Cryptocurrency Regulation in Ireland
The main piece of legislation regulating activities of the virtual asset service providers (VASPs) is the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (the CJA 2010), as amended by a) Part 2 of the Criminal Justice Act 2013, b) by the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2018 and by c) Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2021 which is aligned with the EU’s Fifth Anti-Money Laundering Directive (5AMLD).
The Central Bank of Ireland is responsible for the supervision of the credit and financial institutions, including VASPs operating in and from Ireland.
One of the notable efforts for encouraging the growth of the cryptocurrency industry in Ireland is the creation of Blockchain Ireland, an industry innovation network that supports the development of the blockchain sector by sharing information, organising events and promoting success stories with the aim to establish Ireland as a knowledge hub for cryptoasset businesses.
VASPs are companies that supply the following services:
- Exchange between virtual assets and fiat money
- Exchange between one or more types of virtual assets
- Transfer of virtual assets (conduct of a transaction on behalf of another person that moves a virtual asset from one virtual asset address or account to another)
- Provision of custodian wallets
- Participation in, and provision of, financial services related to an issuer’s offer or sale of a virtual asset or both
According to the legislation, a virtual asset is a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes but doesn’t include digital representations of fiat currencies, securities or other financial assets.
To comply with AML/CFT legislation VASPs must:
- Appoint a member of senior management whose primary responsibility is implementing, managing and overseeing compliance with AML/CFT measures
- Appoint an AML/CFT compliance officer
- Carry out a relevant risk assessment of their business
- Undertake customer due diligence of their customers
- Carry out ongoing monitoring of customers and customer transactions
- File suspicious transaction reports with Financial Intelligence Unit (FIU) Ireland and the Revenue Commissioner in instances where money laundering or terrorist financing is known or suspected
- Maintain and implement internal AML/CFT policies, procedures and controls
- Put procedures in place to identify politically exposed persons
- Retain appropriate records of client data and regulatory procedures
- Provide AML/CFT training to all staff on an ongoing basis
Depending on the risk level the supervisory model of the Central Bank of Ireland may include presentations, seminars, risk assessment questionnaires as well as onsite inspections and review meetings.
Persons in senior positions at VASPs are subject to adhering to the Fitness and Probity Regime, enforced by the Central Bank of Ireland, and therefore must obtain an approval from the institution. This is to ensure that senior management has a level of fitness and probity appropriate to the performance of that particular function.
When developing AML/CFT policies, controls and procedures VASPs should focus on the following:
- Maintenance of detailed documented policies which should demonstrate consideration of and compliance with all legal and regulatory requirements as well as be supported by guidance and have and accurate reflection of operational practices
- Ensure that policies are readily available to all staff members and are fully implemented and adhered to
- Establish a clear process of formal policies reviews at least once a year
- Update the policies on time in response to events or emerging risks and ensure that such updates are instantly communicated to relevant staff members
- Ensure that the member of senior management has reviewed and approved all policies and updates
- Ensure that policies are subject to review and testing
Cryptocurrency companies intending to operate in Ireland are obligated to register as VASPs with the Central Bank of Ireland. Currently the sole purpose of the registration is the supervision of VASPs under the AML/CFT regulations. The way of getting into the register is submitting an application to the Central Bank of Ireland. Only applicants capable of demonstrating that they are in a position to comply with the relevant legislation are registered as VASPs.
The Central Bank of Ireland strives to process each application in a timely manner. However, according to the Bank, the consideration period is also dependable on the applicant’s ability to supply all the required documents and information thoroughly and transparently. Currently there are no particular application or supervision fees set out by the authority.
Since the strongest emphasis is put on AML/CFT compliance, it’s essential to have the following checked off prior to starting the application process:
- Design internal AML/CFT policies and controls that correspond with the size and complexities of the business
- Carry out AML/CFT business risk assessment
- Prepare organisational chart reflecting corporate responsibilities and demonstrating how it can ensure functioning compliant with AML/CFT
- Details of VASP’s beneficial owners and senior management
- Business plan demonstrating transaction workflows
- Information about outsourced roles and outsourcing service companies
Applicants can request an optional pre-application meeting with the Central Bank of Ireland who will answer relevant questions about the registration process and the completion of the VASP AML/CFT registration form. Applicants willing to have such a meeting arranged should prepare their registration documents and questions in advance and send an email to [email protected].
Key steps of the application process:
- An applicant submits a VASP pre-registration form to the Central Bank of Ireland and emails the completed form to [email protected]
- The Central Bank of Ireland issues an email to the applicant containing an institution number, a reporting date and instructions on how to access and submit a VASP AML/CFT registration form via the Central Bank of Ireland Online Reporting System (ONR)
- The applicant submits a VASP AML/CFT registration form and all supporting documentation through the ONR
- The Central Bank of Ireland acknowledges receipt of the VASP registration submission via email
- The Central Bank of Ireland assesses whether the VASP registration submission contains all required information and documentation to progress to the assessment phase, and notifies the applicant via email; the application assessment process won’t start until the receipt of the completed application
- If all the required information and documentation is provided, the Central Bank of Ireland assesses the application and may request additional documentation or clarification
- The applicant fulfils further requests for information
- The Central Bank of Ireland assesses the additional information and provides an update to the applicant who can again be asked to resolve further issues or meet specific post-registration conditions
- The notification may also include specific conditions that the applicant must meet once the registration is granted in which case the applicant is given 21 days to address the demands
- If the authority is intending to refuse the registration, the applicant is also given 21 days to respond to such decision by explaining why the registration should be granted
- The Central Bank of Ireland notifies the applicant of its final decision in writing which can be one of the following
- Registration – the Central Bank of Ireland has decided to grant registration
- Registration with Specific Conditions – the Central Bank of Ireland has decided to grant registration with specific conditions attached to the registration (the conditions will be set out in the letter)
- Proposed Refusal of Registration – the Central Bank of Ireland gives an explanation as to why the registration is refused
A registration comes into force on the day on which the registration is granted, or on a later date specified by the Central Bank of Ireland who can revoke the registration any time in case of changed circumstances. The Bank may also amend a registration by varying, replacing or revoking any conditions or by adding a new condition if it’s necessary for the proper regulation of VASP, especially for preventing the business from being used for money laundering or terrorist financing. Upon receipt of the Bank’s notice, the licensee has 21 days to respond to the Bank with evidence showing why the proposed changes shouldn’t be made.
Applicants for the registration of VASPs should submit the following forms:
- VASP AML/CFT registration application form (including the required information and documentation demonstrating effective AML/CFT policies and procedures)
- The following beneficial owners application forms:
- Application for each legal person or other company type who is a beneficial owner in an applicant VASP
- Application for each natural person who is a beneficial owner in an applicant VASP
- To comply with the Fitness and Probity Regime, the applicant must ensure that all relevant individuals proposed to hold senior management positions complete fitness and probity individual questionnaires which must be submitted electronically via ONR
Detailed instructions on how to submit the application forms and supporting documentation via ONR are laid out in the guide created by the Central Bank of Ireland.
The purpose of the Fitness and Probity Regime is to ensure that individuals in key and customer facing positions (referred to in the legislation as Controlled Functions (CFs) and Pre-Approval Controlled Functions (PCFs)) are competent and capable, honest, ethical and of integrity as well as financially prudent.
When a CF or a PCF is outsourced to a company that’s not regulated by the Central Bank of Ireland, the VASP must obtain a written approval from the Central Bank of Ireland prior to appointing that individual as persons performing CFs and PCFs under outsourcing arrangements also must be compliant with the Fitness and Probity Regime. Moreover, if a VASP proposes to appoint a person to a CF or PCF at a location outside of Ireland, it must obtain the Central Bank’s prior approval in writing.
However, the Fitness and Probity Regime doesn’t apply to persons performing CFs on behalf of a VASP authorised by the competent authority of another EEA country, and which provides services in Ireland on a cross border or branch basis.
According to the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2021, a person isn’t fit and proper if any of the following apply:
- The person has been convicted of any of the following offences
- Money laundering
- Terrorist financing
- An offence involving fraud, dishonesty or breach of trust
- An offence in respect of conduct in a country other than Ireland that would constitute an offence of a kind referred to above if the conduct occurred in Ireland
- In a case where the individual is under 18 years of age
- The person has suspended payments due to his/her creditors, is unable to meet other obligations to his/her creditors, or is an individual who is an undischarged bankrupt
- The person is otherwise not a fit and proper person
Registered VASPs are required to retain certain records for at least 6 years as specified by the Central Bank of Ireland. They must be kept either at the registered office or other premises in Ireland. All changes of address have to be communicated to the Central Bank of Ireland in writing.
How to Open a Cryptocurrency Company in Ireland
One of the most prevailing types of legal business structures in Ireland is a Private Company Limited by Shares (LTD). It requires no minimum share capital and can be established by a sole founder/shareholder.
- Certified photocopies of the passports of company’s directors, secretary and shareholders
- Certified proof of address of each director and a shareholder
- Company name registration certificate
- Proof of the address of the registered office
- Written consent of directors and shareholders
Steps of opening a new VASP company in Ireland:
- Reserving a unique name which must be non-offensive, also certain words aren’t permitted (at least 3 names must be proposed in case any of them aren’t available)
- Registering a physical office in Ireland
- Preparing either Memorandum of Association or Articles of Association in front of a public notary in Ireland
- Completing an application form (Form A1) and submitting it to the Companies Registration Office (CRO) who will process the application within 5-10 days and will consequently issue a certificate of incorporation (this can be done online via Companies Online Registration Environment)
- Appointing at least one director (can be a shareholder) who doesn’t have to be a resident of Ireland but should live in a country of the European Economic Area (EEA); if all the directors are based outside of the EEA, then they must purchase a non-EEA residents bond before establishing a company in Ireland
- In addition to a director, hiring a company secretary (a resident of the EEA) who will file Annual Returns; a failure to file them results in receiving a fine and in having to have company’s financial statements audited for two years
- Opening a corporate bank account at a local bank (original certificate of incorporation, company’s constitution and a copy of the A1 form will be required)
- Registering a company with the Office of the Revenue Commissioners for taxation purposes
- Applying for a registration as a VASP
Apart from AML/CFT reports, Ireland-based VASPs aren’t required to meet any specific reporting requirements. However, the usual corporate reporting requirements are still applicable.
Private Limited Liability Companies are obligated to appoint an auditor and have their accounts audited every year. Audited accounts have to be submitted along with the annual return form which must be done by the company at least once during the calendar year at the CRO.
In order to be eligible for the audit exemption, a company must meet all of the below conditions:
- The company should be a company to which the Companies (Amendment) Act 1986 applies
- The company’s turnover is less than 8.8 mill. EUR
- The assets of the company are less than 4.4 mill. EUR at the end of its financial year
- The average number of employees is up to 50
- The company must not be a parent company or subsidiary company
The conditions apply to both the current financial year and the preceding financial year, unless the year in respect of which the exemption is being claimed is the company’s first financial year.
The taxes in Ireland are administered by the Office of the Revenue Commissioners and the tax year runs from the 6th of April to the 5th of April the following year. Ireland hasn’t imposed any specific taxes on VASPs but such businesses are still required to pay regular taxes.
Depending on the nature of activities, the following taxes may be applicable:
- Corporation Tax – 12.15%
- Capital Gains Tax – 33%
- Dividend Withholding Tax – 25%
- Social Security Contributions – 11.05%
- Stamp Duty – 7.5%
- VAT – 23%
The tax liability on chargeable gains from assets are generally included in the company’s Corporation Tax payment. This means the chargeable gain will be calculated at the Corporation Tax rate. Due to the difference between Corporation Tax and Capital Gains Tax, the capital gain needs to be adjusted. An adjusted gain must be reported in the capital gains section of the online CT1 form.
How to calculate the adjusted gain:
- Calculate what the amount of Capital Gains Tax liability would be at the Capital Gains Tax rate
- Divide this amount by the Corporation Tax rate
One of the most notable advantages of the Irish taxation system is a three-year exemption from the Corporation Tax which for the new companies can be reduced to 0% if their Corporation Tax due is 40,000 EUR or less in a single tax year. When the Corporation Tax is between 40,000 EUR and 60,000 EUR, marginal relief is given.
Furthermore, cryptocurrency business may benefit from other tax exemptions:
- Bitcoin and other cryptocurrencies are VAT exempt
- Through R&D tax credit scheme qualifying R&D expenditure can generate a 25% tax credit to offset against the Corporation Tax
Certain corporate pre-trading expenses (e.g. advertising, business plan preparation costs, accountancy fees) are allowable in calculating taxable trading profits once the trade has commenced. A deduction is allowed for pre-trading expenses incurred in the 3 years prior to commencement of the trade.
Our team of dedicated and quality-focused lawyers will be delighted to provide you with tailored, value-added support in establishing a cryptocurrency company in Ireland, including registration with the Central Bank of Ireland. From the very start of the process you’ll be backed with the expertise in local legislation, company formation, reporting and tax advice.
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.