Crypto regulation in Lithuania
Since 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!
Lithuania cryptocurrency regulation
COST OF CRYPTOCURRENCY LICENSE
PACKAGE «COMPANY & CRYPTO License IN LITHUANIA»
- Establishment or purchase of a ready-made company
- Assistance in registration of share capital (EUR 125,000)
- Preparation of legal company documents
- Assistance in director employment/KYC/AML officer and information State Social Insurance Fund
- Lease of legal address at Vilnius Business Centre for 1 year
- Review of the business model and the structure of the Cryptocurrency Company
- Assistance in opening a bank account for cryptocurrency companies
- Procedural Rules and KYC/AML Company Procedures
- Preparation of notifications, forms and supporting documents for submission to FCIS and Business Regests of Lithuania
- Paying company registration government fees
- Paying government crypto license fees
- General counselling (5 hours)
|Ready-made company with acquired crypto license in Lithuania||24,900 EUR|
Changes in the regulation of cryptocurrency companies in Lithuania in 2022/2023
In order to combat the risk of money laundering, the Lithuanian government is making amendments to the regulation of the cryptocurrency market. New legislative amendments to the companies’ anti-money laundering (AML) and financial fraud countering (CTF) policies in the cryptocurrency sphere will change the procedure for identifying customers and prohibit the use of completely anonymous accounts.
The Lithuanian government has decided to revise the AML/CTF Law in order to ensure greater transparency and further development of the country’s cryptocurrency sector. The new amendments prepared by the Lithuanian Ministry of Finance and the Central Bank will introduce more detailed regulation of virtual currency exchanges and depositories of virtual currency money operators in Lithuania.
Lithuanian Finance Minister Gintarė Skaistė stated that the rapid growth of the crypto market and the emergence of new products require additional attention from the regulatory authorities to risk management, especially those risks related to AML. Against this background, active steps have been taken to strengthen the regulation of the crypto market in Lithuania in preparation for subsequent changes at the EU level. “The main goal is to ensure greater transparency of this sector and more effective prevention of money laundering and terrorist financing, and more effective management of other risks,” Finance Minister Gintara Skaistė presented the project at a government meeting.
These changes in legislation will introduce more detailed rules for identifying customers and impose a ban on opening anonymous accounts. The new regulation will tighten the requirements for crypto exchange operators — from January 1, 2023, they will be required to increase the size of their authorized capital to at least 125 thousand euros. The new requirements for crypto companies in Lithuania also include, among other things, the presence of a senior manager who will be a permanent resident of the Republic of Lithuania. This amendment is aimed at improving communication with supervisory authorities and ensuring closer communication with the local market.
The bill also provides that from February 1, 2023, Registrų Centras will publicly disclose the list of companies operating as a virtual currency exchange operator and a virtual currency depository wallet operator, thereby ensuring greater transparency of the market of cryptocurrency service providers.
The above requirements will come into force from November 2022 for new companies and from December 2022 for already registered companies.
List of major changes in legislation
- According to the amendments to the law, it will be possible to obtain a single cryptocurrency license in Lithuania. The Commercial Register (Registrų Centras) will be the supervisory authority to comply with formal requirements (deposit of initial capital, presence of a local AML manager in the structure of the company, etc.).
- The minimum authorized capital of a cryptocurrency company will be increased to 125,000 EUR.
- Instead of MLRO and a non-local AML manager, VASP will be required to have a local AML manager (working only in a single cryptocurrency company).
- In accordance with the amended legislation, increased requirements for the reputation of the director and UBO will be applied.
The original text of the amendments to the law is available here.
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.
|Ready-made company with acquired crypto license in Lithuania||24,900 EUR|
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.
Fast project implementation time
Possibility to purchase an off-the-shelf solution
Possibility of a fully remote solution
No obligation to have an office
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.
- 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
- 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:
- Register a legal entity in Lithuania in the legal form of UAB (limited liability company)
- At least 1 shareholder and at least 1 director (may be a shareholder);
- have an office in the country (virtual office is allowed);
- The minimum authorized capital of such a company shall be at least EUR 2,500;
- Board members and final beneficiaries must meet the requirements of an impeccable business reputation, as well as prove the absence of a criminal record;
- 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:
Notarized copies of the passports of the countries of residence
Confirmation of current address – utility bill not older than three months or bank statement not older than three months
Power of Attorney (PoA) when business registration and licensing is carried out remotely
CV or link to the public business profile in social networks (e.g. Linkedin) – confirmation of education and professional experience of all project participants
Apostille certificate of absence of criminal record not older than three months
In the list of documents for a legal entity:
- Charter and other corporate documents;
- Agreement of all directors;
- Confirmation of the opening of a bank account in Lithuania;
- 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:
- Development of a company business model with a list of operations to be carried out.
- Selecting and checking a unique name for a crypto company, selecting a legal address
- Preparation of notarial power of attorney for the representative of our company.
- Registration of constituent documents and registration forms.
- Collection of documentation for individuals involved in the activities of the company, in accordance with the requirements of the state. regulator.
- Registration of the company and opening of a bank account for it.
- 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.
Crypto regulation in Lithuania
|Period for consideration
||up to 1 month||Annual fee for supervision||No|
|State fee for application
||No||Local staff member||Required|
|Required share capital||125,000 €||Physical office||No|
|Corporate income tax||5 – 15%||Accounting audit||No|
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:
- 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.
- Storage of customer information with the possibility of transmission to the supervisory authority upon request.
- Regular submission of reports to the FCIS, as well as prompt response to current queries about the company’s activities.
- Financial monitoring and suspension of suspicious transactions.
- 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.
- Regular comprehensive financial audits with timely identification of threats, risks and vulnerabilities.
- 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?
- 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);
- Collect information on ownership structure, business management, client’s objectives;
- Cross-check the personal data of end-beneficiaries (CDOs), shareholders, board members from independent sources;
- Study the client’s business relationship;
- Constantly review and update information and documents for clients with whom we already have cooperation;
- 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?
- Pending the establishment of a business relationship;
- Prior to random exchange or cryptocurrency transactions, if the amount is equivalent to or exceeds 1,000 euros;
- If there are doubts about the reliability or completeness of the previously received information about the customer or the recipient of funds;
- 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.
Lawyers of our company are always glad to answer all your questions on obtaining a cryptocurrency license in Lithuania and also accompany your company throughout the whole licensing process.
Establish a Crypto Company in Lithuania
If you’re on a quest for a crypto-friendly jurisdiction, Lithuania is undoubtedly the right choice not only for its eager responsiveness to the fast-evolving cryptocurrency market but also for the proven ease of starting a business – Lithuania is 11th on the list of 2020 Ease of Doing Business Ranking.
Moreover, Lithuania currently ranks 6th on the International Tax Competitiveness Index which indicates low tax burdens on business investment and a sufficient level of neutrality through a well-structured framework of tax codes. Besides, the Central Bank of Lithuania, a regulator of Lithuanian crypto companies, implements a policy that allows them to grow and develop successfully.
If you’re a foreign national looking to establish a crypto company in Lithuania, you’ll be pleased to learn that in addition to the favourable conditions, you’ll also have the same rights as Lithuanians regardless of your citizenship status.
The Lithuanian business environment boasts the following advantages:
- One of the fastest company registration processes in the EU which saves your money and time
- World’s fastest and most reliable internet connection which allows your crypto business to thrive in a secure, productive and flexible environment (4th on the International Cybersecurity Index, 5th in CEE based on mobile download speed/Mbps)
- The vast availability of online services enabling you to carry out business activities and implement many procedures remotely
- Four international airports make the country easily accessible
- A pool of multilingual, motivated and highly skilled talents who are eager to drive innovative businesses forward
- The ease of paying taxes to the Lithuanian government provides you with peace of mind much needed for the successful development of your business
For AML/CFT purposes, all crypto companies are thoroughly supervised by the Lithuanian Financial Crime Investigation Service (FCIS). Its nearly impeccable performance is recognised by the global AML Basel Index where Lithuania is ranked 9th among the lowest-risk jurisdictions.
Legal Business Structure for Crypto Activities
To become eligible for a crypto licence in Lithuania which you can’t operate without, you must establish a Private Limited Liability Company (UAB). It’s a legal business structure that issues shares which aren’t traded on a stock exchange. As the name implies, its shareholders aren’t personally liable for unfulfilled company obligations. This means that in the event of a business failure, the shareholders risk only the assets they have given to the company, thus protecting their personal assets.
If you consider your crypto activities to be of higher risk, this type of a company is right 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 take into consideration before kicking off the process of company formation:
- A company name must be unique and compliant (it can be reserved via the State Enterprise Centre of Registers prior to starting the company by filling out the JAR-5 form)
- It can be established by one or more natural and/or legal persons, and the number of shareholders isn’t limited
- The company’s owners and directors don’t have to be permanent residents of Lithuania
- Minimum share capital – 2,500 EUR and at least 25% must be paid up (each shareholder must pay at least 25% of the nominal value of all their subscribed shares and the sum of the total excess of the nominal value of the subscribed shares)
- The non-monetary contribution, which is intended to partially pay for the company’s shares, must be evaluated by an independent property appraiser before signing the company’s founding agreement
- The most important decisions are made by shareholders by voting (each share carries one vote and the person who has acquired the biggest number of shares has the biggest impact on voting at the general meeting of shareholders)
- The absence of criminal records is a prerequisite which is why the company’s owners and directors must have their backgrounds checked
- Owners and directors of the company must prove they have proper education and enough experience required to run the company
- For crypto companies, it’s mandatory to develop and implement internal AML/CFT policies and procedures, such as CDD and KYC
- It’s also mandatory to hire a qualified AML Compliance Officer (can be a board member) who would be responsible for the adherence to AML regulations, internal policies and reporting to FCIS
- Annual audits are mandatory when a 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 disposition of shares enables access to additional funding and transfer of, or exit from the business. To gain more funds, a company can issue new shares, upon the acquisition of which the shareholders pay a certain amount 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
Setting up a new Private Limited Liability Company (UAB) in Lithuania is fairly easy if you have all the required documentation prepared for the process. It takes only a few days to register a new company and open a new corporate bank account enabling you to apply for a crypto licence immediately.
Steps of opening a Private Limited Liability Company (UAB) for crypto activities:
- Prepare a Memorandum of Association along with 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 must confirm the accuracy of the data entered in the application of registration, the compliance of the Articles of Association with the requirements of the law and the fact that the company can be registered)
- Register the company at the State Enterprise Centre of Registers
- Convert the accumulative bank account into a settlement account
- In the case of online company registration, obtain an authorised electronic signature
- Register with the State Tax Inspectorate and the State Social Insurance Fund
- Submit an application for a crypto licence to the Bank of Lithuania
According to Art. 4 of Law on Companies, the Articles of Association must include the following information:
- Name of the company
- The legal structure of the company
- Registered office address of the company
- Purpose of the company, including the specifics of its activities
- A specified amount of the company’s authorised capital
- Number of shares and their classification, their nominal value and clearly defined rights they grant to the 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
- The ways of presenting the company’s documents and other information to the shareholders
- The decision-making procedures with regards to opening branches and representative offices, and appointment or removal of the heads of the company’s branches and representative offices
- The procedure for amending the Articles of Association of the company
- The company’s duration period if the company is established as a company of limited duration
- The date of signing of the Articles of Association
There are two types of licences granted for crypto activities in Lithuania:
- Crypto Wallet Exchange Licence which enables licence holders to manage crypto wallets possessed by their customers
- Crypto Exchange Licence which enables licence holders to provide cryptocurrency-to-fiat-currency exchange services and vice versa as well as cryptocurrency-to-cryptocurrency exchange services
It takes less than a month to finalise the process of the crypto activities authorisation, provided that all the required stakeholders are verified and the documentation is carefully prepared which our team here at Regulated United Europe (RUE) can help you with. If your application is successful, the licence will be issued by the State Enterprise Centre of Registers and you’ll be able to start carrying out crypto activities.
Both the applications – company registration and licensing – as well as accompanying documents have to be submitted in the Lithuanian language. If you’re looking for a certified translator, we’re more than happy to arrange it for you.
Taxation of Crypto Companies in Lithuania
If you’ve already started envisioning your crypto company’s success, an effective tax planning strategy is certainly one of the essential factors to consider. You’ll want to learn about tax obligations, allowances, and incentives that are available to crypto companies in spite of the absence of a distinct crypto taxation framework in Lithuania.
Taxation of cryptocurrency exchange and wallet services is administered by the State Tax Inspectorate which considers the following activities taxable: mining, initial coin offering, buying, selling, mediation, and settlement in such currencies for purchased or sold products or services.
To make matters more straightforward, the State Tax Inspectorate has published a document clarifying crypto tax treatment and the application of general taxation rules. For tax purposes, a virtual currency is defined as an instrument that is analogous in its characteristics to Bitcoin, Ethereum, Ripple, and Litecoin. However, the definition isn’t strictly determined and may include various tokens.
Depending on the characteristics of your crypto activities, your company might be subject to paying the following taxes:
- Corporate Income Tax (CIT) – 15%
- Value Added Tax (VAT) – 21%
- State Social Insurance (SSI) – from 21%
- Withholding Tax (WHT) – 15%
Corporate Income Tax
The Lithuanian Corporate Income Tax is one of the lowest in the EU and is levied on the revenues generated by the Lithuanian crypto companies. Depending on the residence status of a company, the tax is applied either to the worldwide income or income sourced in Lithuania. A company is a tax resident of Lithuania if it’s incorporated there under Lithuanian law.
Resident crypto companies are obligated to pay Corporate Income Tax on all income sourced inside and outside of Lithuania. Non-resident crypto companies are only taxed on their income sourced in Lithuania (e.g. through permanent establishments located in Lithuania).
Income sourced from economic activities carried out by a Lithuanian tax resident through permanent establishments located in one of the EEA countries or in a country with which Lithuania has an agreement on the elimination of double taxation isn’t taxed if such income is subject to an equivalent tax in these countries.
In the context of the Corporate Income Tax application, based on the nature of transactions and economic implications, cryptocurrencies are recognised as short-term assets that can be used as a means of payment for products and services or held for sale.
Companies with an average number of employees not exceeding 10 people and income for the tax period not exceeding 300,000 EUR are taxed at the rate of 0% for the first tax period and at the rate of 5% for the following tax periods, except for cases outlined in the Law on Corporate Income Tax.
Value Added Tax
Generally, a crypto company must register as a VAT payer if it supplies taxable products or services in Lithuania and when its taxable annual turnover has exceeded 45,000 EUR.
For VAT purposes, the definition of cryptocurrencies isn’t dependent on the Bank of Lithuania as in this context they’re defined as an alternative means of payment and are therefore subject to the rules applicable to fiat money. All transactions involving cryptocurrencies are considered financial transactions.
Based on the existing legislation, the following rules apply to cryptocurrencies:
- Revenues generated from the provision of cryptocurrency exchange services are exempt from VAT as it’s equivalent to the treatment of fiat money
- Tokens issued during initial coin offerings (ICOs) are exempt from VAT as the process is equivalent to the issuance of shares
- Mining isn’t subject to VAT unless there’s a supplier-client relationship where a miner is paid for products or services supplied in Lithuania
- Sales of crypto-related services (e.g. paid referral of other platforms) are subject to VAT
State Social Insurance
If a crypto company employs people, it’s subject to paying the State Social Insurance which is part of the payroll taxes. An employee can’t begin to work until they’re registered at the Social Security Tax Office by submitting a 1-SD form designed to notify the authority about the beginning of their personal income. This must be completed no later than a day prior to the start of the employment.
Support for Crypto Startups in Lithuania
Once your crypto company is established and licensed, you shall ensure that all the legal requirements remain met and you can skillfully navigate the regulations while constantly innovating. There are several governmental and non-governmental organisations that can support your efforts. For instance, to encourage, accelerate and efficiently regulate crypto-related activities in Lithuania, the Bank of Lithuania has launched a blockchain-based regulatory sandbox LBChain which allows companies to test their business solutions in a controlled environment by providing regulatory and technological infrastructure.
You can also reach out to Blockchain Centre Vilnius, a worldwide network-based organisation uniting top leaders, innovators, and experienced enthusiasts that assist companies in bringing their products and services to the blockchain space.
If you’ve made up your mind to establish a crypto company in Lithuania, our experienced and dynamic team of Regulated United Europe (RUE) will help you to set the stage for your success by providing comprehensive legal advice on company formation, licensing, taxation as well as by offering professional financial accounting services. Contact our experts today for a tailored consultation.
Moreover, we offer a virtual office service that eliminates the need for expensive office leases, equipment, and staff. It’s an advantageous solution for small businesses who are willing to create a professional image by having access to such physical office functions as a business address, meeting facilities, and reception, while at the same time reducing costs and maintaining the benefits of remote work. Enquire about our virtual office now.
FREQUENTLY ASKED QUESTIONS
What makes Lithuania a good place to start a cryptocurrency business?Crypto businesses can operate legally in the country thanks to the country's legal framework. In order to prevent money laundering and terrorist financing, such activities are strictly regulated and controlled. The possibility of getting permission and getting involved in cryptocurrency exchanges or cryptocurrency wallet maintenance is not impossible. .
In recent years, what changes have taken place in the industry?
- In Lithuania, there will be the possibility of obtaining a single cryptocurrency license as a result of the amendments to the law. In case of formal requirements (deposit of initial capital, presence of a local AML manager, etc.), the Commercial Register (Registro Centras) will be the supervisory authority.
- An increase to 125,000 EUR will be made to the minimum amount of capital a cryptocurrency company must have.
- It will be necessary for VASP to have a local AML manager (working only for one cryptocurrency company) instead of a MLRO and a non-local AML manager.
- Following the amendment to the legislation, the director and UBO will be subject to increased reputational requirements.
In Lithuania, who is responsible for regulating crypto activity?A regulatory authority in this area is the Financial Crimes Investigation Service (FCIS).
Do crypto licenses come in different types?
- Providing services for the exchange of virtual currencies.
Providing such exchange services for a commission is the purpose of the "Virtual Currency Exchange Operator" authorization:
- The exchange of one virtual currency for another
- Cryptocurrency exchanged for fiat money
- Cryptocurrencies for fiat money
- Custom wallets are used by the service provider to store cryptocurrency.
Permits issued to "Virtual Currency Deposit Operators" permit clients to create encrypted keys for security reasons, and transfer cryptocurrency to third parties.
Lithuanian crypto taxation basics: what is it?
- In Lithuania, corporate income tax (WHT) is 15%.
- A reduced rate of 0-5% may apply to small firms with up to 10 employees and gross annual incomes up to €300,000.
- It depends on the nature of the transaction whether cryptocurrency transactions are taxed. By analogy with currency, securities or investments, the token does not incur a direct tax.
- Taxes on dividends are imposed at 15% on distributed profits.
- VAT is not applicable to crypto exchanger services.
What requirements must be met?
- A UAB (limited liability company) is the legal form of registering a legal entity in Lithuania.
- Shareholders and directors (may also be shareholders);
- It is permissible to have a virtual office in the country;
- Such a company must have a minimum authorized capital of EUR 2,500;
- There must be an impeccable business reputation among board members and final beneficiaries, as well as no criminal record;
- There must be a compliance officer for AML/KYC in place at the company.
How about the anti-money laundering policies?Crypto companies must follow strict rules to prevent money laundering and the financing of criminal activity.Initially, we are talking about implementing internal control policies and procedures, assessing the risks associated with the company's activities in accordance with the regulator's requirements. It is also envisaged that the competent authorities will monitor the process externally.
Are there any plans to tax net wealth?Taxes based on market value are a common cantonal tax imposed on cryptocurrencies, such as the Net Wealth Tax. There are major differences between cantons due to their local rates and collection systems. Tax bands are determined by factors such as residence permit type, marital status, and annual income, for example, in Zurich. A single taxpayer who earns less than 77,000 CHF (approx. 77,800 EUR) is not subject to paying the tax, but can be required to pay up to 5,584 CHF (approx. 5,640 EUR) if their income exceeds 3,158,000 CHF (approx. 3,191,000 EUR). For married couples, the thresholds are slightly higher.
Can you tell me what the capital gains tax rate is?Capital Gains Tax is imposed on profits from selling or trading crypto by self-employed crypto traders and businesses at a rate of up to 7.8%. Personal wealth assets are exempt from the tax.
Does accounting have any specific requirements?Cryptocurrency firms are not subject to special accounting and tax reporting requirements. Companies in Lithuania should conduct accounting according to the same standards.
Are there any AML documents I need to present?
Of course, you can. Below are a few of them.
- Establishing requirements and procedures for conducting and monitoring high-risk transactions, including transactions involving communication and location of clients
- Establishing procedures and requirements for operations with lower risk
- Data storage for transaction and customer information
- Reporting suspicious transactions or transactions to the regulatory body is a regulatory requirement
Lithuania has many advantages when it comes to crypto activity. What are those advantages?
Among the many, a few stand out.
- Attitudes toward crypto assets and related activities that are friendly;
- For providing services related to the exchange and storage of cryptocurrencies, there must be clear and understandable conditions for obtaining special permissions (crypto licenses);
- In comparison to neighboring Estonia, the regulatory framework for cryptocurrencies is more flexible;
- Creating a corporate account, registering a company, and obtaining a license remotely;
- In comparison with other EU jurisdictions, it has an acceptable corporate tax rate (15%);
Getting your crypto business registered in Lithuania: where to begin?To qualify for a Lithuanian crypto licence, which you cannot operate without, you must form a Private Limited Liability Company (UAB). Shares of the company aren't traded on a stock exchange because it's a legal business structure. Unfulfilled company obligations are not personally liable for its shareholders. As a result, a failure of the company would only expose the shareholders' personal assets to risk.
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.
Company in Estonia OÜ
Registration number: 14153440
Licence number: FIU000186
Phone: +372 5333 8208
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Address: Sepise 1, Tallinn, 11415, Estonia
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Phone: +370 661 75988
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Phone: +48 50 633 5087
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