CRYPTO REGULATION IN GEORGIA

In the present scenario, Georgia has implemented regulations mandating companies engaged in cryptocurrency-related activities to acquire a license issued by the Central Bank. These regulatory measures were officially established on January 1, 2023. Subsequently, on July 1 of the same year, comprehensive instructions were also finalized to guide the process of registering companies operating within the cryptocurrency sphere.

This indicates a regulatory framework put in place to govern and oversee cryptocurrency operations in the country. The licensing requirement from the Central Bank suggests a commitment to ensure compliance, security, and accountability within the cryptocurrency sector. Furthermore, the availability of specific registration instructions underscores the government’s effort to streamline and facilitate the process for companies seeking to engage in cryptocurrency-related activities, providing clarity and guidance for those navigating the licensing procedure.

Advantages

VASP (Virtual Asset Service Provider) can engage in one or more of the following activities:

• Transfer and/or storage/administration of virtual assets.
• Administration of a trading platform.
• Exchange (including through self-service terminals) in national or foreign currency, other virtual assets, financial instruments, primary placements, services related to primary offerings, portfolio management (except collective portfolio management), and lending of virtual assets.

The new law does not regulate activities with virtual assets that are not subject to transfer or are not used for payment and/or investment purposes, such as loyalty programs, gaming points, or other types of virtual assets used only in a closed virtual space. The law also excludes the regulation of non-fungible tokens (NFTs).

THE REQUIREMENTS FOR OBTAINING THE VASP LICENSE IN GEORGIA

To obtain a license for companies in Georgia, the registration with the National Bank and compliance with certain requirements are necessary, involving the following categories:

1. COMPANY DIRECTOR

• Number of Directors: A company can have only one director if the founder and director are different individuals. If the company has only one founder, who is also the director, it must find a second director.
• Director’s Qualifications: The director must have a higher education in fields such as economics, finance, banking, business administration, audit, accounting, law, information technology, information analytics, or a related field. Work experience may substitute educational requirements, with experience in financial services or virtual assets being considered.
• Legal Cleanliness: No criminal convictions, especially for serious crimes such as terrorism financing or money laundering, are allowed. No violations of entrepreneurial, banking, or financial legislation that threaten the normal functioning of the organization or financial sector are permitted. There should be no breaches of fiduciary duties in a financial institution with a court decision.
• Financial Obligations: No outstanding financial obligations, declarations of insolvency, or involvement in operations causing significant harm to the virtual asset service provider or financial institution are allowed.
• Conflict of Interest: The director should not simultaneously administer two VASPs unless they are members of the same group.
• Presence in Georgia: At least one person authorized to represent the virtual asset service provider must be present in Georgia for a minimum of 14 calendar days per month.

2. COMPANY BENEFICIARIES

• Adherence to the law: Clean legal record, with no criminal convictions. Serious offenses such as terrorism financing, money laundering, or any other economic crime will be problematic.
• Compliance with entrepreneurial, banking, and financial legislation. Practices that pose a threat to the normal functioning of a specific organization and/or the financial sector will be prohibited.
• No outstanding financial obligations.
• Should not be declared insolvent.

3. COMPANY OFFICE SPACE

• The main office of the virtual asset service provider, from where its director(s) will effectively manage the operations, must be located in Georgia.
• The main office must be physically separated from premises used for any other purpose by any other entity (i.e., it cannot be a shared office space).
• Real estate and equipment of the main office should be sufficient for managing and controlling the virtual asset service provider’s activities. National Bank representatives will conduct checks to ensure legality.
• The virtual asset service provider must systematically record operations, maintaining easily traceable records.
• If services are provided on-site, especially involving the exchange of virtual assets through cash transactions, a surveillance system must be installed in the office.

4. ELECTRONIC SYSTEM

• Before commencing operations, a software (electronic) system must be installed, proportionate to business volumes and risks associated with money laundering and terrorism financing. It should automatically detect noteworthy/unusual transactions by processing information based on distributed ledger technology (DLT).
• A company seeking a virtual asset service provider license must provide a detailed plan to the National Bank outlining the service provision process, from start to finish.
• The National Bank may request a demonstration of the electronic system used for virtual asset services.
• To obtain a license, the following information about the electronic system used for virtual asset service provider activities must be provided:

1. System name.
2. Manufacturer’s system website address.
3. Where to place information about the electronic system, commitments to registered users, and operations related to virtual assets.
4. AML/TF PROTECTION

• License applicants must have an internal instruction (compliance policy-procedure) designed to implement a compliance control system to prevent money laundering and terrorism financing.
• The National Bank will carefully review the document, so transparency in your business is crucial.
• In addition to the mentioned document, the company must implement compliance control systems for virtual asset service providers, contributing to the prevention of money laundering and terrorism financing according to a 12-point plan.

1. Statement on AML/TF Internal Instruction:

Implementation of an effective risk assessment and management system to prevent money laundering and the financing of terrorism. This refers to the adoption of measures within an organization to assess and manage the risks associated with money laundering and terrorist financing. The aim is to comply with legal requirements and prevent illicit financial activities.

2. Risk Assessment of Money Laundering and Terrorism Financing:

Evaluation of the risks related to money laundering and terrorism financing associated with clients to determine the risk level in accordance with the law. Organizations are required to assess the potential risks of money laundering and terrorist financing posed by their clients. This involves a systematic evaluation to comply with relevant legislation.

3. Implementation of Preventive Measures in Accordance with the Law:

Taking proactive measures in line with legal requirements. This involves the execution of preventative actions as mandated by the law to mitigate the risks of money laundering and terrorist financing.

4. Implementation of Software for Automatic Screening:

Introduction of a software suite to automatically screen politically exposed persons (PEPs) and sanctioned individuals, as required by United Nations Security Council resolutions and written instructions from the National Bank. The organization is incorporating a software system to automatically check if any customer is a politically exposed person or subject to sanctions, as mandated by international resolutions and national regulations.

5. Implementation of Suspicious/Unusual Transaction Detection System:

Introducing a system for detecting suspicious or unusual transactions. This involves setting up a system to identify and report transactions that may be indicative of money laundering or terrorist financing activities.

6. Storage of Information/Documentation as per Legal Requirements:

Maintaining information and documentation in accordance with the timelines and procedures established by the law. This refers to the proper storage and retention of records, ensuring compliance with legal requirements regarding the duration and manner of information storage.

7. Appointment of Compliance Control Officer:

Designating an individual responsible for the functioning of the compliance control system. A specific person is appointed to oversee and ensure the effectiveness of the compliance control system within the organization.

8. Appointment of a Member of the Leadership or Authorized Person for Compliance Control Effectiveness:

Designating a member of the leadership or an authorized individual responsible for the efficiency of the compliance control system. An individual with managerial authority is appointed to ensure the effectiveness of the compliance control system.

9. Provision of Independent Audit Function:

Offering an independent audit function to assess the effectiveness of the compliance control system. An external audit function is provided to evaluate and verify the efficiency of the compliance control measures within the organization.

10. Establishment of Employee Selection Rules:

Setting rules for the selection of employees to ensure the hiring of highly qualified and reputable individuals. This involves defining criteria and procedures to select employees, with the aim of recruiting individuals with high qualifications and good reputations.

11. Implementation of Compliance Control System for Ongoing Employee Training:

Introducing a compliance control system for continuous training of employees. Organizations are incorporating a system to ensure that their employees receive ongoing training on compliance matters to stay updated with relevant regulations and best practices.

Crypto regulation in Georgia overview

LICENSE ACQUISITION TIMELINE

The timeline for VASP license acquisition in Georgia involves several key milestones. The regulatory framework outlines a systematic approach to facilitate the application and approval process. As companies move forward with the application process, the licensing timeline is designed to be efficient, aiming to provide clarity and regulatory oversight while minimizing unnecessary delays. The introduction of a well-defined licensing procedure for VASPs reflects Georgia’s proactive approach to fostering a secure and regulated environment within the cryptocurrency sector. Companies seeking to operate as VASPs in Georgia are encouraged to adhere to the established timeline, ensuring compliance with the regulatory framework in place.

The National Bank is obligated to issue a decision on license acquisition within 2 months from the date of application submission. However, this timeframe may be subject to change if the National Bank requires additional documentation. Therefore, the duration could depend on the company and how promptly it responds to additional requests from the National Bank.

Advantages of starting business in Georgia

1. Fast company registration and licensing process
2. Low Business Costs and Taxes
3. No minimum capital requirement.

Starting a crypto business in Georgia presents several advantages that contribute to a favourable environment for entrepreneurs in the blockchain and cryptocurrency industry.

Georgia’s Progressive Regulatory Environment:

The country has established a progressive and friendly regulatory framework for cryptocurrencies. The government has shown a willingness to embrace and regulate digital currencies, providing clarity and legal support for businesses operating in the crypto space.

Low Business Costs and Taxes:

Georgia offers a cost-effective business environment with relatively low operational costs and taxes compared to many other jurisdictions. Entrepreneurs in the crypto sector can benefit from these favourable economic conditions, allowing them to allocate resources efficiently and enhance profitability.

Strategic Geographic Location:

Situated at the crossroads of Europe and Asia, Georgia’s strategic geographic location provides businesses with easy access to international markets. This advantageous position facilitates global partnerships and trade, fostering the growth and expansion of crypto ventures beyond national borders.

Technologically Advanced Infrastructure:

Georgia has invested significantly in developing a modern and technologically advanced infrastructure. This includes robust internet connectivity and digital infrastructure, which is crucial for the success of blockchain and crypto businesses reliant on high-speed communication networks.

Innovative Ecosystem and Talent Pool:

The country has a growing and innovative ecosystem that supports emerging technologies, including blockchain and cryptocurrencies. Entrepreneurs can tap into a skilled talent pool that is well-versed in cutting-edge technologies, providing a solid foundation for the development and implementation of blockchain solutions.

Business-Friendly Policies:

Georgia’s commitment to fostering entrepreneurship is reflected in its business-friendly policies. The government actively encourages innovation and foreign investment, creating an atmosphere conducive to the establishment and growth of crypto startups. Simplified administrative procedures and a supportive regulatory environment contribute to a hassle-free business experience.

Access to Financial Services:

Georgia has a well-established financial sector with access to banking services, making it easier for crypto businesses to manage their finances and engage in traditional banking activities. This access to financial services enhances the overall stability and credibility of crypto ventures operating in the country.

Starting a crypto business in Georgia offers a combination of regulatory support, cost advantages, strategic location, advanced infrastructure, and a supportive ecosystem. These factors collectively create a favourable environment for entrepreneurs looking to capitalize on the opportunities presented by the burgeoning blockchain and cryptocurrency industry.

TAX FRAMEWORK IN GEORGIA

In Georgia, the tax system for businesses is characterized by its simplicity and transparency. The country has adopted a flat tax rate, which applies uniformly to both individuals and businesses. As of my last knowledge update in January 2022, the corporate income tax rate stands at 15%, making it one of the lowest in the region.

Georgia’s tax system is designed to be business-friendly, aiming to attract foreign investments and stimulate economic growth. The simplicity of the tax code contributes to a streamlined process for businesses to comply with their tax obligations. Companies are required to file annual tax returns, and the tax year typically corresponds to the calendar year.

Value-added tax (VAT) is another significant component of Georgia’s tax system. The standard VAT rate is 18%, and it applies to the majority of goods and services. However, certain essential goods and services may qualify for a reduced VAT rate of 5%. Businesses are responsible for collecting and remitting VAT to the government.

In addition to income and VAT, there are other taxes and duties that businesses may encounter. These include property tax, excise tax on specific goods, and social security contributions for employees. However, the overall tax burden remains relatively low compared to many other countries.

To encourage entrepreneurship and support small businesses, Georgia has implemented various tax incentives and exemptions. Startups and certain types of industries may benefit from reduced or exempted taxes for a specified period, fostering a favourable environment for business development.

It’s important for businesses operating in Georgia to stay informed about any changes in the tax laws and regulations. As tax policies are subject to adjustments, periodic updates and compliance with the latest requirements are crucial for maintaining smooth operations within the country’s business landscape.