Features of regulation of the crypto industry in Estonia

Estonia is a country that was previously part of the USSR and was the first to join the EU. Such enormous economic growth is mainly because the government has emphasized the development of IT technologies and created a good investment climate. Today, the country still needs to change its tradition, which helps to thrive. Crypto regulations in Estonia appeared much earlier than in other countries. This jurisdiction has become a true pioneer in this matter and has tried to do everything possible so that blockchain technologies can actively develop.

Can I buy/sell/own cryptocurrency in this jurisdiction?

Yes, residents of this country can store crypto assets, use them to pay for goods and services, exchange, sell and buy. They can use various exchanges, electronic wallets, and other tools.

If you want to use something other than crypto assets within the legal framework, you need to use the services of a licensed company only. So, each organization that provides services for exchanging or storing crypto assets must obtain a work permit.

What are the requirements for companies?

As already mentioned, this jurisdiction is interested in developing the crypto business. Therefore it does not set complex requirements. Among the most important are the following:

  • The authorized capital of more than 12 thousand euros;
  • Payment of duty;
  • The legal address must be registered in this jurisdiction, and the director must have citizenship of this country;
  • Compliance with KYC/AML policy.

In addition, your company must have a corporate IBAN account. Local banks do not open accounts for crypto companies, but you can use the services of other European banks that operate in this territory.

Your organization must have a physical office in that country where local security specialists will work. Their responsibilities will include monitoring compliance with KYC and AML policies and compiling and submitting reports to government authorities upon request.

After applying for a license, you must pass an interview with government agencies to confirm your skills and knowledge and answer questions about the company’s operation.

What documents are needed?

Obtaining a cryptolicense is a reasonably complex process. So, you need to go through 3 procedures:

  • KYC/AML;
  • Procedural rules;
  • Risk assessment.

For each stage, you need to collect a separate package of documents. It is pretty challenging to do, so you must seek help from specialized lawyers. They will help to manage the necessary documents and check the correctness of their filling.

Which companies are subject to VAT, and which are not?

By law, all legal entities are required to pay VAT. However, several organizations are exempt from paying this tax. It usually includes government agencies and companies that benefit society or are involved in charity work.

Wallet services

Your company is subject to VAT if you profit from holding crypto assets. It is because crypto wallets are a technological means for storing private keys and are not required for transactions, which are exempt from taxation.

However, taxation may depend on the list of services provided by the company.

Crypto miners

Estonia’s cryptocurrency regulation exempts miners from paying taxes. It is believed that the work of this sector is connected more with BTC. In addition, transactions that use mined crypto assets generate an offer exempting taxes.

Services for the use of the platform

If you use the paid services of various platforms, this does not exempt you from paying VAT. It is believed that crypto platforms do not provide financial assistance (in this country, crypto is perceived more as a commodity and not as electronic money), so you are not exempt from paying this tax.

Requirements for a VASP license

Previously, this jurisdiction offered crypto companies to issue 2 types of licenses – for wallets and exchanges. However, it was decided to combine them into one. Today, it does not matter what services you provide using crypto assets; you need to obtain one work permit.

To obtain a license, your company must meet specific requirements:

  • Viable business plan for at least 2 years;
  • The company must be registered in that jurisdiction;
  • Risk assessment;
  • High-quality technological system;
  • Large authorized capital.

To learn more about the regulation of cryptocurrency in Estonia, you should get a full consultation from our experts.

Cryptocurrency AML regulations

Crypto Regulations

Since Estonia is part of the EU, stringent AML rules apply here.

So, every crypto company must prevent money laundering and financial terrorism. Such organizations must adhere to the same rules as financial institutions.

In 2022 this law was amended; here, special attention is paid to establishing due diligence obligations about PUVA to reduce the risks of money laundering and terrorist financing. Now all crypto companies, including those that work with DeFi, must adhere to this law.

Here, companies cannot provide services anonymously. So, all clients must go through the verification process. 

The organization cannot provide services to people who have previously been involved in fraud, money laundering, or financing terrorism. In addition, you are required to provide customer information to government regulations upon request.

For example, regulators require:

  • Transaction control should be carried out in real-time;
  • Board members must have specialized education and work experience of at least 2 years;
  • Audit (external and internal) is mandatory.

Compliance with AML is given great importance here. So, we advise you to contact our specialists so that they check the work of your company for compliance with these requirements, so that you can be sure that there will be no problems with the law.

Legal framework for ICO in Estonia

Depending on the type of tokens you issue and offer, they may be subject to securities, commodities, or e-currency laws. Thus, it depends on the kind of token and services that the law regulates your activity. Understanding these issues is extremely difficult, so you should seek help from specialists.

If you do not follow the legal framework of the ICO, you may be recognized as a fraudster and threatened with imprisonment of up to 5 years.

Cryptocurrency regulators in Estonia

In Estonia crypto industry is regulated by a large number of different government bodies:

  • Ministry of Finance;
  • Department of financial supervision and settlement;
  • Financial intelligence unit;
  • Tax and Customs Board.

Each of them is responsible for its range of work, so the Ministry of Finance, for example, is responsible for implementing tax, fiscal and financial policies and proposes rules applicable to crypto.

Why can you lose your work permit?

A crypto license is issued on a perpetual basis; however, there are several reasons why your company may lose its work permit:

  • Change of director or board member;
  • If the director does not correspond to the position held;
  • Failure to comply with AML;
  • The company has not started work.

You can quickly lose your license if your company has yet to start working within six months. So, by the time you get permission, you should have ready the software you plan to work with.

The law does not prohibit companies from changing a director or board member but requires the new person to pass a basic background check. The new director must have work experience in this light and specialized education, specific skills, and knowledge to manage such a company.

The AML officer must constantly monitor the company’s activities and report to the regulatory authorities. If they do this irregularly or make mistakes, the company may be suspected of fraud or money laundering, which can lead to losing a crypto license.

If, for some reason, you lose your work permit, you lose the necessary level of trust, which means that it will not be possible to obtain a license again in other jurisdictions.

How long does it take to get a permit?

Usually, you can get a work permit within 3 months. To begin with, you need to register a company and, collect the necessary documents, check how your company meets all the requirements.

After applying, the state authorities have 2 months to review your application. If they have questions, they can extend the review up to 6 months.

Conclusion

As you can see, it is rather difficult for a person who needs a legal education to understand the legal framework. In addition, since the crypto industry is very young, the laws governing it are constantly changing, and keeping track of all the changes takes time and effort. That is why it makes sense to seek help from lawyers specializing in this issue. Our company employs a large team of professionals who will help you complete all the documents and get a license as quickly and efficiently as possible.

FAQ

Yes, this country has become one of the few with an excellent legal framework for regulating the crypto industry. Here, crypto companies must pass an audit, obtain a license and pay taxes.

Several institutions are involved in regulating the crypto industry, and you can find the complete list above or ask our specialists.

Yes, crypto companies are taxed. The amount of this depends on your type of activity.