Crypto regulation in Lithuania

Registration of a crypto company in Lithuania

Due to the last changes in legislation, Lithuania can be considered as 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 not like that anymore. First, more means would have to be invested in the registration of crypto businesses in Estonia: increased requirements to the minimum amount of authorized capital. The second aspect is that the organization of the activities of such companies has become more complicated: it has become obligatory to move the centre of business management 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 neighbour Estonia;
• A possibility of registering a company, registering a corporate account and remotely obtaining a licence;
• An acceptable corporate tax rate comparing to other EU jurisdictions is 15%;
• The country in recent years possesses the status of a fintech business centre;
• There are no residency requirements for the company’s directors and shareholders;
• Practically zero bureaucratic expenses for the registration of a business by a non-resident;
• Relatively low expenses, both for the very procedure of registration of the company and for its further maintenance;
• To create conditions for entrepreneurs to start working with crypto projects as soon as possible when the market conditions are favorable.

The Lithuanian Financial Crime Investigation Service monitors the activities of crypto-wallet operators and cryptocurrency service providers. One and the very same business may be authorized for both types of crypto activities, and on average, less than one month is needed to get authorization.

Permission for providing services of cryptocurrency and/or wallet has to be obtained by incorporating, first of all, a limited liability company UAB 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. A 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.

Law of the Republic of Lithuania on the Prevention of Money Laundering and Financing of Terrorism (hereinafter – Law on the Prevention of Money Laundering and Terrorist Financing) binds PWA to follow the requirements of POD, including such as customer identification and authentication, monitoring and suspension of transactions, reporting to authorities, etc. Thus, for the valid commencement of cryptocurrency-related activities, it is preferable to have an internal POD officer, preferably local, who will report correctly to FCIS.

The practical challenge to be resolved by all VASP is, of course, how to establish viable banking relationships which would ensure seamless transitions for the customers between the FIAT currencies and the cryptocurrency. On this point, Lithuania is also a friendly jurisdiction, having almost 300 fintech companies in its ecosystem ready to offer modern and advanced financial solutions for blockchain-oriented businesses.

While the crypto market is developing so rapidly in search of competitive advantage, VASP shall seek innovative, customer-friendly, and sustainable solutions for the offering of products. While crypto services cannot be qualified as financial services in the direct sense of this word, in general, some products provided by VASP may bear characteristics similar to conventional financial products and as such may be licensable. By combining the developed infrastructure for the licensing of financial services and in light of the approach by the Bank of Lithuania, such digital business is able to scale its business activity successfully by acquiring additional licenses (e.g., EMI, PI, financial broker).

List of legal persons operating as a virtual currency exchange operator in Lithuania.

ICO/STO and other capital raising modes in Lithuania

In 2017, the Bank of Lithuania has presented its approach to virtual assets and initial coin offerings, updated in 2019. Although the approach of the oversight body described therein is quite neutral, the basic principles of the regulatory regime are present. For example, depending on the type of supply, the ICOs can be either exempt from regulatory measures or be subject to the requirements that apply to securities offering, crowdfunding, collective investment, or investment services. In addition, the Bank of Lithuania has published recommendations on security token offering, which, with a view to the characteristics of the tokens offered-that is, payment, utility, and security-offers a more detailed approach as regards the regulatory requirements. As most of these recommendations deal primarily with ICO and STO.

Taxation of Cryptocurrency Activities

Generally speaking, there are two main taxes that enterprises shall consider from a taxation perspective: corporate income tax («CPN») and value added tax («VAT»). Both of these taxes can be collected under certain conditions, and the tax regime generally depends on the kind of actions taken. For example, income received from cryptocurrency exchanges and security tokens are exempt from VAT, while other activities provided by cryptocurrency exchanges—for example, getting some kind of referral fee from other platforms—might be subject to taxation in some cases. VESP profits are subject to the CPN rate of 15%; this is cut down to almost a few percent, thanks to the application of special tax credits for R&D activities or investment projects regarding software. MDO/IEO/ILO, CIT obligations depend on the type of issued tokens—funds raised in exchange for:

• securities tokens are not taxed by CIT,
• 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
• other forms of tokens are taxable upon receipt of funds.

Since there might be several variants of business, there might also be quite plenty of variants of taxation. That’s why we strongly advise conducting a profound tax assessment before the very beginning of work.

Lawyers of our company are always happy to answer all your questions about obtaining a cryptocurrency license in Lithuania and also accompany your company through the whole licensing process.

Establish a Crypto Company in Lithuania

If you are on a quest for crypto-friendly jurisdiction, then Lithuania is surely the right choice, because it’s not only eager to be responsive to the fast evolution of the cryptocurrency market but easily possible to start a business in Lithuania. This Baltic country is 11th on the list of 2020 Ease of Doing Business Ranking.

In addition, Lithuania is already in 6th place in the International Tax Competitiveness Index ranking, which presupposes low tax burdens on business investment and a sufficiently high level of neutrality due to its well-structured framework of tax codes. Besides, the Central Bank of Lithuania, being a regulator of Lithuanian crypto companies, created such a policy that allows them to successfully grow and develop.

If you are a foreign national willing to establish a crypto company in Lithuania, in addition to favorable conditions, you will have equal rights, regardless of your citizenship status.

The advantages of the business environment in Lithuania are as follows:

• Probably the fastest procedure of company registration within the EU, that saves your money and time.
• The world’s fastest, most reliable internet empowers your crypto business to flourish in a secure, productive, and flexible atmosphere. 4th place in the International Cybersecurity Index ranks and 5th in CEE by mobile download speed (Mbps).
• A pool of multilingual, motivated, and highly-qualified talents willing to drive innovative businesses forward.
• The ease of paying your taxes with the Lithuanian government gives you peace of mind that is so much needed to develop your business successfully.

For AML/CFT purposes, all crypto companies are seriously overseen by the Lithuanian Financial Crime Investigation Service (FCIS). Its almost impeccable performance is recognized in the global AML Basel Index, with a rank of 9th among the lowest-risk jurisdictions.

Legal Business Structure for Crypto Activities

First of all, one has to establish a Private Limited Liability Company-UAB regarding crypto licensing. Suffice it to say, it refers to the legal form of business organization, issuing unquoted shares. It got this name because its owners are not personally liable if the company could not cover the obligations. This means that, in the event of business failure, the shareholders incur a loss only to the extent of the assets provided to the company, and no personal assets of theirs are touched.

If you consider your crypto activities to be of higher risk, this type of a company is for you. It can be established by a representative or online using templates and founding documents through the self-service system of the State Enterprise Centre of Registers.

The main factors to consider before embarking on the company formation process:

• Company name: Unique, compliant, and may be reserved with the State Enterprise Centre of Registers prior to setting up, by completion of form JAR-5.
• It is set up by one or several natural and/or legal persons; the number of shareholders is not limited.
• The owners and directors of the company need not be permanent residents of Lithuania.
• Minimum share capital – 2,500 EUR and at least 25% must be paid up, which implies that each shareholder has to make a payment of at least 25% of the nominal value of all his subscribed shares and the sum of the total excess of the nominal value of subscribed shares.
• The in-kind contribution, intended to partially pay for the company’s shares, must be pre-valued by an independent property appraiser before the signing of the company’s founding agreement.
• The most important decisions, by shareholders, are taken through voting – each share has one vote and a person who has acquired the biggest number of shares has the biggest influence on voting at the general meeting of shareholders.
• The second precondition, therefore, requires the company’s owners and directors to undergo background checks due to a lack of criminal records. The owners and directors of the company must also provide proof of proper education and enough experience in order to run a company. Crypto companies need to develop and implement internal AML/CFT policies and procedures, such as CDD and KYC.
• It is also a must to appoint a qualified AML Compliance Officer, which can be a board member, too, who would be responsible for the observance of AML regulations, internal policies, and reporting to FCIS. Annual audits are mandatory when the company exceeds at least two of the following amounts: total assets – 1.8 mill. EUR, sales – 3.5 mill. EUR, and an average number of employees – 50.

A share disposition allows access to more funds and transfer of or exit from the business. In order to acquire more funds, a company can issue new shares, upon the acquisition of which the shareholders pay a certain sum of money. If such a company is profitable, its shareholders can receive the profit earned by the company through dividends or by receiving a salary, in which case certain taxes will have to be paid.

What You Need to Do

In general, setting up a new Private Limited Liability Company (UAB) in Lithuania is relatively easy and quick, provided you have all the necessary documents ready for the incorporation process. This means that it is only a question of a few days until your new company is registered and a new corporate bank account is opened to allow you to apply immediately for a crypto license.

Steps of opening a Private Limited Liability Company (UAB) for crypto activities:

• Prepare the Memorandum of Association along with the Articles of Association.
• Reserve a temporary company name via the State Enterprise Centre of Registers.
• Obtain a business address in Lithuania.
• Open an accumulative bank account.
• Transfer share capital to the bank account.
• Notarise the founding documents at a registered notary’s office—the notary has to confirm the accuracy of the data entered in the application of registration, compliance of the Articles of Association with the requirements of the law, the fact that the company may be registered;
• Register the company at the State Enterprise Centre of Registers;
• Convert the accumulative bank account into a settlement account.
• Online registration of the company, receive an e-signature.
• Registration with the State Tax Inspectorate and the State Social Insurance Fund.
• Following the registering a crypto company, a filing an application for a crypto license with the Bank of Lithuania.

As it is provided in Art. 4 of Law on Companies, Articles of Association shall be prepared and should include the following information:

• Company name
• Type of the legal form of the company
• Address of the registered office of the company
• The purpose of the company, including the type of its activity
• The amount of its authorized capital expressed
• The number of shares and their type, their nominal value and clearly defined rights they grant to its holder
• Powers of the general meeting of shareholders, the procedure of calling the meeting
• Other bodies of the company, their powers, the procedures of electing or removing from office; The procedure of publishing the notices of the company, including specific public channels; Ways of presenting the company’s documents and other information to shareholders; Decision-making procedures in regard to opening branches and representative offices, and appointment or removal of the heads of the company’s branches and representative offices.
• Operating procedure of the Articles of Association of the company
• Company’s duration period – in case the company is established as a company of limited duration
• Date of signing of the Articles of Association

There are two types of licenses issued for crypto activity in Lithuania:

• Crypto Wallet Exchange Licence which enables licence holders to manage crypto wallets possessed by their customers
• Crypto Exchange Licence which entitles the licence holders to provide exchange services between cryptocurrency and fiat currency in either direction, as well as exchange among different types of cryptocurrency.

Provided that all the necessary stakeholders are verified and the documentation is prepared with due care, it takes less than one month to finalize the process of authorization of crypto activities. Our team here at Regulated United Europe (RUE) can take care of this with you. After a successful application, you will receive a license issued by the State Enterprise Centre of Registers, and you can start performing crypto activities.

The two applications – company registration and licensing – must be submitted with supporting documents in the Lithuanian language. If you need a certified translator, we can arrange it for you.