Estonia is the most suitable jurisdiction
to launch a crypto-project
Directive No. 2015/849 was enacted on November 27, 2017 by the European Parliament and Council. In the Republic of Estonia, a new Law on the Prevention of Money Laundering and the Financing of Terrorism entered into force on November 27, 2017. The following licenses allow companies to provide the exchange, transfer, and storage of crypto and virtual currencies legally:
- Licensed provider of exchange services for virtual currencies and fiat currencies
- The license of the company that provides virtual currency wallet services
Virtual currency service providers will, however, be considered “financial institutions” in Estonia starting on March 10, 2020. A virtual currency service provider license was created by merging both licenses. Similarly to other financial institutions in Estonia, crypto-companies must comply with reporting requirements.
With more than 2,000 cryptocurrency licenses issued in fewer than 3 years (400 currently active), Estonia has established itself as a preferred jurisdiction for launching blockchain projects. Known for its 0% income tax rate, Estonia is regarded as one of the world’s best ecosystems for startups. Doing business in Estonia also has a number of favorable characteristics: low administrative costs, minimal bureaucracy, digitisation of doing business, and online registration. You can use an electronic resident card to manage your company completely remotely from anywhere in the world.
FAVORED JURISDICTIONS COMPARISON
A GUIDE TO START A CRYPTOBUSINESS
Cryptocurrency service providers and blockchain businesses have begun to establish themselves in Europe over the past decade as virtual currencies have become more common. The DLT (Distributed Ledger Technology) was adopted by several jurisdictions in 2018.
Although blockchain, cryptocurrency and artificial intelligence (AI) businesses continue to struggle to provide banking services in Malta, Eman Pulis, CEO of the Malta AI & Blockchain Summit, commented that Estonia and Switzerland are continuing to attract companies from these fields.
The comparative table compares the laws of Switzerland, Gibraltar, Malta, as well as the Estonian regulations related to cryptocurrency activities.
|Requirements||License VFA Class 4 in Malta||FinTech License in Switzerland||DLT Provider License in Gibraltar||Single Cryptocurrency License in Estonia|
|Issue time||6 months||6 months||4 months||2 months|
|Incorporation state fee||375 EUR||600 CHF||200 GBP||190 EUR|
|Share capital deposit||730,000 EUR||300,000 CHF||28,000 GBP||12,000 EUR|
|License state fee||24,000 EUR||1,750 CHF||30,000 GBP||3,300 EUR|
|Supervisory annual fee||50,000 EUR||3,500 CHF||30,000 GBP||0 EUR|
|Total||754,375 EUR||282,425 EUR||81,432 EUR||15,390 EUR|
Malta vs Estonia
There were already crypto-related rules in other jurisdictions prior to Malta, but on July 4, 2018 the Maltese government passed three laws creating the first ever coherent regulatory framework for blockchain.
It is possible to read the official government report here. It consists of three laws – the Malta Digital Innovation Law, the Innovative Technologies and Services Law, and the most famous of all, the Malta Virtual Financial Assets Law, which outlines the regulation for DLT, intermediaries, brokers, custodian services, OTC traders by the MDIA (Malta Digital Invocation Authority).
Provisions for general use
The Malta Financial Services Authority (MFSA) does not issue licenses to banks for opening accounts for cryptocurrency startups. Licenses for crypto-businesses are normally issued within 6 months of application.
Malta is vigilantly protected as an authoritative jurisdiction by the government. The rating of A with a stable outlook was recently confirmed by Fitch. Four licenses (Virtual Financial Assets) are available under Malta’s crypto-regulation, adopted under the 2018 Virtual Financial Assets Act.
VFA licenses come in four types
- The first class includes the reception and transmission of services (such as investment consulting and peer-to-peer exchange).
An annual supervisory fee of almost equivalent to 6,000 EUR is required to obtain a Class 1 license. In addition to an initial capital deposit of 50,000 EUR or 25,000 EUR, you will also need professional liability insurance. In relation to virtual financial assets and/or the placement of VFA, an authorised entity may receive and transfer orders.
- The second class of services is that provided by VFA (project portfolio management, peer-to-peer CEX).
The registration fee for a Class 2 license is 10,000 EUR, and the annual supervision fee is almost the same. A total of 12,000 euros is required as an initial capital requirement. Virtual financial assets may be provided by the entity, but portfolio management and trading cannot be performed at its expense. In addition, customers’ assets and finances may be owned or controlled by the entity as part of VFA services.
- In class 3, funds are held or controlled by the platform (over-the-counter trading).
If you earn less than 250,000 EUR a year, there is a fee of 14,000 EUR for your application and 12,000 EUR for your annual supervision fee. An initial capital contribution of 730,000 EUR is required in such a case. All VFA services can be provided under the license, except for working on crypto-exchanges. While providing VFA services, the entity may also own or control the assets or finances of customers.
- VFA services can only be provided under Class 4 (exchange of cryptocurrencies and tokens).
For incomes up to 1 million EUR, the annual fee is 50,000 EUR, which increases on a sliding scale. A Class 4 license costs 24,000 EUR. As of the company’s founding, it has a capital threshold of 730,000 EUR. It is unknown how long it will take for such licenses to be processed, but it is expected to take between three and six months. Those wishing to register with the White Paper must pay an additional 8,000 EUR plus 2,000 EUR in compliance fees.
The Maltese license process is very slow. While other jurisdictions like Estonia and Switzerland already have DLT platforms licensed under the VFA, no DLT platform has yet been licensed by the VFA.
A third party service provider should perform a software system audit if they have been approved by the MDIA as a system auditor. A total of 5,000 EUR is charged for the auditor’s system audit, plus an additional 2,000 EUR for initial processing.
For system auditors, the authorisation process costs 7,500 EUR for the initial processing fee and 15,000 EUR for the registration fee, making the total cost 22,500 EUR.
As of now, results
Despite not being legal tender, cryptocurrencies are acknowledged by the government as “a medium of exchange, account unit or store of value”. Malta does not yet have any banks supporting cryptocurrency businesses. A specific tax law does not exist in Malta for cryptocurrency companies, nor does VAT apply to transactions involving cryptocurrency exchanges.
It is imperative that potential virtual currency service providers are impeccably versed in the innovative aspects of the blockchain sector, and that Maltese authorities do everything in their power to screen them out. For many years, Malta has been trying to avoid attracting fraudsters from shady banks and maintain a reputation as a reputable financial center. There are thus many additional fees involved in acquiring local crypto-licenses. An annual supervisory fee follows each VFA license.
According to the Malta authorities, no licenses have been issued as of April 2020. Despite expanding to Malta in 2018, Binance failed to launch a security token trading platform and open a bank account.
The relatively low licensing fees for Estonian businesses have contributed to the country’s dominance in the European crypto-industry. Estonian government initiatives to incorporate crypto-culture into the country’s economy have resulted in fairly impressive numbers, largely because the country has adopted a technologically neutral and supportive approach to innovation in the cryptoasset industry, as well as creating new business opportunities for both emitters and investors.
As a result of recent anti-money laundering and counter-terrorist financing legislation, Estonia’s cryptoasset industry is heavily dependent on those laws. As of July 1, 2020, new requirements and more stringent regulations will apply as a result of the amendments to the Law that entered into force on March 10, 2020. In Estonia, cryptoassets are allowed for use as payment and exchange methods even though they do not have the same legal status as fiat currency.
It is widely believed that Estonia is a leader in decentralised and blockchain technology due to its implementation of initiatives such as KSI and X-Road. The Estonian government developed its own decentralised distributed system in 2001 called X-Road, and since 2008 it has been using the KSI blockchain platform for health codes, judicial systems, law, security, and commercial codes, including electronic police, electronic law, electronic justice, as well as private sector e-services like digital ID, e-Residency, e-Governance, e-Tax, and e-Voting.
Cryptocurrency licenses can be applied for by company Board Members in Estonia. By issuing a power of attorney to a Company in Estonia OÜ representative so that we can submit your application on your behalf, you may submit the license application electronically using an e-Resident card, visiting a notary in Tallinn, or submitting the application by visiting a notary in Tallinn.
There is a state fee of 3,300 EUR per cryptocurrency license. FIU (Estonian Ministry of Finance) is responsible for collecting the fee. Licenses are granted within 60 working days of the application being submitted by the Bureau of Data on Money Laundering (RAB). Despite its ease, the regulations are taken seriously regardless of how easy the process seems.
To enhance the integrity of the Estonian crypto-license application process, some recent amendments have been made to the Money Laundering and Terrorist Financing Prevention Act.
- For crypto-license applications, a company’s share capital must be at least 12,000 EUR, and it must be paid in full before applying. Besides financing its commercial activities, this amount can also be used for corporate expenses.
- Approximately 3,300 euros are due to the Estonian government as a state fee.
- Before applying, you must have an IBAN account for your company. Crypto-companies cannot open bank accounts at Estonian banks, but EUMI provides companies with the opportunity to open an account.
- An Estonian Management Board is required as well as an Estonian location for the business.
- Estonian legal offices are required for companies applying for licenses.
- It is mandatory for the Company Director to be an Estonian citizen.
- KYC/AML officers must interview with the RAB following their application for a crypto-license to determine their skills and suitability.
In spite of Malta’s initial dominance in crypto-jurisdictions, those who understand the industry believe it has lost its prominence because cryptocurrency structures are being created from scratch and crypto-activities are being regulated more tightly. As a marketing pioneer, “blockchain island” was more focused on creating an enabling environment than it was on enabling crypto-business. Malta’s minimal share capital requirements, time and bureaucracy costs, running costs incurred by Maltese companies make Estonia a much better alternative and even encourage Maltese entrepreneurs to relocate their businesses to the Baltics.
To legalize any crypto-activity in Estonia, only one cryptocurrency license is needed. Thus, it gains a competitive edge as a jurisdiction to launch blockchain initiatives. There are many reasons why the virtual state has been selected as the most favorable cryptocurrency ecosystem on a global scale. Since 2001, the Estonian government has been developing a profitable infrastructure and introducing not only blockchain technologies, but also an electronic state in all public and private spheres. There is no doubt that Estonia is currently the world’s most convenient business location, and nothing attracts entrepreneurs more than convenience.
In order to obtain a cryptocurrency license, Company in Estonia OÜ will be happy to assist. Our all-inclusive offer “Company & Crypto-License in Estonia” is designed to meet the needs of customers worldwide. It includes the registration of an Estonian company as well as all the services necessary for obtaining a crypto-license. Documents are drafted, procedures and KYC rules are drafted, translations are done into Estonian and it is supported throughout the whole application process.
Company in Estonia OÜ offers a wide range of additional services, such as assistance in selection and rental of an office; assistance in making company share capital contribution; assistance in recruiting a local Company Director, signing a working contract; training of a Company Director for KYC/AML requirements; as well as KYC/AML Officer services.
The importance of an individual customer approach to us cannot be overstated. For clients all over the world, our company registration services include both personalised order processing and professional consulting. The company also provides entrepreneurs with continuous support based on the latest changes to Estonian legislation.
Obtaining an Estonian cryptocurrency license can be handled by the specialists at Company in Estonia OÜ.