Crypto Regulations in Liechtenstein

Since January 2020, all blockchain companies based in Liechtenstein are licensed under the so-called Token and Trustworthy Technology Service Provider Act. This made Liechtenstein one of the very first fully regulated and most secure jurisdictions for crypto companies with a wide range of business models. The licenses granted would differ according to the nature of the tokens in use and according to the type of services offered.

Already today, this friendly jurisdiction is proud to host more than 80 big blockchain companies, including LCX-a cryptocurrency exchange and the biggest Security Token Offerings launchpad based in Liechtenstein, Vlinder Climate using crypto-assets to finance carbon removals through the restoration of mangroves and seaweed, and Crowdli carrying out the tokenization of real estate.

Liechtenstein Blockchain Act

The Blockchain Act, following more than three years of intensive cooperation of the government with experts from the industry, supervision, and science, finally entered into force on 1st January 2020. It is technologically neutral, meaning the framework is open to various technological innovations and hence covers many types of business. Contrary to that, it is extensive as it explains and regulates a large number of issues on blockchain-based products and services.

The Blockchain Act shall provide trust and confidence to the token economy, in particular, but not limitedly within the financial-economic space, protecting users of trustworthy technologies systems, mainly through the fight against financial crime and the establishment of an optimal innovation-friendly framework open to various technological solutions for products and services based on TT systems. This broad approach to regulation was decided by the local regulator, with the intention to cover as many ways of shaping the token economy as possible. In fact, this breadth is an admission by the local authorities that any effort to actually build a framework for several very specific crypto businesses would have led those that do not fit the legal definitions to more legal uncertainty.

Worth noticing that the Liechtenstein regulator, as compared to the concepts of the Financial Action Task Force (FATF), the leading global money laundering and terrorist financing watchdog, designates different elements of the blockchain economy with different terminology. Thus, in this case, for example, worldwide-recognized VASPS in Liechtenstein are called service providers of TT. TTs are defined as technologies through which the integrity of tokens, the clear allocation of tokens to a TT identifier, and the transfer of tokens can be ensured. With the Blockchain Act, a secure environment and legal certainty will be created for both users and service providers by establishing transparent rules with regard to the issue and sales of tokens.

Tokens are defined as information that may represent claims or membership rights, rights in the property, or other absolute or relative rights and which is assigned to one or more TT identifiers. The definition does not tie the tokens to any particular technology, hence why it enables capturing not only cryptocurrencies but also any blockchain-based tokens designed for use other than in the financial industry.

Furthermore, the new regulatory framework introduced the token container model, whereby a token serves as a container, within which all types of rights may be placed in order to cover all aspects of tokenisation, including its differing characteristics and technological basis. In that respect, tokens other than securities can extend to cover music rights, patents, utility coins, software rights, and more. On the contrary, the container could be kept empty-for instance, the digital code of the Bitcoin blockchain.

Importantly, the rights and assets inside the token container do not change-either the token is kept in a portfolio, sent to a new owner, or stored by a custodian service provider. In this way, it would be possible to represent certain rights-for example, gold or other commodity ownership-by a token kept in a container on the blockchain. The gold belongs to the token owner and can be transferred to another owner without having it changed physi­cally. Vice versa, the linked physical world does not change by the consequence of a virtual transaction of a token.

That created the role of a physical validator who ensures that the physical and digital worlds are fully aligned, that the right represented by the token can be enforced, and the items held by the token can be verified through the locking up of real-world assets in a vault. Physical validator means a trusted third party mediating between the contracting parties confirms that the tokenised right represented online exists and the person who claims to possess the right offline is the lawful owner.

Even if the holder has the exclusive right to dispose of the token; the connection between such an asset and its holder isn’t defined by ownership. The owners have to be recorded on the blockchain, and all parties must agree to one owner’s entitlement for the transfer of tokens. If the disposer wasn’t entitled to rightfully dispose of the token in the first place, then tokens can be acquired through bona fide. Where a token or access to a token has been lost, the owner can apply by petition that the underlying right be separated from the token. The underlying right may then be disposed of independently of the token.

Tokens may be categorized either as security tokens or utility tokens, and that determines whether investors or token holders are allowed to trade them in the regulated secondary market environment. For instance, utility tokens can be traded by means of centralised crypto exchange platforms existing in Liechtenstein and are subject to AML/CFT legislation. The trading of the other categories of tokens also depends on their nature in detail, such as their purpose, contents of the rights, etc., and the branch of industry they are part of. For example, in the case of a token constituting a financial instrument, the Banking Act would also apply. If you want to discuss where your crypto project could live in the structure, then please get in touch, and our highly qualified and experienced consultants will be pleased to facilitate a personalized call for you.

This allows for continuous creation of new blockchain-based solutions while, at the same time, providing legal certainty to manifold business models, including those involving tokenised pre-existing rights. To face such an evolution of the token economy, Liechtenstein made an adaptation in its Civil Code, in which the real world has to give way to the token world when tokens are issued to represent different kinds of rights.

Anti-Money Laundering and Counter-Terrorist Financing Legislation

To counteract money laundering and the financing of terrorism, Liechtenstein shall adopt the 4th and 5th EU Anti-Money Laundering Directives (4AMLD, respectively 5AMLD) and applicable EU regulations into its law. These include the main national legislation: the Law on Professional Due Diligence for the Prevention of Money Laundering, Organised Crime and Financing of Terrorism (the Due Diligence Act) and the Ordinance on Professional Due Diligence for the Prevention of Money Laundering, Organised Crime and Financing of Terrorism (the Due Diligence Ordinance), based on EU legislation laying out the rules in terms of KYC procedures. By this, all crypto companies licensed by MFA will be obliged to follow AML/CFT regulations, thereby protecting their customers and preserving the stability of the market they are working on.

The Following TT Service Providers Fall Under the Due Diligence ACT:

• Token issuers issuing tokens in a professional manner
• The token issuers without a legal obligation to seek entry in the register of authority that issue tokens not in a professional capacity against which an investor buys for more than 1,000 CHF (approximately 1,000 EUR) in one or several transactions;
• TT key depositories
• TT token depositories
• TT protectors
• Physical validators
• TT exchange service providers
• TT agents legally obliged to register with the authority when providing service for any of the above-mentioned TT service providers;
• Traders in goods who are paid with cryptocurrencies or any other crypto token, the value of which reaches 10,000 CHF (approx. 10,000 EUR) in payment for goods;

Provisions of the Due Diligence Act

This Act governs the application of due diligence procedures which the service providers defined below are obliged to apply in order to prevent money laundering, organised crime and terrorist financing based on the Criminal Code. Branches of foreign enterprises with their place of business in the Principality of Liechtenstein, which carry out the activity of a TT service provider, are deemed domestic service providers within the meaning of this law.

The following provisions are especially relevant:

• The IT systems used when monitoring business relationships in a way that’s commensurate with the potential risks should, first of all, be safe, updated, and work effectively.
• Monitoring by TT service providers should refer to the risks of business relationships, including the transactions; there should be simplified or advanced client due diligence procedures where it is mandatory to identify and verify such information as the contracting party, the beneficial owner, and business profile.
• A risk analysis to identify, document, and report on the specific risk in regard to money laundering, organized crime, and terrorist financing should be done on a regular basis.
• The risks coming from new product or new commercial practice development or from the use of new or developing technologies have to be previously evaluated and in accordance with prescriptions.

Provisions of the Due Diligence Ordinance

In exercise of the powers provided by the Due Diligence Act referred to above, the Government of Liechtenstein enacted the Due Diligence Ordinance concerning, among others, identification and verification of the contracting parties and the real owners, business profile, reporting to the Financial Intelligence Unit, internal mechanisms, and auditing requirements.

Some key notable features:

• Specifying politically exposed persons referred to in this Act, such as ambassadors, heads of state, heads of government, and members of parliament.
• Specification of the beneficial owner, for example, the natural persons who directly or indirectly hold or control a share or voting rights amounting to 25% or more of such legal entities.
• The principles of customer due diligence, e.g. checking documents with probative value – original or certified copies – of the legal instrument of the party to the transaction, and of those persons claiming to represent a legal person are so empowered to do.

The Supervision of the Crypto Companies

According to the Blockchain Law, cryptocurrency companies are obligated to be registered and approved by the Liechtenstein Financial Market Authority – FMA, an integrated supervisory authority of the financial market, including licensees under the Blockchain Law and AML/CFT regulations. By enforcing the regulations, the FMA basically intends to combat money laundering, organized crime, and terrorist financing that may arise through crypto products and services, thus ensuring the stability of the financial market and its participants, together with the protection of clients.

For crypto regulations, the authority has a special fintech desk, which should make the relevant departments more responsive. Moreover, with the aim of enabling the development of blockchain technologies, the creation of the Office for Financial Centre Innovation and Digitisation was carried out as a special governmental body. This actually means that Liechtenstein is prepared and ready to promote the adoption of blockchain-powered solutions at the national level.

Liechtenstein

Capital	Population	Currency	GDP
Vaduz	38,387	CHF	$157,755

Annual Supervision Fees

The FMA levies annual supervisory fees applicable to all licensed crypto providers. The supervisory fee, consisting of a fixed base fee added to a variable fee, is limited to an annually fixed maximum amount. Where the licence, authorization, or recognition covers more than one category of supervised business, or where the business concerned is subject to supervision of the FMA in respect of more than one category of economic activities, such a fee shall be payable in respect of each of these categories.

Example: TT key custodians, TT token custodians, physical validators, and providers of TT exchange services are required to pay the following annual supervision fees in respect of their respective licensable activities:

• There is a basic annual fee of 500 CHF (approx. 500 EUR), which applies only once for every multiple TT services registered under one service provider of the Trust&Trusted services.
• The additional levy is 0,25% of the gross sales revenue from all TT services minus VAT and other taxes directly related to sales in a financial year
• The total annual supervision fee per supervised person for TT service providers comes to a maximum of 100,000 CHF (approx. 100,000 EUR).

While the basic fee and the limit of the maximum fee often remain identical to other service providers, other principles vary depending on the crypto business model. The complete list of the annual supervision fees can be found in Annex 2 of the Financial Market Supervision Act (FMSA).

Why Choose Liechtenstein’s Regulatory Framework

The ability to act within one of the most sophisticated regulatory frameworks in the world saves not only from unclear standards of regulation and changes looming over it in the future but also automatically places such a crypto company among the ranks of trusted leaders on a global scale. Another thing is that the Liechtenstein authorities welcome blockchain-powered businesses and hold very eager talks with entrepreneurs, academics, and every person concerned.

The key advantages of having a crypto business in Liechtenstein include the following:

• The Blockchain Act creates a unique, clear, comprehensive, and dynamic framework for a huge number of crypto businesses;
• Authorities are in continuous dialogue with industry players, which helps to stay in touch with the most recent changes and have their policies adjusted for exactly what is needed by the industry;
• It’s very easy to register a new company, and this process is almost frictionless.
• Once the new company is included in the Commercial Register, the previously transferred authorized capital is released and can be used at the discretion of the owner.
• Such policies as not entering information on shareholders and beneficiaries into the Public Register and not disclosing it allow the maintenance of the company’s efficiency and confidentiality.
• There is a Value-added tax applied, but this is a very low rate of only 7.7% compared to the VAT rates in other European jurisdictions.

Cryptocurrency License in Liechtenstein

Legal and natural persons having a registered office or place of residence in the Principality of Liechtenstein are obliged not to begin activities as crypto market participants until an applicable license is granted by the supervisory authority and prior to the entry into the TT Service Provider Register. This rule is further subject to the person who issues tokens either in his own name or in his client’s name in a non-professional capacity if tokens in sum of 5 mill. CHF (approx. 5 mill. EUR) or more will be issued within 12 calendar months.

The FMA grants the required licensing for crypto companies in Liechtenstein and reviews each application on its respective merits within the underlying legal framework. In certain circumstances, the Authority may determine that no license is required for any given business model and may thus suggest another set of requirements or regulations. In case an applicant wants to operate cross-border business, e.g., advertise abroad or approach clients abroad, he needs to inform the MFA in advance whether the underlying business model is licensed in the country of his choice.

In order for a company to be successfully registered as a provider of TT services, it has first to fulfill a list of legal requirements in regard to the aforementioned legislation and to correctly follow the electronic application. If this is not the case, the application procedure may be delayed by as much as three months. One license costs 1,500 CHF, approximately 1,500 EUR, as an application fee, non-returnable if the respective application is refused. Whereby the fee for multiple licence applications is 1,500 CHF, approximating 1,500 EUR, in respect of the first one, while 700 CHF, approximating 700 EUR, is charged upon application for an additional license.

CRYPTO REGULATION IN LIECHTENSTEIN

Open a Crypto Company in Liechtenstein

The pre-requisite for obtaining a crypto license in Liechtenstein is to establish a local company first, which would comply with crypto-specific requirements like manifold internal controls. Incorporation of Liechtenstein companies comes under the authority of the Commercial Register, and it usually takes two weeks for processing applications if those are of good quality. More significantly, all Liechtenstein companies are required to pay an annual fee of 1,200 CHF approx. 1,200 EUR.

The requirements for the starting capital vary according to the type and scope of the TT services to be performed. For example, token issuers shall hold between 50,000 CHF (approx. 50,000 EUR) up to 250,000 CHF (approx. 250,000 EUR), whereas service providers of TT exchange shall possess between 30,000 CHF (approx. 30,000 EUR) up to 100,000 CHF (approx. 100,000 EUR). Minimum capital requirements cannot be undercut, and applicants who intend to provide several TT services must have the respective highest minimum capital requirement.

The most popular type of company legal structure in Liechtenstein is a Limited Liability Company GmbH, which can be founded by at least two shareholders; both of them can be foreigners. The Joint-Stock-Company AG is more complicated, can be set up for conducting business at the international level-trading on a stock exchange and coordination of assets of subsidiaries-and may be founded by at least two shareholders.

Key requirements of both types of companies operating crypto activities:

• Work experience of the director: residence of Liechtenstein
• Appointment of reporting officer for compliance, compulsoty opening of a dedicated department for compliance, optional
• Renting of an office in Liechtenstein – compulsoty
• A Liechtenstein company must employ local labor

Tax Legislation in Liechtenstein

Liechtenstein is well-known for its clear, transparent, and effective taxation system. The Tax Administration collects and administers the taxes; crypto businesses fall within its administrative circle. In most cases, therefore, the usual tax rates apply in respect of provided services or products. It is competent under its responsibility to exchange information with foreign tax authorities on the basis of concluded tax agreements.

The Crypto Travel Rule according to the Due Diligence Act and the Due Diligence Ordinance applies to all TT transactions, thus transfers of cryptoassets. This means that, on an international plane, VASPs should exchange originator and beneficiary information in the context of crypto-transactions above the threshold of 1,000 USD (approx. 919 EUR).

If you are satisfied that Liechtenstein’s regulatory environment fits your crypto business model and growth vision, our highly qualified and experienced consultants here at Regulated United Europe (RUE) will be more than happy to equip you with the necessary knowledge which will help you find the right path towards success. We are very well informed about crypto-related legislation in Liechtenstein and the rest of the EU and follow it closely. That’s why we are capable of guiding you through compliance with the local regulations. On top of this, we will be happy to assist you in opening and licensing a new company and taking care of financial accounting and tax optimisation for it. Book your personal consultation now and start your new journey into the crypto industry.