Crypto Regulation in Slovakia

Crypto Regulation in SlovakiaSlovakia is one of the EU countries where a robust crypto regulatory framework is yet to be introduced. Although the authorities have acknowledged the importance of the development of innovative businesses and the associated risks as well as provided some clarity on such aspects as taxation, it appears that being part of the wider international discussion is prioritised over the rush into tight regulations which allows financial innovators to grow their businesses in a liberal environment.

The Slovak jurisdiction boasts such benefits as low company formation costs, competitive and business-friendly tax regime and the absence of restrictions on foreign ownership and employees.

The National Bank of Slovakia (NBS) is responsible for maintaining a stable monetary policy framework and for supervising participants of the Slovak financial market. The NBS defines cryptocurrencies as crypto assets, or digital assets, that are based on cryptography, decentralised and which normally use blockchain technology. Other terms include electronic coins or tokens. Mining is explained as a process of creating crypto assets.

The following types of crypto assets are distinguished:

  • Virtual assets can only be used as a means of exchange for fiat currencies and other virtual assets or as a means of payment for goods and services and no rights are attached to them
  • Utility tokens – may be used for a future purchase of services or products provided by the issuer of the tokens
  • Investment tokens may give the holder the right to participate in the management process or receive assets (future profits) sourced by the issuer of the tokens

Initial coin offerings (ICOs) are defined as an alternative method of financing, representing an innovative means of raising capital from the public to finance projects of particular persons. For this purpose, electronic coins and tokens are issued and offered to the public in exchange for fiat money or virtual assets. These transactions are mostly arranged online.

The NBS has recently launched a regulatory sandbox whose main goal is to promote innovation across the country by enabling testing of innovative products and facilitating cooperation between market participants and other relevant organisations. The Database of Interested Parties serves the purpose by giving access to the contact details of a number of companies supervised by the NBS. If you wish to test your innovative crypto product or service in a controlled environment, you can easily apply for participation on the NBS website.

Blockchain Slovakia is another organisation established to support the development of companies whose business models are based on blockchain technology, including cryptocurrencies. It facilitates collaboration between researchers, developers, entrepreneurs, regulators, investors with the aim to provide technical, legal and regulatory solutions.

Crypto Legislation in Slovakia

Generally, legislation enforced by the NBS neither defines, nor regulates crypto assets and related economic activities which means no specific requirements are imposed on Slovak companies supplying crypto products or services. Consequently, the authority has no grounds for introducing an authorisation scheme even if crypto activities pertain to traditional means of payment (e.g. exchange into fiat money).

Since Slovakia hasn’t imposed any comprehensive crypto-specific rules, most of the relevant aspects are covered by the EU legislation. Therefore, the NBS often references reports and other documents issued by the EU institutions.

As a rule of thumb, the NBS and other national authorities should refer to the EU and national law to decide whether each individual case can fall under the definition of electronic money, financial instruments or other regulated units.

The NBS mentions the report issued by the European Banking Authority (EBA) where crypto assets are discussed against the backdrop of EU legislation. Although the EU is still to develop a comprehensive regulatory framework for crypto businesses, there are instances when existing financial markets legislation applies. For example, if crypto assets fall within the definition of electronic money, the Second Payment Services Directive should be taken into consideration.

Another document referenced by the NBS is the report issued in 2019 by the European Securities and Markets Authority (ESMA) where features and functions of virtual assets are discussed along with the need to amend relevant legislation.

According to ESMA, in the cases when crypto assets are considered financial instruments, the following EU legislation should be applicable to the issuers and various crypto service providers:

  • Directive 2014/65/EU (MiFID II)
  • Prospectus Regulation
  • Market Abuse Directive
  • Short Selling Regulation
  • Central Securities Depositories Regulation (CSDR)
  • Settlement Finality Directive

However, in Slovak law, pursuant to the Act No. 566/2001 on securities and investment services, crypto-assets are not considered financial instruments or securities.

To make crypto businesses more transparent and trusted, Slovakia follows AML/CFT regulations set out by the EU. The three latest EU directives adopted by the member country are the Fourth Anti-Money Laundering Directive (AMLD4), the Fifth Anti-Money Laundering Directive (AMLD5) and the Sixth Anti-Money Laundering Directive (AMLD6). They have established a clear legal definition of crypto assets as well as a regulatory framework for companies engaging in crypto-related economic activities.

Moreover, the EU authorities have very recently agreed on new anti-money laundering rules for crypto transactions which are supposed to introduce more transparency without hindering innovation. According to the new rules, client identities must be verified for any size of transactions between two regulated digital wallet providers. Unhosted private wallets, on the other hand, will remain out of scope.

To comply with AML/CFT regulations, crypto companies must adhere to the following principles:

  • Design and implement policies, procedures to manage money laundering and terrorist financing risks
  • Ensure the staff is trained appropriately and is capable of identifying risks
  • Design and implement KYC policies enabling client identification, including customer due diligence procedures
  • Consistently monitor transactions according to the risk assessment principles
  • Report suspicious transactions and clients to the competent authorities pursuent to the national Act No. 297/2008 on the prevention of legalisation of proceeds from criminal activity and terrorist financing (Slovak AML Act)

In Slovakia, the AML/CFT regulations are enforced by the Slovak Financial Intelligence Unit who monitors crypto companies and is authorised to request relevant reports containing data about clients which eliminates the factor of anonymity from crypto activities.

Crypto Company Formation in Slovakia

To obtain a crypto license in Slovakia, you must establish a Slovak company first. If you’re not a Slovak citizen, you’ll be pleased to learn that foreigners are subject to the same regulations and eligible for the same benefits as Slovak citizens.

One of the most common types of legal structures is a Private Limited Liability Company which can be established within a few weeks, provided that all the required documentation is well prepared in advance. Whichever legal structure you choose, you’ll have to adhere to the rules concerning the company formation stipulated in the Commercial Code.

Requirements for a Private Limited Liability Company:

  • A unique company name (it’s advised to prepare three versions)
  • Minimum share capital – 5,000 EUR
  • A director residing either in Slovakia or another EU country
  • 1-50 shareholders
  • A local corporate bank account (it takes up to two weeks to open it)

The following documents are required to establish a Private Limited Liability Company in Slovakia:

  • Copies of identity documents (passports) of founders and directors
  • Proof of permanent residence of founders and directors (either utility bills or a document issued by competent authorities)
  • Articles of Association drafted by a notary
  • A detailed business plan, including operational structure and principles as well financial details
  • Certificate proving the absence of criminal records, issued by competent authorities
  • Secondary education diploma
  • An apostilled power of attorney if a company will be incorporated by a third party

The key steps you have to take to establish a Private Limited Liability Company:

  • Check the availability of and reserve your chosen company name in the Trade Register
  • Apply for a crypto licence
  • Submit all the required documents to the Trade Register
  • Register with the Tax Offices
  • Register with the health insurance company of choice and the Social Insurance Agency

You can start carrying out your crypto activities as soon as the certificate of registration is issued by the Trade Register.

How to Get a Crypto license in Slovakia

While crypto licensing is out of scope of the NBS, all Slovak crypto companies planning to offer crypto exchange services (involving cryptocurrencies and fiat money) or crypto wallets must register with the Trade Licensing Office prior to starting their economic activities in Slovakia. The requirement is based on Act No. 279/2020 Coll., which is an amendment to the Act No. 297/2008 on the prevention of legalisation of proceeds from criminal activity and terrorist financing.

Since these crypto activities fall under the category of regulated trades, in addition to general requirements (at least 18 years old of age, proven legal capacity and no criminal record), crypto entrepreneurs have to meet educational and other criteria related to the requirements for the financial market participants.

All applicant companies must meet the following key requirements:

  • Design data protection models
  • Create internal AML/CFT policies
  • Implement KYC procedures for client identification

How to obtain a trade licence:

  • Open a company with a legal address in Slovakia
  • Submit an application in Slovak language either by visiting one of the local offices of the Trade Licensing Office located near your residential address or online through the Central Public Administration Portal
  • Pay state fees (5 EUR for unregulated trades or 15 EUR for regulated trades)

Required documents:

  • Articles of Association
  • Proof of the premises obtained for the registered office in Slovakia (a virtual office is permitted)
    • It can be either a lease agreement stating the explicit business purpose or a written consent of the property owner signed by a notary
  • A certificate issued by the authorities of the country of permanent residence proving the absence of criminal records (it must not be issued earlier than 90 days ago)
  • Proof of your or your representative’s relevant qualification enabling to carry out crypto activities

All the documents must be translated into Slovak language by a translator certified by the Ministry of Justice of the Slovak Republic. If you need such a service, we’ll be happy to arrange it for you.

If all the required information and documentation is supplied correctly, the authority issues a license within three working days. Any changes made to the licensee’s structure or activities must be reported to the Trade Licensing Office. Relevant documents reflecting the change have to be submitted within 15 days from the event of the change.

Taxes on Cryptocurrencies in Slovakia

In Slovakia, in most instances, crypto companies are liable for paying the same general taxes as other businesses. For tax purposes, cryptocurrencies are treated as short-term financial assets other than fiat money and they’re priced at market value at the time of transaction.

All Slovak companies engaging in crypto-related economic activities must register with the Tax Offices who collect and administer taxes in Slovakia. Like any other company, they can either opt for a standard tax year which coincides with the calendar year or choose a different 12-month period.

Slovak crypto companies usually have to pay the following taxes:

  • Corporate Income Tax (CIT) – 21%
  • Value Added Tax (VAT) – 20%
  • Withholding Tax (WHT) – 0%-35%
  • Social Insurance Contributions (SIC) – 25,2%
  • Health Insurance Contributions (HIC) – 10%

The tax treatment of cryptocurrencies was clarified in the guidance published by the Ministry of Finance in 2018. According to the authority, revenues sourced from cryptocurrencies are taxable and any type of exchange involving cryptocurrencies (e.g. an exchange of a virtual currency into another virtual currency or for goods or services) is a taxable transfer.

To ensure consistent interpretation of the taxation of income sourced from the sale of virtual currencies, the Ministry of Finance also issued amendments to the Act on Tax Administration and the Income Tax Act where a definition of virtual currencies was included into the category of other income as well as new rules governing the taxation of revenue sourced from the sale of virtual currencies were introduced.

A virtual currency is defined as a digital storage of value that isn’t issued or guaranteed by a central bank or public authority. Normally, it’s not linked to a legal tender, isn’t considered a legal tender but is accepted by natural or legal persons as a payment instrument which can be transferred, stored or traded.

Furthermore, the sale of virtual currencies was defined as the exchange of virtual currencies for assets or other virtual currencies, or for the provision of services or virtual currency conversion.

Revenue sourced from the following activities is taxable:

  • Exchanging virtual currencies into other type of virtual currencies
  • Exchanging virtual currencies for the provision of services
  • Exchanging virtual currencies for assets

According to the amended Income Tax Act, certain crypto activities aren’t included in the tax base, e.g. income derived from virtual currencies acquired through mining in the tax period of its utilisation. Instead, it should be included in the tax base of the tax period of the realisation of the sale of the virtual currencies.

The Income Tax Act also regulates tax expenses in relation to virtual currencies. As a tax expense, costs may be used to the total amount of the entry price of virtual currencies in the taxable period during which they are sold up to the amount of the revenue from their sales. The entry price of a virtual currency is considered the acquisition price (in case of a purchase) and the real value (in case of an exchange of virtual currencies into other virtual currencies).

It’s worth mentioning that Slovak crypto businesses also have access to the existing tax incentives and allowances. For instance, they can avail of R&D deduction of 200% where expenses incurred by research and development projects can be deducted from the tax base twice.

Slovakia has around 70 international agreements on the elimination of double taxation which enable the taxpayers to protect their income from being taxed twice in different countries.

Accounting and Auditing Requirements

The Accounting Act was amended in 2018 to set out accounting rules concerning virtual currencies and companies engaging in crypto-related economic activities. One of the obligations is to convert virtual currencies into euros on the day of the accounting case.

The Accounting Act also regulates the method of valuation of the so-called real value of virtual currencies. A real value of a virtual currency is the market price on the valuation day. It’s determined by an accounting company using a selected public market of virtual currencies. During the accounting period, the company must use the same method of determining the real value of handled virtual currencies.

A real value of a virtual currency emerges when:

  • A virtual currency is acquired by payment
  • A virtual currency is acquired by mining at the date of exchange for another asset or service
  • A service and property is acquired in exchange for virtual currencies except for fiat money and valuables valued at nominal values
  • A virtual currency is acquired in exchange for another virtual currency

Another notable rule is that cryptocurrencies directly obtained from mining have to be kept off-balance sheet until they are sold or traded.

When it comes to financial audit in Slovakia, the Accounting Act also stipulates which companies are obligated to have their financial statements audited by a certified auditor.

Auditing is mandatory to companies that meet at least two of the following criteria:

  • Total assets exceed 1,000,000 EUR
  • Net turnover is more than 2,000,000 EUR
  • Average number of employees exceeds 30

If Slovak crypto regulations meet your expectations, our team of dedicated and quality-focused lawyers will be delighted to help you to establish a licensed crypto business in Slovakia. You can rest assured that we’ll take care of your company formation, licensing, taxation and reporting. Furthermore, if you’re in need of accounting services or a virtual office, we’re more than happy to step in. Contact us now to book a personalised consultation.

Establish a Crypto Company in Slovakia

In spite of the absence of a robust crypto regulatory framework, crypto businesses can legally operate in Slovakia as long as they comply with general regulations. If you’re not a Slovak citizen, you’ll be pleased to learn that foreign entrepreneurs are subject to the same regulations and have access to the same incentives as Slovak citizens.

The Slovak business environment boasts the following advantages:

  • Open to innovation (e.g. the National Bank of Slovakia (NBS) has recently launched a regulatory sandbox to enable the testing of innovative products and services and to facilitate cooperation between market participants and relevant organisations)
  • Investment incentives for eligible companies, including tax incentives and allowances (e.g. R&D deduction of 200% where expenses incurred by research and development projects can be deducted from the tax base twice)
  • Economic growth (according to OECD, the Slovak economy should grow by 2,3% in 2022 and 3,4% in 2023)

All Slovak companies are primarily regulated by the Commercial Code where rules for incorporation, internal governance, external operations and dissolution of various types of companies are laid out.

The publicly available Commercial Register is maintained by the district courts and administered by the Ministry of Justice. The register contains such legally prescribed information as business name, identification number and registered seat.

Slovakia hasn’t yet introduced a crypto licence. Nevertheless, crypto-related economic activities are considered a regulated trade and they, therefore, fall within the scope of the regulations enforced by the Trade Licensing Office.

Types of Business Entities

As a crypto entrepreneur, you can choose from a variety of business entities depending on your business model. The most frequently chosen business structures are a Private Limited Liability Company (S.R.O.) and a Joint Stock Company (A.S.).

Both of them are suitable for engaging in a business that carries a higher level of risk since the liability of shareholders is limited to the contributions made to the capital. Whichever legal structure you choose, you’ll have to adhere to the rules concerning the company formation stipulated in the Commercial Code.

Generally, financial statements and auditor reports of a Private Limited Liability Company (S.R.O.) or a Joint Stock Company (A.S.) must be submitted to the Public Registry of Financial Statements who’s responsible for supplying the documents to the Collection of Documents.

Private Limited Liability Company (S.R.O.)

One of the most common types of legal structures is a Private Limited Liability Company (S.R.O.) which is usually selected to establish a small or medium-sized business since share capital requirements are low and corporate governance regulations are lighter compared to more complex business structures.

Essential features of a Private Limited Liability Company (S.R.O.):

  • A unique and compliant company name is a prerequisite
  • 1-50 shareholders
  • Minimum share capital – 5,000 EUR
  • The minimum value of a shareholder’s contribution – 750 EUR
  • It should have a director residing either in Slovakia or another EU country
  • A local corporate bank account is required
  • Corporate governance includes the General Meeting, Executive and a Supervisory Board

The following documents are required to establish a Private Limited Liability Company (S.R.O.) in Slovakia:

  • A Memorandum of Association
  • Articles of Association
  • A bank certificate stating the capital
  • Identity documents of founders and directors
  • Proof of permanent residence of founders and directors (either utility bills or a document issued by competent authorities)
  • A detailed business plan, including operational structure and principles as well as financial details
  • Certificates issued by competent authorities proving that the founders and directors have no criminal records
  • Certificates proving that the company founders aren’t included in the list of debtors
  • Secondary education diplomas of the founders
  • Certified copy of the trade authorisation
  • A declaration of the contributions manager confirming that contributions have been transferred by all shareholders
  • An apostilled power of attorney if a company is incorporated by a third party

The Memorandum of Association must contain the following information:

  • Company name
  • Address of the registered office of the company
  • Details about the founders (names and addresses of residence for individuals, and company names and registered office addresses for legal entities)
  • The scope of its business activities
  • The amount of the registered capital
  • Details about contributions of each member (amount, terms of payment, etc.)
  • Identification details and residential addresses of the company’s first executive directors and the ways in which they will represent the company
  • If applicable, details of the members of the first Supervisory Board (names, residential addresses, birth certificate numbers)
  • Details of the contributions custodian
  • If applicable, the reserve fund, including terms and the limit, up to which the company should be obligated to replenish the reserve fund
  • Benefits granted to persons involved in the formation of the company
  • Estimated costs of the company incurred by the company formation process
  • A stated intent to issue Articles of Association containing the company’s internal governance principles

An audit is mandatory only for companies that exceed at least two of the following amounts:

  • Total assets – 1 mill. EUR
  • Net turnover – 2 mill. EUR
  • The average number of employees – 30

Joint Stock Company (A.S.)

This type of legal business structure can be used to open either a private or a public company and is essentially designed for large-scale businesses. The capital requirements and regulatory requirements are significantly higher compared to a Private Limited Liability Company (S.R.O.).

By definition, a Joint Stock Company (A.S.) is a company, the registered capital of which is composed of a certain number of shares of a certain nominal value. A share represents the rights of the shareholder to participate in the company’s management processes, to share the profits and the liquidation balance.

A company is public if it issues all the shares or a part of them to the general public for the subscription of shares or the shares which were accepted for trading by a stock exchange.

Key features of a Joint Stock Company (A.S.):

  • The name of the company must include the words Akciovaspolocnosi or the abbreviation Akc. spol. or A.S.
  • Minimum share capital – 25,000 EUR
  • The directors can only be natural persons who may need a residence permit if they aren’t EU citizens
  • A managing director must be a citizen of the EU or OECD
  • Shareholders don’t have to be permanent residents of Slovakia
  • The shares are freely transferable if it’s a public company
  • The company is liable with its entire property for any breach of its obligations
  • The shareholders aren’t liable for the obligations of the company
  • The total nominal value of shares must be equal to the registered capital
  • A company can, if the General Meeting approves, issue bonds to which the right to their exchange against the shares of the company or the right to a preferential subscription of shares of the company is attached

Required documents:

  • A Memorandum of Association
  • A Foundation Deed
  • A bank certificate stating the capital
  • Identity documents of founders and directors
  • Proof of permanent residence of founders and directors (either utility bills or a document issued by competent authorities)
  • A detailed business plan, including operational structure and principles as well as financial details
  • Certificates issued by competent authorities proving that the founders and directors have no criminal records
  • Certificates proving that the company founders aren’t included in the list of debtors
  • Secondary education diplomas of the founders
  • Certified copy of the trade authorisation
  • An apostilled power of attorney if a company is incorporated by a third party

The Foundation Deed must include the following information:

  • The company name
  • The address of the company’s registered office
  • Scope of business activities
  • The amount of the registered capital
  • The number of shares, their nominal value and form, issue price, also restrictions if applicable
    • If shares of different types are to be issued, their designation and a specification of the attached rights should also be included
  • The number of shares subscribed by each founder
  • A description of in-kind contributions (specifics, value, etc.)
  • Information about the custodian of the contributions
  • An estimate of the costs associated with the formation of the company
  • In case of a public company formation, the place and time of share subscription and the procedure of subscription of shares in excess of the proposed registered capital must also be included
  • The place and the term for the payment of fractions of the subscribed shares and the percentage
  • The ways of convening the constituent General Meeting of subscribers

The shares are considered to have been issued to the general public for a subscription if they are all subscribed by a securities broker pursuant to a shares issue facilitation agreement unless the agreement contains an obligation of the securities broker to sell the shares to pre-agreed parties.

If a public company has less than 50 shareholders and its shares haven’t been accepted for trading by a stock exchange, it can be transformed into a private company, provided that all the shareholders approve the change. The number of shareholders can be determined by referencing the names of shareholders listed in the register of shareholders.

All the registration documents of any company type must be translated into the Slovak language by a translator certified by the Ministry of Justice of the Slovak Republic. If you’re considering requesting such a service, we’ll be happy to arrange it for you.

What You Need to Do

If you have a qualified electronic signature and speak the Slovak language, you can establish a company online by filling out one of the relevant forms of the Trade Register. Otherwise, you can either travel to Slovakia or sign a power of attorney and a representative will take care of all the procedures of your company formation on your behalf.

To open a crypto company in Slovakia, you should take the following steps:

  • Prepare three versions of your company names and submit them to the Trade Register who will reserve the one that meets all the regulatory requirements and is available
  • Notify the Trade Licensing Office about your intention to start a crypto business in Slovakia
  • Submit an application for company registration along with required documents to the Trade Register
  • Apply for a licence for a regulated trade at the Trade Licensing Office
  • Register with the Tax Offices
  • Register with the health insurance company of choice and the Social Insurance Agency

It’s imperative to note that Slovak crypto company formation is inherently linked to an appropriate trade licence. All companies planning to offer crypto exchange services (involving cryptocurrencies and fiat money) or crypto wallet services in or from within Slovakia must register with the Trade Licensing Office prior to starting their business for AML/CFT purposes.

Taxation of Slovak Crypto Companies

Every Slovak crypto company is obligated to register with the Tax Offices, Slovakia’s tax authority, and it’s liable for paying general taxes. The standard tax year coincides with the calendar year.

Slovak cryptocurrency companies are liable for paying the following taxes:

  • Corporate Income Tax (CIT) – 21%
  • Value Added Tax (VAT) – 20%
  • Withholding Tax (WHT) – 0%-35%
  • Social Insurance Contributions (SIC) – 25,2%
  • Health Insurance Contributions (HIC) – 10%

Resident companies are taxed on their worldwide income and can avail of investment incentives and over 70 international agreements on the elimination of double taxation. Non-residents are taxed only on their income sourced from their economic activities based in Slovakia. A company is classified as a tax resident if it has been incorporated in Slovakia or if its effective management is conducted in Slovakia.

If you’re planning to establish a crypto company in Slovakia, our trusted and dynamic team of Regulated United Europe (RUE) is here to provide guidance on company formation, licensing and taxation. Moreover, we’ll be more than happy to step in if you’re looking for financial accounting services. We guarantee efficiency, confidentiality and meticulous attention to every detail that impacts your business success. Contact us now to book a personalised consultation.

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