have at least two years’ professional experience and higher education as board members of virtual currency service providers.
It is forbidden for a member of the board of a virtual foreign exchange service provider to serve on the board of more than two of these services.
The fee when applying for a license in cryptocurrency increased from 3,300 euros to 10,000 euros.
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FREQUENTLY ASKED QUESTIONS
Until recently, companies that handle financial operations related to crypto currencies in Estonia could apply for two types of crypto licenses:
- Crypto exchange license
- Crypto wallet license
However, following recent changes, the two license types were merged into one, officially known as the Virtual Currency Service Provider license. It allows crypto companies to offer cryptocurrency exchange services (exchanging one cryptocurrency for another, exchanging fiat currency to crypto and vice versa) and cryptocurrency wallet services (enabling users to send and receive cryptocurrencies as means of payment and trade).
The first step of the process entails establishing a company in Estonia. Once this process is complete, the applicant needs to provide the following information:
- Company information: phone, e-mail, website address
- Information of individuals who will be responsible for managing and providing crypto-related services
- Information on shareholders and the legal representative of the company: names, dates and places of birth, contact information
- Internal strategy for the implementation of regulations when dealing with cryptocurrencies and information about the individual who will hold responsibility for compliance with the regulatory network
- Reports proving the non-criminal background of shareholders and board members
The entire application process may be completed either in person or completely remotely, with the help of a legal representative.
Is it necessary to contact the local tax authority in crypto activities on behalf of an Estonian company?
Yes. However, the tax system in Estonia has two major benefits:
- Undistributed profits are tax-free. That means that profits which are reinvested in the business are tax-exempt.
- The tax system is territorial, meaning that all foreign-sourced income is tax-free.
The Virtual Currency Service Provider license permits license holders to provide the following services:
- Issue and host e-wallets
- Provide crypto exchange services for a fee
- Establish and run a crypto payment system
- Alternative payment system provision
- Wholesale purchase of precious metals and stones, and articles related to them
The average period of time required to complete the application and receive a conclusive decision from the regulator is around 13 weeks. It can be prolonged in case if documents are missing in the application or if the regulator requests a physical meeting with the applicant.
Yes. However, in order to complete a preceding step of establishing a company in Estonia, the founder must register an Estonian address as an official office location.
The minimum amount of board members for a crypto company in Estonia is 1. There must be at least one Estonian resident on the board, and the board must be located in Estonia. However, there are no statutory requirements stating that all members of a crypto company in Estonia must be Estonian residents – as long as there is more than one person on the board.
Yes. It’s a necessary preparatory step for obtaining a license.
To carry out operations with cryptocurrencies, Estonian crypto companies must present an authorized capital of 100,000 Euros. This amount must be deposited on the official bank account of the crypto company in question.
Crypto licenses in Estonia are issued for an indefinite amount of time.
No, this option is not possible at the moment.
Payment of the share capital is made using a fiat contribution (in cash or by bank transfer).
Once the total amount of 100,000 euros is deposited to the bank account of the crypto company in question, it will not be frozen. The applicant will be free to use this amount for financing various commercial activities of the company.
Full payment of the minimum authorized capital is a necessary preparatory step in the application process. It must be completed before submitting application documents.
There are a few good reasons for obtaining a cryptocurrency license in Estonia. Firstly, Estonia is one of the pioneers in blockchain technology. It was one of the first EU countries to jump onboard the crypto train and offer official crypto licenses. Furthermore, Estonia offers a simple licensing environment with one license for a broad spectrum of crypto-related services. It’s easy to apply on a remote basis and the licensing process itself takes a relatively short amount of time.
Yes. The physical office of a crypto company in Estonia can be visited by the regulator at any time. The regulator may check the documentation to confirm the firm’s activities and request further reports or documentation in case doubts arise.
Directors of crypto companies in Estonia can only be individuals. The minimum number of directors is 1. In case there is more than one director, half of the directors must be residents of EEA (European Economic Area) countries. In case more than half of the directors reside outside Estonia, the company must provide the Commercial Register with a contact in Estonia where necessary documents can be sent. All foreign directors will be requested to provide their residential addresses and email addresses.
Measures are instated in the Money Laundering and Terrorist Financing Prevention Act. It was first introduced in 2017 and amended in 2020 – this amendment was designed to also cover virtual asset service providers. In 2022, the Government of Estonia approved a new package of changes affecting Estonian cryptocurrency companies. Officially, they are treated similarly to other financial institutions in Estonia. Here are the main AML requirements that crypto companies in Estonia face today:
- Revising internal anti-money laundering procedures
- Appointing a compliance officer
- Conducting a ‘fit and proper test’ (this is a responsibility of the managers)
- Establishing an office based in Estonia
- Setting up a payment account with an institution registered in Estonia or the EU
Crypto companies in Estonia are witnessing a time of change. Regulations are becoming tighter and, in practice, it has resulted to a great number of revoked licenses for providers who no longer match the new requirements. To successfully establish and run a crypto company in Estonia, one must carefully follow all the requirements and upcoming changes, showing a flexible attitude and ability to adapt to regulatory changes as they come.
According to local regulation, crypto companies in Estonia, are not required to have a bank account in traditional banking institutions. Alternatively, crypto companies can collaborate with European Fintech companies that provide accounts with an IBAN. Having an IBAN is necessary for establishing a crypto company in Estonia.
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