Crypto regulation in Lithuania

Crypto regulation in LithuaniaSince 2020, Lithuania has been included in the TOP of the most friendly countries for cryptocurrency companies. The country has created the necessary legal environment for crypto business. Such activities are strictly regulated and controlled to avoid the slightest signs of money laundering and terrorist financing. But getting permission and getting involved into cryptocurrency exchange or cryptocurrency wallet maintenance services is quite possible. If you are ready to conduct business transparently, but without losing the benefits, welcome to Lithuania!

Regulation of cryptocurrency activities in Lithuania

Thanks to a number of steps taken by the Government, Lithuania has become a European center for fintech business. In particular, the capital of this state, the city of Vilnius, hosts both fintech-startups and large international financial companies. Among the reasons for the attractiveness of the jurisdiction for such activities are business-oriented legislation, relatively low costs of registration, licensing and maintenance of firms.

To these advantages, since 2020, another – the introduction of clear and transparent rules for obtaining crypto licenses without burdening them with bureaucratic procedures and financial requirements.

Note! The attractiveness of Lithuania increases against the background of unpleasant changes in Estonian legislation concerning the licensing of crypto-exchange activities,  which were introduced in 2020-2021. These changes include an increase in the minimum authorized capital of crypto companies and the mandatory relocation of the control center to Estonia.

Moreover, the head of the Money Laundering Data Bureau (RAB) announced the possible revocation of previously issued crypto licenses. Similarly, Estonia is rapidly losing its virtual currency-friendly status.

Important! In such circumstances, Lithuania becomes one of the few jurisdictions in the EU, where you can not only legally make transactions with cryptocurrency, but also conduct crypto business fully.

Reminder: it is in Lithuania that Binance, the world’s largest cryptocurrency exchange, is authorized and serves customers from Europe.

How is crypto activity regulated in Lithuania?

  • The Financial Crimes Investigation Service (FCIS) has regulatory powers in this area.
  • The concept of a «crypto license» in relation to Lithuania is used conditionally, as in fact a special license is issued for the provision of services in the sphere of virtual currencies, not a license.
  • The receipt of such authorizations occurs in the so-called notification procedure – the crypto company submits a notification in the form of a statement that it intends to carry out the relevant activity. The application is accompanied by a package of necessary documentation.
  • FCIS is responsible for verifying compliance with the legislation and issuing permits.

*** Note: The Central Bank of Lithuania insists on the separation of traditional financial and cryptocurrency activities. But for traditional market players it is allowed to have virtual assets in circulation.

Types of licenses to work with cryptocurrencies in Lithuania

Companies are given a choice of two types of cryptocurrency authorization (licenses,  permits). It is also possible to obtain both licenses at once.

  1. Virtual currency exchange service provider.

The «Virtual Currency Exchange Operator» authorization provides the legal basis for the work of the exchanger, that is, the provision of such exchange services with the receipt of a commission:

  • One virtual currency into another
  • Fiat money for cryptocurrency
  • Fiat cryptocurrencies
  1. The service provider keeps cryptocurrencies in custom wallets.

The «Virtual Currency Deposit Operator» permit provides services on creation of encrypted keys for clients for security purposes, as well as transfer of cryptocurrency to other persons.

Taxation of cryptocurrency activities

  • Income tax (WHT, corporate tax) is 15% in Lithuania.
  • Small firms with up to 10 employees and gross annual income of up to €300,000 may be taxed at a reduced rate of 0-5%.
  • Taxation of cryptocurrency transactions depends on their nature. There is no direct tax if the token is bought or sold by analogy with other currency, securities or investments.
  • Dividend tax is levied on the distributed profit and is 15%.
  • The provision of services of the crypto exchanger is not subject to VAT.

Company requirements for obtaining a crypto license

To apply to the FCIS and obtain permission to do crypto business, the following conditions must be met:

  1. Register a legal entity in Lithuania in the legal form of UAB (limited liability company)
  2. At least 1 shareholder and at least 1 director (may be a shareholder);
  3. have an office in the country (virtual office is allowed);
  4. The minimum authorized capital of such a company shall be at least EUR 2,500;
  5. Board members and final beneficiaries must meet the requirements of an impeccable business reputation, as well as prove the absence of a criminal record;
  6. The company must have an AML/KYC compliance officer in place.

Required documents list

The same care must be taken both in the preparation of the company’s documentation and in the collection of documents for the individuals involved in this business – the ultimate beneficiaries (CPPs), directors, shareholders, members of the board. In order to reduce the risks of mistakes, the process of preparation of documentation is better entrusted to the specialists of «Lavrange».

In the list of documents for individuals:

  1. Notarized copies of the passports of the countries of residence;
  2. Confirmation of current address – utility bill not older than three months or bank statement not older than three months;
  3. Power of Attorney (PoA) when business registration and licensing is carried out remotely;
  4. CV or link to the public business profile in social networks (e.g. Linkedin) – confirmation of education and professional experience of all project participants;
  5. Apostille certificate of absence of criminal record not older than three months.

In the list of documents for a legal entity:

  1. Charter and other corporate documents;
  2. Agreement of all directors;
  3. Confirmation of the opening of a bank account in Lithuania;
  4. Detailed description of the company’s activities (business model and business plan), link to the website.

The Order of Registration of Cryptocurrency Activities in Lithuania

You can register a company and get the appropriate crypto permission from FCIS both by arriving in Vilnius accompanied by our representative, and completely remotely by proxy to our specialist.

The process of establishing crypto activity includes the following steps:

  1. Development of a company business model with a list of operations to be carried out.
  2. Selecting and checking a unique name for a crypto company, selecting a legal address
  3. Preparation of notarial power of attorney for the representative of our company.
  4. Registration of constituent documents and registration forms.
  5. Collection of documentation for individuals involved in the activities of the company, in accordance with the requirements of the state. regulator.
  6. Registration of the company and opening of a bank account for it.
  7. Drafting and sending a notification (application) to the FCIS for obtaining a special permission for crypto business. The average processing time for such an application is one month.

*** Note: During licensing, the regulator may request additional information. In particular, we are talking about a detailed description of the activities of the crypto company. The decision to grant permission to the applicant is taken only if all the conditions are met and after considering the entire amount of information requested.

Regulation of the activities of a crypto-currency company in Lithuania

To prevent money laundering and the financing of criminal purposes, the activities of a crypto company must comply with strict rules. In the first place, we are talking about the implementation of internal control policies and procedures, assessing the risks of the company’s activities based on the requirements of the regulator. External monitoring by the competent authorities is also envisaged.

Important! Among the main areas of internal and external control:

  1. Mandatory application of due diligence measures – identification and verification of all potential customers in accordance with AML/KYC rules, as well as checking individual transactions of current clients in case of exceeding the established limit of 15,000 euros or equivalent amount in other currency, or presence of other criteria of signaling.
  2. Storage of customer information with the possibility of transmission to the supervisory authority upon request.
  3. Regular submission of reports to the FCIS, as well as prompt response to current queries about the company’s activities.
  4. Financial monitoring and suspension of suspicious transactions.
  5. Introduction of the post of AML specialist (Compliance Officer), which should be responsible for the implementation of the policy of countering the legalization of proceeds of crime. The appointment of a specific person to this position must be agreed with the FCIS.
  6. Regular comprehensive financial audits with timely identification of threats, risks and vulnerabilities.
  7. Reporting to the regulator and providing information on individual requests.

Attention! Any change in the structure of the crypto company after obtaining the permission of the FCIS  (in particular, change of address, owner, member of the board, beneficiary, POD specialist) requires registration with the provision of a full package of documents.

Please note! There are no special requirements for accounting and tax reporting in a cryptocurrency firm. Accounting should be conducted according to the standards adopted for other companies in Lithuania.

Duties of the POD specialist:

  • participate in the preparation, implementation and maintenance of AML policies in the company;
  • participate in the development of a risk assessment system for products and services, as well as for customers;
  • collection and evaluation of information on suspicious transactions, both with signs of money laundering and with possible components of other fraud;
  • keeping records of high-risk customers;
  • regular interaction with the board of directors, financial bodies;
  • communicating with representatives of the FCIS, and reporting (reporting) to this regulator;
  • filing of suspicious activity notifications with supervisory authorities, in particular in case of suspected money laundering;
  • organization of training of the personnel of the company to counter legalization of the proceeds of crime, especially those who work with clients.

Requirements for AML specialist:

  • Live in Lithuania
  • Profile education
  • Professional experience and impeccable business reputation

How should a customer (a natural or legal person) be identified and verified?

  1. Clearly define: the customer acts on his own behalf or represents the interests of another person (in the latter case the person must be identified);
  2. Collect information on ownership structure, business management, client’s objectives;
  3. Cross-check the personal data of end-beneficiaries (CDOs), shareholders, board members from independent sources;
  4. Study the client’s business relationship;
  5. Constantly review and update information and documents for clients with whom we already have cooperation;
  6. Failure to cooperate or immediately cease cooperation in obtaining relevant information from:
  • against whom international sanctions are applied;
  • who were previously suspected of laundering criminal money and financing terrorism;
  • who are politically exposed persons;
  • which are residents of jurisdictions where appropriate measures under the CCP are not applied.

When should a customer be identified?

  1. Pending the establishment of a business relationship;
  2. Prior to random exchange or cryptocurrency transactions, if the amount is equivalent to or exceeds 1,000 euros;
  3. If there are doubts about the reliability or completeness of the previously received information about the customer or the recipient of funds;
  4. If there is a suspection of a money laundering or terrorist financing operation or operation.

Cost and terms of obtaining a crypto license in Lithuania

Important! Self-registration of documents with a high probability can entail: at best – a delay in the start of the crypto project, at worst – refusal to issue a permit due to errors made by the applicant.

At the same time, the average turnkey processing time in Lithuania is from 1 to 2 months (we are talking about the passage of all stages from the registration of the company and the opening of an account to the receipt of a license).

AML/KYC General Policy for Crypto Companies

To obtain special permission from the Financial Crimes Investigation Service (FCIS) for the provision of services related to the exchange and storage of cryptocurrency,  the applicant company must prepare: a) criteria for assessing the risk of customers and individual transactions; b) KYC documentation (know your client) /AML (anti-money laundering criteria); c) procedural rules.

Procedural security measures include:

  • Classification of risks
  • Risk assessment
  • Application of due diligence measures
  • Control of the origin of funds and transactions
  • Internal audit and fulfillment of obligations to report suspicious transactions to the regulator

Among the documentation on AML/KYC:

  • Description of high-risk transactions, including those involving communication and the location of clients – establishing requirements and procedures for conducting and monitoring such transactions
  • Description of operations with lower risk – setting requirements and procedures for them
  • How to store transaction and customer data
  • Regulatory requirements for reporting suspicious transactions or transactions to the regulatory body

Registration of a crypto company in Lithuania

Due to the latest legislative changes, Lithuania can be considered the most budgetary and affordable option for the registration of a crypto company among the EU countries.  If Estonia used to be such an option, it is no longer so. First, more money will have to be invested in the registration of crypto businesses in Estonia  (increased requirements to the minimum amount of authorized capital). Secondly,  the organization of the activities of such companies has become more complicated – it has become mandatory to move the business management center to Estonia.

Important! Given the prospects of doing crypto business in Europe, Lithuania can reasonably be considered an excellent option among jurisdictions for the registration of the company.

Lithuanian advantages for crypto business:

  • friendly attitude towards crypto assets and related activities;
  • clear and understandable conditions for obtaining special permissions (crypto licenses) for the provision of services related to the exchange and storage of cryptocurrencies;
  • the legislative regulation of cryptocurrencies is more flexible than that of neighboring Estonia;
  • the ability to register a company, register a corporate account and license remotely;
  • is an acceptable corporate tax rate (15%) compared to other EU jurisdictions;
  • the country of the last few years has the status of a fintech business center;
  • no residency requirements for the company’s directors and shareholders;
  • virtually no bureaucratic costs when registering a business by a non-resident;
  • relatively low costs, both for the registration of the company and for its maintenance in the future;
  • creating the prerequisites for entrepreneurs to start working with crypto projects as quickly as possible, taking advantage of favorable market conditions.

The Lithuanian Financial Crime Investigation Service (FCIS) monitors the activities of crypto-wallet operators and cryptocurrency service providers. The same business can apply for authorization for both types of crypto activities, and on average it takes less than one month to complete the authorization process.

To be allowed to provide cryptocurrency and/or wallet services, a limited liability company (UAB) must first be established in the country. The minimum authorized capital required is €2,500. The process of establishing a company can be completed without physical visit; It usually takes about ten working days to obtain the necessary originals. Typical interaction begins with the analysis of the target business model, the structure of shareholders, the biography of the CEO, which allows us to make a list of the necessary documents for an effective registration process.

The Law of Lithuania on the Prevention of Money Laundering and Financing of Terrorism (Law on the Law on the Prevention of Money Laundering and Terrorism) obliges PWA to comply with the requirements of POD, including such as customer identification and authentication, monitoring and suspension of transactions, reporting to authorities, etc. Thus, for the effective launch of cryptocurrency related activities,  it is recommended to have an internal POD officer (preferably local) to ensure proper reporting to the FCIS.

The practical issue facing all VASP is to create sustainable banking relationships to ensure a seamless transition for their customers between the FIAT currencies and the cryptocurrency. Lithuania is also a favorable jurisdiction for this purpose, as it has an ecosystem of almost 300 fintech companies ready to offer modern and advanced financial solutions for blockchain-based enterprises.

As the crypto market develops rapidly, seeking a competitive advantage,  VASP should explore innovative, customer-friendly and sustainable solutions for offering products. Although crypto services are not considered financial services in the strict sense of the term, typically some products offered by VASP may resemble the characteristics of conventional financial products (t. may be subject to license.  The well-established licensing infrastructure for financial services and the positive approach of the Bank of Lithuania enable digital enterprises to scale their activities effectively by obtaining additional licenses  (for example, EMI, PI, financial broker).

ICO/STO and other forms of capital raising in Lithuania

In 2017, the Bank of Lithuania presented its approach to virtual assets and initial coin offerings (ICOs), which was updated in 2019. While the approach of the oversight body described therein is quite neutral, the basic principles of the regulatory regime are presented. For example, depending on the type of supply, ICOs may be either exempt from regulatory action or subject to requirements applicable to securities offering, crowdfunding, collective investment or investment services. In addition, the Bank of Lithuania published its recommendations on security token (STO) offerings, which, based on the characteristics of the tokens offered (i.e., payment, utility, security), provide a more detailed approach to regulatory requirements. Since these recommendations are mainly focused on ICO and STO,

Taxation of cryptocurrency activities

As far as taxation is concerned, enterprises should keep in mind two main taxes, namely: corporate income tax («CPN») and value added tax («VAT»). Both of these taxes can be levied under certain circumstances, and the tax regime usually depends on For example, income derived from cryptocurrency exchanges and security tokens is not taxed by VAT, while other activities carried out by cryptocurrency exchanges (for example, receiving a referral fee from other platforms), in some cases may be subject to taxation. VESP profit is subject to the CPN rate of 15%, with the possibility of a significant reduction in the taxable amount through the use of special tax credits for R&D activities or investment projects related to software. MDO/IEO/ILO,CIT obligations depend on the type of issued tokens – funds raised in exchange for: i) securities tokens are not taxed by CIT, ii) service tokens are equal to advance payments, which are taxable not at the time of issuance of tokens and fundraising, but when the actual service is provided by the platform in exchange for service tokens and iii) other forms of tokens are taxable upon receipt of funds.

Since there may be several business options, there may be many different taxation scenarios. Therefore, we strongly recommend that a thorough tax assessment be carried out before work begins.

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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.

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