Disclaimer: The following text is a press release, and was not created by Cryptonews.com.
Ieva Bakutien, Licensing Services Manager at LewbenGediminas Liucius, Legal & Tax Services Partner at Lewben
Lithuania was one of the first to react to cryptocurrency’s impact on financial markets. Since 2018, Lithuania has been welcoming regulators and, a year and a quarter later, passed laws creating a clear legal framework for virtual asset service provider (VASPs).
Lithuanian Crypto License
It is mandatory to have a separate crypto licence in order for crypto-related activities to be started in Lithuania. This is a constant reminder. This perception can be misleading. Instead of obtaining a crypto license, it is necessary for authorities to be notified about crypto activity. Crypto operations can be launched once notification has been received. The activities of crypto wallet operators as well as crypto exchange service providers are monitored by the Lithuanian Financial Crime Investigation Service. Authorization for both types of crypto activity may be requested by the same business. It takes an average of one month to complete the authorization process.
A limited liability company (UAB), must be established in order to be authorized to offer cryptocurrency exchange and/or wallet service. The minimum share capital required to provide cryptocurrency exchange and/or wallet services is 2,500 EUR. Although the company formation process can be completed without a physical visit, it usually takes around ten days to receive the original documents. An engagement typically begins with an analysis of the target business model, shareholders structure, and background of CEO. This allows us create a list essential documents to facilitate incorporation.
The Lithuanian Law on the Prevention of Money Laundering and Terrorist Financial Financing (the AML Law).VASPs are subject to AML requirements. This includes customer identification and authentication as well as transaction monitoring and suspension. Reporting to authorities is also required. To ensure that crypto related activities can be started effectively, it is a good idea to have an internal AML Officer (preferably one local) to ensure that FCIS reporting will be done in a timely manner.
VASPs all face the same problem: how to establish a sustainable banking relationship in order to provide seamless connectivity for customers between FIAT and crypto currencies. Lithuania is a good jurisdiction because it has almost 300 fintech companies who are ready to provide advanced financial solutions for blockchain-based businesses.
As the crypto market develops rapidly, VASPs must look for innovative, customer-friendly and sustainable product offerings in order to stay ahead of the curve. Although crypto services aren’t considered financial services in the strictest sense, certain products offered by VASPs can resemble conventional financial products (e.g., leverage trading and crypto derivative products, crypto stakestaking, etc.).The following are examples of licensed activities. Digital technology companies can scale their operations thanks to a strong financial services licensing infrastructure and a positive approach by the Bank of Lithuania.
ICOs / STOs, and other forms capital raising in Lithuania
The Bank of Lithuania announced its approach to virtual assets and initial coin offerings in 2017. This was renewed in 2019. The core principles of regulatory treatment are listed, despite the fact that the supervisory authority is neutral in its approach. Depending on the type of offering, ICO could be exempted from regulatory oversight or subject to the requirements for securities offering, crowdfunding or collective investment. The Bank of Lithuania has published its guidelines on security token offerings (STOs). These guidelines, which are based on token characteristics (i.e., utility, security), provide a more detailed approach toward regulatory requirements. The guidelines are primarily focused upon ICOs and STOs. It is likely that the updated guidelines, which reflect the latest developments in the crypto sector and cover new forms and capital raising (e. g. IDOs IEOs ILO, etc.) will be released shortly.).
Taxation of crypto activities
Two main taxes should be considered by businesses when it comes to taxation. They are corporate income tax, or CIT, and value added tax, (VAT). In certain cases, both of these taxes could be charged. The tax treatment of an activity will usually depend on its type. For example, income from the exchange of crypto currency and security tokens can be exempted from VAT. However, other activities, such as those that receive referral fees from other platforms, may be subject for taxation. Profits from VESPs are subjected 15% CIT rate. There is an opportunity to significantly lower the taxable amount if you take advantage of tax incentives for R&D or investment projects related to software. CIT obligations are based on the type and amount of tokens issued by VESPs. They are subject to a 15% CIT rate.
There could be many taxation scenarios due to the variety of commercial activities. We recommend that you do a thorough tax assessment prior to launching your operations.
Navigating the Lithuanian Cryptocurrency Regulatory Systems
A team with strong expertise in law and tax, as well as financial accounting, analytics, and business advisory. LewbenWe can offer a wide range of professional services and guidance to help you grow your crypto business in Lithuania and across the EU.