Cryptocurrency Licence in Ireland
Outlining the difference between cryptocurrency and traditional currencies, it’s important to note that whereas fiat (or traditional) currencies do exist in a digital form, crypto exists only in digital form. Consequently, cryptocurrencies are also widely known and referred to as virtual assets. The term ‘virtual asset’ refers to any digital representation of value that can be digitally traded, transferred or used for payment or investment purposes. It does not include the digital representation of ffat currencies.
The distinction is also very clear in a regulatory sense as there are major differences in establishment and licensing terms for companies representing both areas of financial activity.
Benefits of obtaining a cryptocurrency license in Ireland
Stepping hand in hand with technological advancements, Ireland offers a favorable and profitable environment for working with crypto assets, granting good trading opportunities for Bitcoin and other cryptocurrencies in the European Union.
From a regulatory perspective, the procedure for opening a company in Ireland is comparatively quick and straightforward. A very relevant point to add is that the establishment process takes approximately two weeks and can be completed without the personal presence of founders.
That makes for a high success rate and is well illustrated by the presence of many successful global players in the finance industry, who have chosen Ireland as a legal base for their business activity. Having so many financial service providers in one place also creates a unique business environment, maintaining a self-sufficient ecosystem but also drawing significant support and good response at a regulatory level. A good example of that is a recent strategy for the international financial services industry, titled “Ireland for Finance”. In short, it predicts an increase in structural and governmental support to the fintech sector, outlining ambitious growth targets and positioning Ireland and Dublin as the leading Financial Services hub.
Shifting to the financial aspect of opening and running a business in the finance industry, Ireland has an advantageous taxation system, offering a relatively low tax rate of 12,5%. Furthermore, Ireland supports research development and innovation, providing financial support that includes tax credits and funds air by IDA Ireland. Finally, holders of a cryptocurrency license issued in Ireland are also eligible to passport to other EEA member states. In other words, licensed virtual asset service providers may do business in another EEA state without the need for further authorization from that country.
Cryptocurrency license in Ireland: regulatory system and licensed financial services
In Ireland, companies that offer money exchanges between crypto currencies or between crypto and fiat currencies are categorized as Virtual Asset Service Providers (VASPs). In order to carry out trading operations that involve virtual assets, companies need to obtain a cryptocurrency license. For the purposes of the legislation, VASPs that conduct business in Ireland are labeled as “designated persons”. They are subject to the Irish ati-money laundering (AML) network and the countering the financing of terrorism (CFT) network and must abide by the regulations outlined by both networks.
The regulatory body that handles licensing procedures, issues cryptocurrency licenses (or denies applications) and controls licensed financial service providers in Ireland is the Central Bank of Ireland. However, it’s not a license in a traditional sense that it issues, but rather an authorization. Such authorization offers the right to perform the following operations:
- Exchange between virtual assets and fiat currencies
- Financial trades involving one or more types of virtual assets
- Transfer of virtual assets from one address or account to another – on behalf of another person (otherwise referred to as a user or a client of a financial service provider)
- Hosting and servicing storage wallets
- Participation in the provision of financial services related to the issuance and/or sale of virtual assets.
Formal requirements for obtaining a cryptocurrency license in Ireland
Applicant Firms applying for AML/CFT registration will have to submit an application to the Central Bank. In order for the Central Bank to approve a VASP’s an application for AML/CFT registration, the Central Bank must be satisfied that:
- The firm’s AML/CFT policies and procedures are effective in combatting the money laundering and terrorist financing (ML/TF) risks associated with its business model.
- The firm’s management and beneficial owners are fit and proper.
In reference to the first requirement, VASPs are required to comply with the AML/CFT obligations contained under Part 4 of the CJA 2010 to 2021. Those include:
- Carrying out an ML/TF risk assessment of their business
- Undertaking customer due diligence (CDD) of their customers
- Carrying out ongoing monitoring of customers and customer transactions
- Filing Suspicious Transaction Reports (STRs) with Financial Intelligence Unit (FIU) Ireland and the Revenue Commissioner in instances where money laundering or terrorist financing is known or suspected
- Maintaining and implementing AML/CFT policies, procedures and controls
- Retaining appropriate records
- Providing AML/CFT training to all staff on an ongoing basis.
Further formal requirements apply with regard to VASP’s senior employees. Although The Central Bank has not set out expectations with regard to the location of an applicant firms directors, the principle of territoriality enshrined in the EU AML Directives and section 25 of the CJA2010 applies. In relation to it, the Central Bank will expect to see the applicant firm have a physical presence located in Ireland. Moreover, there must be at least one employee in a senior management role located physically in Ireland, to act as the contact person for engagement with the Central Bank.
In fulfilling its statutory role, the Central Bank adopts a robust, structured and risk-based process that seeks to ensure that only those applicants that demonstrate that they are in a position to comply are registered. The Central Bank will process each application for registration as expeditiously as possible, meeting its obligation to operate as a rigorous and effective gatekeeper.
Origin- and business area-specific requirements
All VASPs established in Ireland are required to register with the Central Bank for AML/CFT purposes.
Firms not established in Ireland and/or not carrying on business as a VASP immediately prior to the 2021 Act coming into force must be registered with the Central Bank prior to providing any financial services involving virtual assets from Ireland.
VASPs established in Ireland and carrying on business as a VASP immediately prior to the 2021 Act coming into force, have 3 months to apply to the Central Bank for registration.
If a firm that is currently authorised by the Central Bank for prudential and/or conduct of business services is or plans to also carry on business as a VASP, this firm is obliged to register with the Central Bank as a VASP.
The Central Bank will process each application for registration as expeditiously as possible, while meeting its obligation to operate a rigorous and effective gatekeeper function.
The formal process of establishing a financial services company in Ireland
For registration in this jurisdiction, a private limited company is the most suitable option. Choosing this option means that the shareholders’ liability will be limited to the amounts invested.
Establishing a company in Ireland involves completing the approximate steps:
- Determining the types of intended transactions that will be carried out through a crypto company in Ireland
- Selecting and verifying the name of the company
- Determining the legal address of the company
- Collecting and clearly presenting relevant information about the founders, beneficiaries and managers of the company
- Drafting and executing constituent and registration documents
- Preparing for and going through the registration process
- Opening a bank account for settlement transactions
- Passing the authorization procedure carried out by The Central Bank of Ireland in accordance with the type of intended financial transactions.
The specific authorization procedure may vary from the one described above and will be determined on a case-by-case basis.
Setting up for success: steps to complete before before applying for VASP authorization
Prior to submitting a VASP AML/CFT registration form, the applicant should ensure that the following criteria are aligned with regulatory requirements:
- Services that will be offered constitute VASP services as set out in the CJA 2010 to 2021
- The company is fully prepared to comply with its AML/CFT obligations under the CJA 2010 to 2021 without failure and/or disruptions
- The company is satisfied with the obtainable opportunity to conduct a VASP activity as regulated by The Central Bank of Ireland.
Documentation and forms necessary for VASP authorization application
To successfully submit an application for authorization, applicants are obliged to submit the following registration forms:
- VASP AML/CFT Registration Form (including the specific information and documentation requested within this form).
- Application for each Legal Person or Other Entity Type who is a beneficial owner in a VASP seeking authorization.
- Application for each Natural Person who is a beneficial owner in an Applicant VASP. The applicant will also need to ensure that all relevant individuals proposed to hold Pre-Approval Controlled Function roles complete Fitness and Probity Individual Questionnaires. Individual Questionnaires must be submitted electronically via the Central Bank’s ONR system by all relevant individuals. Applicants should review the Central Bank’s Guidance on Fitness and Probity Standards 2018 before submitting an Individual Questionnaire.
The application process
Whereas the application process for establishing a financial services company may vary depending on the scope and nature of services the company intends to provide, the process of applying for a VASP authorization (a cryptocurrency license) is rather straightforward. It contains the following steps:
- Applicant submits a VASP Pre-Registration Form to the Central Bank.
- The Central Bank issues an email to the applicant containing an Institution Number, a Reporting Date and details on how to access and submit a VASP AML/CFT Registration Form via the Central Bank’s Online Reporting (’ONR’) system.
- The applicant submits a VASP AML/CFT Registration Form and all supporting documentation through the ONR system.
- The Central Bank acknowledges receipt of the VASP registration submission by email to the Applicant Firm.
- The Central Bank assesses whether the VASP registration submission contains all required information and documentation to progress to the assessment phase and notifies the Applicant Firm by email.
- Where all the required information and documentation has been provided, the Central Bank conducts an assessment of the registration application. Where necessary, the Central Bank will request further information and/or clarification from the applicant.
- The applicant is provided with the opportunity to respond to the Central Bank’s request for further information and/or clarification.
- The Central Bank will assess the additional information provided by the applicant and notify the applicant of its assessment and next steps. The applicant may be provided with a further opportunity to address concerns arising at this stage in the process (if any).
- The Central Bank will notify the applicant of its decision to either grant or refuse the registration.
Appointing individuals to senior positions
The Fitness and Probity Regime, which forms a part of the application for VASP authorization (cryptocurrency license), applies to persons in senior positions. For legislation purposes, they are referred to as Controlled Functions (CFs) and Pre-Approval Controlled Functions (PCFs) within regulated financial service providers (RFSPs).
PCFs are a subset of CFs and a prior approval of the Central Bank is required before an individual can be appointed to a PCF role. A person performing a CF must have a level of fitness and probity that is expected for appropriate performance within that particular function.
In relation to Fitness and Probity, the Central Bank’s Guidance on Fitness and Probity Standards 2018 do not limit Control Functions (CFs) to functions performed in the State. Accordingly, a person performing a CF at a location outside of the State on behalf of a regulated financial service provider authorised, licensed or registered in the State, will be subject to Part 3 of the Central Bank Reform Act 2010.
A firm must not permit a person to perform a CF, unless:
- The firm is satisfied on reasonable grounds that the person complies with the Central Bank’s fitness and probity standards
- The person has agreed to abide by the Central Bank’s fitness and probity standards.
In any case, all managers and beneficiaries of an authorized VASP must have an impeccable reputation.
Audits and regulatory enforcement
The Central Bank implements a graduated approach to AML/CFT supervision. This means that higher intensity and intrusive supervisory measures (e.g., onsite inspections and review meetings) are used to monitor firms that present a higher risk of ML/TF. Other less intensive supervisory measures such as AML/CFT Risk Evaluation Questionnaires and outreach activities (e.g., presentations and seminars) are also used as part of the Central Bank’s AML/CFT supervisory programme.
Cryptocurrency tax scheme in Ireland
Whereas companies are entitled to prepare their accounts in a currency other than euro, they are not entitled to do so in crypto. This regulation also involves VASPs authorized by The Central Bank or Ireland who, for tax purposes, must prepare their accounts for tax purposes in euro or another functional currency.
Regarding crypto taxes that apply to natural persons, tax payers’ income related to crypto trading is subject to capital gains tax at a rate of 33% on gains. Losses, on the other hand, can be used to offset capital gains tax. For corporate entities, chargeable gains will be subject to a 12,5% tax rate.
Regarding VAT taxation, bitcoin and other crypto currencies are deemed to be “negotiable instruments”. Therefore, cryptocurrencies are exempt from VAT. This means that those engaged in exchanging cryptocurrencies won’t be subject to VAT.
In cases where employees are paid in bitcoin, the amount must be converted to euro at the time of the payment so that income tax can be calculated. The territoriality aspect of cryptocurrencies is still a developing area according to the Irish tax system. In the case of an Irish resident, they will usually be liable to tax in Ireland on their worldwide income and gains related to cryptocurrency trading operations. A non-resident person will generally only be subject to tax on Irish-sourced income or gains, or profits of an Irish trade.
Our company is a team of experts who will help you open a company and obtain a cryptocurrency license in Ireland. We provide legal guidance and ensure strong preparation for business and licensing applications, working hand in hand with our clients to help them navigate the administrative side of their business with confidence.
COST OF CRYPTOCURRENCY LICENSE
PACKAGE «COMPANY & CRYPTO LICENSE IN IN IRELAND»
- Preparation of business plan, company management structure and other financial documents
- Company formation in Ireland
- Submission of registration forms to the CBI
- Application for authorization with the CBI
- Communication with regulatory authority during the application phase
- Legal documents – AML, KYC, IT/Security policies, etc.
- Appointment of the necessary staff
- Bank account opening
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.