Crypto License in Slovakia

CRYPTO LEGISLATION IN SLOVAKIA

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

Therefore, the NBS and other national authorities refer to EU and national legislation with a view to deciding whether each individual commercial case may fall within the definition of electronic money, financial instruments or other regulated units. However, activities falling under the heading of cryptography do not come under the heading of the existing types of authorizations granted by the NBS—for example, license to trade in foreign currency or permit to issue electronic money.

NBS also refers to a report issued by the European Banking Authority—one that discusses crypto assets against the background of EU legislation. The EU does not have full-fledged regulation of crypto business so far, but the authorities believe that in some respects, existing legislation of financial markets is already applied. If crypto assets fall within the definition of electronic money, for instance, the Second Payment Services Directive should be considered.

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

According to ESMA, to the extent that crypto assets were financial instruments, the following EU law applied to crypto-asset issuers and service providers:

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

On the other hand, crypto-assets are deemed not to be treated as a financial instrument or security under Act 566/2001 on securities and investment services under Slovak legislation. If you have any questions about how EU and national legislation interacts, please do not hesitate to contact our lawyers for individual consultations.

Although many aspects of regulation have yet to be clarified, you can already be sure that the EU AML/CFT legislation on crypto 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 developed a clear legal definition of crypto assets, besides establishing a regulatory framework for companies performing cryptography-related economic activities.

Besides all the above, the EU authorities have recently agreed on new anti-money laundering rules concerning crypto operations that are supposed to bring more transparency but not hamper innovation. As per the new rules, the identity of the customer has to be checked, whatever the size of the transaction may be, for any transaction between two regulated digital wallet providers. On the other hand, the unoccupied private purses will remain out of the scope.

In the light of AML/CFT rules, crypto companies are obligated to adhere to the following principles:

• Determine the nature and complexity of crypto operations and types of clients regarding the relevant rules. Also, develop and implement policies and procedures to manage risks concerning money-laundering and the financing of terrorism.
• Ensure that staff are appropriately trained and can negotiate legislation pertaining 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 customers and circumstances, high risk.
• Design and implement CDD and KYC policies that assure customer identification throughout the business relationship.
• Provide internal processes for the identification of political players.
• Ongoing monitoring of operations in accordance with principles of risk assessment.
• Reporting suspicious transactions and customers to the competent authorities for the purpose of 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 the rules of AML/CFT is the guarantee of stability for the crypto business. There have been cases when bank accounts of Slovak crypto companies were closed because of non-conformity with the legislation on combating money laundering and financing of terrorism. One should not forget that the local police have access to information about cryptocurrency firms and can take very strict measures.

Crypto regulation in Slovakia overview

TYPES OF CRYPTO LICENSES IN SLOVAKIA

All entrepreneurs who plan to provide either cryptocurrency services—involving cryptocurrencies and fiat money—or crypto wallet services either in or from within Slovakia shall, before starting such a business in Slovakia, register with the Trade Licensing Bureau as crypto-related economic activities are deemed a regulated trade, under Law No. 279/2020 Coll. amending Law No.

Depending on the type of crypto activity, the Trade Licensing Authority grants the following licenses:

• A license for Crypto Exchange Services for firms that provide services in the trading of cryptocurrency against other cryptocurrencies, fiat money, and other kinds of assets, including related equipment such as crypto ATMs;
• A license for Wallet Services for firms that offer the safekeeping and/or administration of cryptographic secrets or private crypto keys on behalf of their clients, or the safekeeping and/or administration and the transfer of crypto assets.

Since the crypto transactions in question are classified as regulated transactions, besides general conditions—when carrying out such a regulated transaction, one has to be at least 18 years old, and there has to be proof of legal capacity, not having a criminal record—the crypto-entrepreneur would also have to fulfill educational and other requirements according to financial market participants. Examples include the introduction of internal AML/CFT policy and data protection models. Professional competence for regulated industries will be set in line with rules set under Schedule 2 of the Trade Licensing Act.

EU/EEA nationals or foreign entrepreneurs residing within the EU/EEA who do not meet the condition of professional competence required for participation in regulated trade, such as activities of cryptocurrency development; the Trade Licensing Act and other relevant Slovak legislation give the right to demand from the Ministry of Interior of the Slovak Republic to recognize his/her knowledge and competencies, evidenced by certificates of competence, diplomas, and/or other documents, certified by extradition in another member state according to the relevant Slovak legislation. The recognition of a non-Slovak qualification can be done within as long as three months.

CRYPTO LICENSING PROCESS IN SLOVAKIA

The entire process of licensing usually takes four to six weeks, and the Trade Licensing Authority issues a license within three working days provided necessary information and documentation are correct. Any modification to the structure or activities of the Licensee should be given to that authority’s notice. Documents reflecting this change should be filed with the proper authorities within 15 days from the date of its introduction.

Key steps for obtaining a regulated trade license for your crypto activities in Slovakia include the following:

1. Establish a company with a legal address in Slovakia.
2. Notify the Trade Licensing Office about an intention to start a crypto business in Slovakia either at the office of the region where your permanent stay is recorded or, if you are not a permanent resident, in a region where the business is registered.
3. State fees: pay through the e-tax stamp, in cash, or by bank transfer—5 EUR in case of unregulated trades and 15 EUR in case of regulated ones.
4. Application, in the Slovak language, is to be submitted either in one of the local offices of the Trade Licensing Office having a place in the locality of your residence or online through the Central Public Administration Portal.

Documents to be attached:

• Application form
• Articles of Association and other corporate documents
• Document confirming premises obtained for the registered office in Slovakia—a virtual office can be used; it shall be either a lease agreement with the explicit statement of business purpose or written consent of the owner of the property, signed by a notary.
• Document confirming permanent residence of company founders and directors
• Proof of relevant professional competence enabling founders and senior management to conduct crypto activity
• Certificates from the General Prosecutor’s Office or by the competent authorities of the home country, proving that founders and senior management haven’t been sentenced for committing an economic crime or another crime in relation 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

For the purpose of obtaining a crypto license in Slovakia, it shall be necessary to incorporate a local company, which will be governed by the Commercial Code. There was no citizenship requirement and foreigners stood under the same regulations and had the same benefits as Slovak citizens.

Private limited companies are one of the most common types of legal entity which can be incorporated easily within 3 to 4 weeks’ time if all the required documents are prepared quite in advance.

Requirements to a private joint-stock company:

DOCUMENTS REQUIRED TO ESTABLISH A PRIVATE LIMITED LIABILITY COMPANY IN SLOVAKIA

The following documents are required in order to establish a private limited liability company in Slovakia:

• Copies of identity cards (passports) of founders, directors, and beneficiaries
• Confirmation of permanent residence of the founders and directors—either utility bills or a document issued by the competent authorities
• Articles of association
• Either a registration act (in the case of a single founder) or a memorandum of association (in the case of multiple founders)
• Detailed business plan, including structure and operation principles, and financial information
• Certificate of criminal record issued by the relevant authorities
• Diploma of secondary education and document confirming the availability of other qualifications needed for conducting the crypto business
• Apostille power of attorney (in case the company is registered by another person)

MAIN STEPS TO SET UP A PRIVATE LIMITED LIABILITY COMPANY

The main steps to be taken for setting up a private limited liability company are:

1. Check availability and reservation of the name of the chosen company in the Trade Register.
2. Apply for a crypto license at the Trade Licensing Office.
3. Filing of all documents with the commercial register.
4. Tax registration.
5. Notification to the health insurance of your choice and the Social Insurance Agency within eight days after the commencement of the crypto business.

Upon successful registration in the Trade Register, an electronic mailbox will be automatically created at the Central Government portal – www.slovensko.sk. The directors of a company will be obliged to communicate in electronic form with the national authorities and also to send electronic messages and notices.

You can immediately start your crypto activities once the Trade Register issues the certificate of registration.

CRYPTO TAXATION IN SLOVAKIA

All Slovak companies involved in crypto-related economic activities have to be registered with the tax authorities that collect taxes in Slovakia. Like any other company, they are allowed to choose either a standard tax year that coincides with a calendar year or another 12-month period.

The following taxes are compulsory for Slovak crypto companies:

• 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 elaborated in a guide released by the Ministry of Finance (MoF) back in 2018. According to the authorities, income gained from cryptocurrencies is taxable, and any sort of transfer related to cryptocurrencies is considered a taxable transfer. For instance, the exchange of virtual currency for other virtual currency or for goods and services is regarded as a taxable transfer.

For taxation purposes, cryptocurrencies that are not fiat money are considered short-term financial assets, valued at the current market price at the time of the transaction.

The Ministry of Finance has also amended the Act on Tax Administration and the Act on Income Taxes, providing the definition of virtual currencies in the category of other revenues, alongside new regulations governing the taxation of income obtained from the sale of virtual currency.

Taxed as Income

The following activities have been taxed as income:

• Exchanging virtual currencies for other types of virtual currencies
• Exchanging virtual currencies for the provision of services
• Exchanging virtual currencies for assets
• Providing paper storage services

Under the amended Income Tax Act, some crypto transactions are excluded from the tax base, specifically income acquired from virtual currencies obtained through mining during the tax period of their use. It shall be included in the tax base of the tax period when virtual currencies are sold.

The Income Tax Act governs tax expenditure on virtual currencies, which may be utilized as a tax expense to calculate the total value of the entry price of the virtual currencies sold, up to the amount of revenues from their sales. The entrance price refers to the price at purchase, in case it was purchased, and the real value in cases of exchanging virtual currencies for other virtual currencies.

Among the many other advantages, there are numerous tax benefits for Slovak crypto companies. For instance, an R&D discount of 200% could be utilized to the extent that R&D project expenditures can be deducted from the tax base twice.

There are close to 70 international agreements for the avoidance of double taxation in Slovakia, which allow resident taxpayers to safeguard their income against double taxation in various countries.

ACCOUNTING AND AUDIT REQUIREMENTS OF CRYPTO COMPANIES

The Accounting Act defines which entities are obliged to audit their books of account.

Auditing is compulsory for entities that meet at least two of the following criteria:

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

In 2018, the Accounting Act was revised to create accounting regulations specifically for virtual currencies and companies involved in economic activities related to cryptography. Among the new obligations is the conversion of virtual currencies to euros on the accounting day.

Additionally, the Accounting Act has included a Licensing Act that provides regulations regarding the method of estimating what is referred to as the real value of virtual currencies. The real value of virtual currency means the market price on the day of valuation and must be determined by the accounting company through the selected public market of virtual currencies. Throughout the reporting period, the same method for determining the real value of the processed virtual currencies should be consistently used by the company.

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.