Lithuania has emerged as an ideal destination for crypto entrepreneurs and businesses. With its business-friendly ecosystem, well-defined regulations, and favorable tax policies, Lithuania has become a crypto hub for those seeking to establish and operate crypto-related ventures. This article provides crucial insights into licensing, regulations, and taxation for cryptocurrency activities in Lithuania.
Types of Crypto License and Regulatory Requirements
Lithuania offers two key licenses that empower companies to legally operate within the cryptocurrency sector:
Exchange Service Provider License: This license allows businesses to provide services related to the exchange of cryptocurrencies, including converting one virtual currency into another, exchanging fiat money for cryptocurrencies, and managing crypto wallets. It offers the legal basis for cryptocurrency exchange services with commissions.
Crypto Wallets and Custodian Services License: This permit enables companies to create encrypted keys for client security and facilitates the transfer of cryptocurrencies to other individuals.
Required documents for license application:
- Apostilled passports.
- CVs of all project participants.
- Power of attorney.
- Evidence that the board's members have a good reputation in the business world, i.e., no criminal record.
- An AML Officer must confirm a good reputation by providing no criminal record evidence document and additional proofs related to relevant education, skills and experience.
- Detailed business plan.
- AML and KYC company procedures that are aligned and compliant with the national AML/KYC regulatory framework.
Lithuania's crypto regulations offer a degree of flexibility that is appealing to entrepreneurs. While the Bank of Lithuania reviews license applications, the Financial Crime Investigation Service (FCIS) regulates licensed activities. In June 2022, the Lithuanian government enacted several adjustments to the legislation. These modifications became operational in November 2022 and introduced more comprehensive regulations for VASPs. Typically, licenses for such operations can be secured in a month, establishing Lithuania as a proactive jurisdiction for crypto enterprises.
To obtain a crypto license in Lithuania, companies must form a Private Limited Liability Company (UAB). Here are some crucial considerations and steps for establishing a UAB:
- Unique Company Name: The company name must be unique and compliant with regulations. Entrepreneurs can reserve a name through the State Enterprise Centre of Registers.
- Company´s Venue: There is a requirement to have at least the company's virtual office address in Lithuania.
- Shareholders and Directors: A UAB can be established by one or more natural or legal persons, and there are no limitations on the number of shareholders. Importantly, company owners and directors do not need to be permanent residents of Lithuania.
- Minimum Share Capital: A UAB requires a minimum share capital of €125,000
- Banking Account: It is necessary to have a banking account with a financial institution registered in Lithuania.
- Criminal Records and Education: Company owners and directors must have clean criminal records and demonstrate proper education and relevant experience.
- Lithuanian authorities also mandate that companies appoint an Anti-Money Laundering/Counter-Terrorism Financing (AML/CFT) compliance officer to ensure adherence to AML regulations and reporting to FCIS.
Crypto Regulatory Compliance
To prevent money laundering and the financing of criminal activities, crypto companies in Lithuania must implement robust internal control policies and procedures. These include:
- Due Diligence Measures: Companies must identify and verify all potential customers in accordance with AML/KYC rules.
- Transaction Monitoring: Regular checks are essential, especially when transactions exceed a designated limit of €15,000 or equivalent.
- Data Storage and Reporting: Customer information must be stored and provided to supervisory authorities upon request.
- AML Compliance Officer: Companies must appoint a local AML Compliance Officer responsible for implementing AML policies.
- Financial Audits: Regular comprehensive financial audits help in identifying threats, risks, and vulnerabilities.
- Reporting: Companies are required to report to the regulator and provide information upon specific requests.
- One noteworthy aspect of Lithuania's crypto regulations is that there are no specific requirements for accounting and tax reporting. Accounting should be carried out according to the standards adopted for other companies in Lithuania.
Crypto License in Few Simple Steps
Reassuming the above, the procedure for obtaining a crypto license can be summarized in these five straightforward steps:
- A cooperation agreement is signed by the Lithuanian company, UAB.
- The company is purchased/registered, with the necessary documentation prepared.
- A license application for the company is prepared.
- Upon successful registration and submission of all requisite information and documentation, the crypto license can be obtained.
- The Financial Crime Investigation Service (FCIS) initiates the processing of the license application for the designated activity from the date of submission.
Taxation of Crypto Activities
Lithuania offers a favorable tax regime for crypto companies:
- Corporate Income Tax (CIT): Lithuania imposes a 15% CIT rate, which is relatively low compared to other EU jurisdictions.
- Value Added Tax (VAT): Is 21%. Specific crypto transactions may be exempt from VAT.
- State Social Insurance (SSI): Crypto companies employing staff are subject to contributions to SSI of 19,5% fixed rate + employee contribution of 1,61% to 2,49% of gross salary.
- Withholding Tax (WHT): Certain transactions may be subject to a 15% WHT.
- For tax purposes, cryptocurrencies are considered short-term assets, and the tax treatment depends on the nature of transactions and economic implications.
Why should companies consider consulting with crypto regulatory experts?
- Cryptocurrency regulations are complex and vary from one jurisdiction to another, adding complexity to the compliance landscape.
- Non-adherence to regulations can result in legal repercussions and financial penalties, including fines, license revocation, and, in severe cases, potential criminal charges.
- Failing to comply with cryptocurrency regulations can pose a significant risk to a company's reputation, potentially leading to adverse media coverage, loss of customer trust, and damage to the brand.
- The crypto market is highly susceptible to cybersecurity threats and hacking, making it crucial for companies to properly secure their assets and adhere to cybersecurity regulations to ward off potential cyberattacks.
- Given the absence of standardized industry practices in the crypto market, companies may find it challenging to determine the most appropriate course of action. Seeking professional guidance and conducting due diligence can provide valuable insights into the industry's current state and help identify best practices.
Conclusion
In summary, Lithuania has emerged as a budget-friendly and advantageous destination for cryptocurrency businesses within the European Union. With recent changes in legislation, Lithuania surpasses other options like Estonia due to its cost-effectiveness and streamlined processes. This Baltic nation offers a welcoming environment for crypto assets and related activities, providing clear and flexible regulations for obtaining essential licenses to operate in the cryptocurrency market. Key advantages include remote company registration, affordable corporate tax rates, and a thriving fintech ecosystem. The absence of residency requirements for company directors and shareholders, minimal bureaucratic hurdles, and low maintenance costs make Lithuania a prime choice for entrepreneurs looking to dive into the world of crypto projects while benefiting from a favorable business environment in Europe.
Obtaining a crypto license in Lithuania is a significant task that demands extensive knowledge, expertise, and experience. In general, seeking legal guidance and conducting comprehensive due diligence can empower companies to grasp the regulatory landscape, mitigate risks, and guarantee compliance with all pertinent regulations.
Collaborating with proficient professionals like BlockReg Advisors can yield numerous advantages and ensure that your company is well-prepared for triumph in the dynamic and swiftly evolving crypto market. This partnership can safeguard the company's reputation, financial stability, and cybersecurity while positioning it for success in the crypto industry.
Feel free to reach out to us at any time to explore our services and initiate a partnership.
