Crypto regulation in Lithuania

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 centre 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 neighbouring 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 centre;
• 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. 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.

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 favourable 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 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).List of legal entities operating as a virtual currency exchange operator in Lithuania.

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 in regard 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.