Crypto Regulations in Liechtenstein

Since January 2020, all of the Liechtenstein-based blockchain companies are licensed in accordance with the Token and Trustworthy Technology Service Provider Act, which is also known as TVTG or Liechtenstein Blockchain Act. It positioned Liechtenstein among the first thoroughly regulated and safest environments for crypto companies with various business models. The granted licences vary depending on the characteristics of tokens in use, as well as the type of services offered.

Liechtenstein’s advanced regulatory framework has already attracted a wide array of licensable businesses. Today, this welcoming jurisdiction is home to over 80 large blockchain companies, including LCX, which is a cryptocurrency exchange and the largest Liechtenstein-based launchpad for security token offerings (STOs), Vlinder Climate, which uses cryptoassets to finance carbon removals from mangrove and seaweed restoration, and Crowdli, which conducts the tokenisation of real estate.

Liechtenstein Blockchain Act

After more than three years of thorough cooperation between the government and experts from the industry, supervision, and science, the Blockchain Act came into force on the 1st of January, 2020. The Blockchain Act remains technologically neutral, i.e. the framework is open to various technological innovations and therefore covers many types of business. On the other hand, it’s considered comprehensive since it clarifies and regulates various aspects pertaining to blockchain-based products and services.

The aim of the Blockchain Act is to build and maintain trust in the token economy, particularly in the financial and economic sector, protect the users of trustworthy technologies (TT) systems primarily by combating financial crime, as well as create an optimal, innovation-oriented, and open to various technological solutions framework for products and services based on TT systems. This broad regulatory approach was chosen with the intent to cover as many ways of shaping the token economy as possible. The local authorities have admitted that any efforts to build a framework for several very specific crypto businesses would have led those who don’t fit the legal definitions to more legal uncertainty.

It’s worth noting that compared to the concepts of the Financial Action Task Force (FATF), the leading global money laundering and terrorist financing watchdog, the Liechtenstein regulator uses different terminology for various blockchain economy elements. For instance, globally recognised virtual asset service providers (VASPs) in Liechtenstein are called TT service providers. Trustworthy technologies (TT) 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. The Blockchain Act creates a safe environment and legal certainty for TT users and service providers, including transparent rules for token issues and sales.

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

Moreover, to cover all aspects of tokenisation, including varying characteristics and technological basis, the new regulatory framework established the token container model (TCM) which implies that a  token  serves  as  a  container, within which all types of rights may be placed. In this respect, tokens can be used beyond securities to cover music rights, patents, utility coins, software rights, and more. On the other hand, the container can be stored empty (e.g., the digital code of the Bitcoin blockchain).

Importantly, the rights and assets inside the token container remain the same even if the token is kept in a portfolio, transferred to a new owner, or stored by a custodian service provider. A token stored in a container on the blockchain represents such rights as gold or other commodity ownership. The gold is owned by the token owner and can be transferred to another owner without having to change its physical location. In other words, the linked physical world remains unaltered in spite of the virtual transaction of a token.

The role of a physical validator was created to ensure that the physical and digital worlds are completely synchronised and the right represented by the token can be enforced and the items held  by  the  token can be verified (e.g., by securing the real world’s assets in a vault). A physical validator is defined as a  trusted  third  party  mediating between the contracting parties who 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. To dispose of tokens, the owner must first be registered on the blockchain, and all involved parties need to agree that the owner is entitled to transfer the tokens. Tokens can be acquired through bona fide, in case the disposer wasn’t entitled to rightfully dispose of the token in the first place. If a token or access to the token has been lost, the owner can file a petition to separate the underlying right from the token. The underlying right can subsequently be disposed of independently from the token.

Tokens can be classified either as security tokens or utility tokens which determines whether investors or token holders are permitted to exchange them within the regulated secondary market setting. For example, utility tokens can be traded via centralised crypto exchange platforms available in Liechtenstein and regulated by AML/CFT legislation. The exchange of other types of tokens also largely depends on their characteristics (purpose, contained rights, etc.) and the industry of which they’re part. For instance, if a token is considered a financial instrument, the Banking Act will also be applicable. If you wish to examine where your crypto project would potentially fit within the framework, please reach out to us and our well-qualified and experienced consultants will be delighted to schedule a personalised consultation.

This dynamic regulatory framework allows for the continuous introduction of innovative blockchain-powered solutions and at the same time provides legal certainty for a variety of business models, including tokenised pre-existing rights. To accommodate the development of the token economy, Liechtenstein went as far as changing the Civil Code to permit the token world to take precedence over the real world in situations where tokens exist to express various types of rights.

Anti-Money Laundering and Counter-Terrorist Financing Legislation

To combat money laundering and terrorist financing, Liechtenstein is obligated to transpose the 4th and 5th EU Anti-Money Laundering Directives (4AMLD and 5AMLD) and relevant EU regulations. The main national laws are 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) which set out rules for KYC procedures in line with EU legislation. All crypto companies licensed by the MFA are required to adhere to AML/CFT rules and this way protect their customers, as well as safeguard the stability of the market they operate in.

The following TT service providers are subject to the Due Diligence Act:

• Token issuers professionally issuing tokens
• Token issuers who aren’t legally obligated to register with the authority but issue tokens not on a professional basis which an investor buys for over 1,000 CHF (approx. 1,000 EUR) in one or several transactions
• TT key depositories
• TT token depositories
• TT protectors
• Physical validators
• TT exchange service providers
• TT agents who are legally required to register with the authority when they provide services to any of the above mentioned TT service providers
• Traders in goods who accept cryptocurrencies or other crypto tokens equivalent to 10,000 CHF (approx. 10,000 EUR) as payment for goods

Provisions of the Due Diligence Act

The purpose of this Act is to govern the application of due diligence procedures that should be implemented by the aforementioned service providers, obligated to combat money laundering, organised crime, and terrorist financing pursuant to the Criminal Code. Liechtenstein branches of foreign companies acting as TT service providers are also subject to this law.

The following rules are of particular importance:

• Secure, up-to-standard, and effective IT systems must be used when monitoring business relationships in a way that’s commensurate with the potential risks
• TT service providers must monitor risks pertaining to the business relationships, including the transactions, and simplified or advanced client due diligence procedures where it’s mandatory to identify and verify such information as the contracting party, beneficial owner and business profile
• It’s of paramount importance to regularly conduct a risk assessment to determine, document and report the risks in relation to money laundering, organised crime, and terrorist financing
• It’s critical to ensure that the risks arising from the development of new products or commercial practices or from the use of new or developing technologies are assessed in advance and in accordance with regulations

Provisions of the Due Diligence Ordinance

Pursuant to the above-mentioned Due Diligence Act, the Liechtenstein government issued the Due Diligence Ordinance with the focus on, inter alia, the identification and verification of the contracting parties and the beneficial owners, business profile, reporting to the Financial Intelligence Unit (FIU), internal mechanisms, and auditing requirements.

Key notable aspects:

• Specification of the politically exposed persons, mentioned in the Act (e.g., ambassadors, heads of state, heads of government, members of parliament)
• Specification of the beneficial owner (e.g., those natural persons who directly or indirectly hold or control a share or voting rights amounting to 25% or more of such legal entities)
• Basic principles of client verification (e.g., inspecting documents with probative value (original or certified copies) related to the contracting party, and that persons purporting to act on behalf of a legal entity are authorised to do so)

The Supervision of the Crypto Companies

Pursuant to the Blockchain Act,  crypto companies are obligated to register with and be approved by the Liechtenstein Financial Market Authority (FMA) which is an integrated supervisory authority of the financial market, including the licensees under the Blockchain Act and AML/CFT regulations. By enforcing the regulations, the FMA fundamentally strives to combat money laundering, organised crime, and terrorist financing which can occur through the use of crypto products and services, and this way ensure the stability of the financial market and its participants, as well as the protection of clients.

The authority has a special fintech desk for handling crypto regulations which should increase the responsiveness of the relevant departments. Moreover, to facilitate the development of blockchain technologies, the Office for Financial Centre Innovation and Digitisation, a special governmental body, was established. This indicates that Liechtenstein is well-prepared and eager to promote the adoption of blockchain-powered solutions at the national level.

Annual Supervision Fees

The FMA levies an annual supervisory fee that applies to all authorised crypto businesses. The supervisory fee consists of a fixed basic fee and a varied additional fee and is limited to an annual maximum amount. If a supervised business has licences, authorisations, or recognitions for various supervised categories, or if the supervised business is subject to supervision by the FMA for various categories of economic activities, it’s subject to the fee for each of these categories.

To illustrate, TT key custodians, TT token custodians, physical validators, and TT exchange service providers are obligated to pay the following annual supervision fees:

• The basic annual fee is 500 CHF (approx. 500 EUR) which only applies once to TT service providers who are registered for several TT 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 is a maximum of 100,000 CHF (approx. 100,000 EUR)

While the basic fee and the limit of the maximum fee often remain the same for other service providers, other principles vary according to 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

Being able to operate with one of the most advanced regulatory frameworks not only removes the burden of unclear regulatory standards and looming future changes but also instantly positions the crypto company as a trusted leader on a global scale. Furthermore, the authorities of Liechtenstein are open to the adoption of blockchain-powered businesses and eagerly conduct talks with entrepreneurs, academics, and other involved persons.

Key advantages of having a crypto business in Liechtenstein:

• The Blockchain Act provides a unique, clear, comprehensive, and dynamic framework for a vast range of crypto businesses
• The authorities are in continuous dialogue with the industry participants which allows them to stay familiar with the most recent changes and adapt their policies the industry needs
• The process of establishing a new company is easy and almost frictionless
• Once the new company is included in the Commercial Register, the previously transferred authorised capital is released and can be used at the discretion of the owner
• Such policies as not entering the information about shareholders and beneficiaries into the Public Register and not disclosing it allow for the maintenance of the company’s efficiency and confidentiality
• The VAT is only 7,7% which is a very low rate compared to other European jurisdictions

Crypto Licence in Liechtenstein

Legal and natural persons with a registered office or place of residence in Liechtenstein must not start operating as crypto market participants without an applicable licence granted by the supervisory authority and prior to the entry into the TT Service Provider Register. This rule also applies to token issuers who issue tokens in their own name or in the name of a client in a non-professional capacity if tokens are in the amount of 5 mill. CHF (approx. 5 mill. EUR) or more will be issued within 12 calendar months.

The FMA is responsible for licensing crypto businesses in Liechtenstein and assesses every application on a case-by-case basis within the applicable legal framework. The authority may decide that no licence is required for a particular business model and may consequently advise that a different set of requirements and regulations apply. If an applicant intends to conduct cross-border business (e.g., advertise abroad or approach clients abroad), it must notify the MFA in advance whether the business model is subject to licensing in the chosen foreign country.

To be successfully registered as a TT service provider, a company first has to meet a list of legal requirements pertaining to the aforementioned legislation and complete the electronic application correctly. Failure to do so can significantly delay the application process, which normally lasts up to three months. The application fee for one licence is 1,500 CHF (approx. 1,500 EUR) which is non-refundable in the case of rejection of the application. In the case of applying for several licences, the first one costs 1,500 CHF (approx. 1,500 EUR) and the application for every additional licence is 700 CHF (approx. 700 EUR).

CRYPTO REGULATION IN LIECHTENSTEIN

Open a Crypto Company in Liechtenstein

To be eligible for a crypto licence in Liechtenstein, it’s mandatory to first establish a local company, which complies with crypto-specific requirements, including the varying internal controls. The Commercial Register is responsible for the incorporation of Liechtenstein companies and it normally processes applications within two weeks, provided that they’re of good quality. Importantly, all Liechtenstein companies are obligated to pay an annual fee of 1,200 CHF (approx. 1,200 EUR).

The initial capital requirements vary according to the type and scope of TT services planned. For instance, token issuers may be required to possess between 50,000 CHF (approx. 50,000 EUR) and 250,000 CHF (approx. 250,000 EUR), whereas TT exchange service providers must have between 30,000 CHF (approx. 30,000 EUR) and 100,000 CHF (approx. 100,000 EUR). Importantly, these minimum capital requirements must not be undercut at any time and applicants who intend to provide several TT services must meet the respective highest minimum capital requirement.

The most popular legal business structure in Liechtenstein is a Limited Liability Company (GmbH) which can be established by at least two shareholders who can both be foreigners. A Joint Stock Company (AG) is more complex and can be created for commercial activities at the international level, including trading on the stock exchange and coordinating the assets of subsidiaries. It can be established by a minimum number of two shareholders.

Key requirements for both types of companies engaging in crypto activities:

• The director must be a resident of Liechtenstein
• It’s obligatory to appoint a reporting officer for compliance, and optional to open a dedicated compliance department
• It’s obligatory to rent an office in Liechtenstein
• A Liechtenstein company must hire local personnel

Tax Legislation in Liechtenstein

Liechtenstein is known for its clear, transparent and efficient taxation framework. The taxes are collected and administered by the Tax Administration and crypto businesses are within its administrative scope. Therefore, the usual tax rates apply in most cases and in accordance with the specificities of the provided services or products. In addition, the authority is responsible for the exchange of information with foreign tax authorities on the basis of concluded tax agreements.

In accordance with the Due Diligence Act and the Due Diligence Ordinance, the Crypto Travel Rule applies to all TT transactions, including the transfers of cryptoassets. At the international level, it means that virtual asset service providers (VASPs) must share originator and beneficiary data with each other during crypto transactions that exceed the threshold of 1,000 USD (approx. 919 EUR).

If you’re convinced that Liechtenstein’s regulatory environment suits your crypto business model and growth vision, our highly qualified and experienced consultants here at Regulated United Europe (RUE) will be delighted to equip you with the necessary knowledge that will help you lay your path to success. We very well understand and closely monitor crypto-related legislation in Liechtenstein and the rest of the EU, and thus can guide you through the process of complying with local regulations. Moreover, we’re more than happy to assist you with opening and licensing a new company, as well as managing financial accounting and tax optimisation. Book a personalised consultation now to start a new journey in the crypto industry.