Estonia Cryptocurrency License

Estonia cryptocurrency license

Tetra Consultants assists our international clients to secure Estonia cryptocurrency license. Estonia is a popular jurisdiction for investors looking to set up cryptocurrency business. The country is friendlier with less regulations as compared to other crypto-friendly jurisdiction such as Malta or Gibraltar. Over the past 12 months, the Estonian government has approved more than 900 cryptocurrency licenses.

On 19^th December 2019, Estonia Financial Intelligence Unit (FIU) confirmed multiple changes to its existing Estonia cryptocurrency license regulations. The changes are applicable to both existing license-holders as well as new applicants. In addition, the changes also apply to companies that are currently holding the financial institution license.

As of 10th March 2020, all new Estonia cryptocurrency license applicants are required to comply with the new regulations. For existing license-holders, you are required to meet the new requirements before 1st July 2020. Failure to comply will result in Estonia cryptocurrency license being revoked.

In the past, there are two types of cryptocurrency licenses in Estonia –

1. Estonia Cryptocurrency Wallet License – Services entailed includes the generation and storage of encrypted customer keys.
2. Estonia Cryptocurrency Exchange License – Services entailed includes exchange of fiat currency for cryptocurrency or vice versa, or cryptocurrency for another cryptocurrency.

Going forward, they will be combined into one single umbrella license known as the Virtual Currency Service Provider license. Our team of experts is able to assist you to meet all additional requirements and ensure you are able to legally conduct cryptocurrency business using your Estonia entity. Contact us now to find out more.

Summary of changes

• The Estonia cryptocurrency license is now known as “Virtual Currency Service Provider” license.

• Estonia Financial Intelligence Unit (FIU) has increased the license application review time from 30 days to 60 days, with obligation to increase up to 120 days.

• The Estonia cryptocurrency license application fee has increased from €345 to €3,300.

• The required share capital has been increased from €2,500 to €12,000.

• Economic substance required in Estonia – physical office, local management team and compliance officer.

• Non-criminal records for all members in the company regardless of citizenship.

• Corporate bank account should be opened with a bank or PSP in an EEA country.

Virtual Currency Service Provider License

• The license allows your company to conduct cryptocurrency exchange businesses. The license covers services for exchanging between fiat money and cryptocurrency, and between different cryptocurrencies. When offering such transactions as a service for commission, it becomes an exchange service. Furthermore, most ICO oriented companies will benefit from this license for legal compliance.

• The license allows your company to carry out businesses similar to a cryptocurrency wallet. Wallets are digital offline (cold wallets) and online tools (hot wallets) based on public-key cryptography used to securely send and receive cryptocurrencies. The license covers services where the private wallet keys are created or held, while the funds belong to the user and not to the service provider.

Advantages of setting up a cryptocurrency business in Estonia

There are several advantages to setting up a cryptocurrency business in Estonia, including:

• E-Residency: Estonia offers a unique program called e-Residency that allows individuals to establish and manage an Estonian company remotely. This means that you can easily set up a cryptocurrency business in Estonia from anywhere in the world.

• Digital infrastructure: Estonia is known for its advanced digital infrastructure, which includes a secure and reliable internet connection, e-government services, and a thriving tech startup scene. This makes it an ideal location for cryptocurrency business.

• Favorable regulations: Estonia has one of the most progressive regulatory frameworks for cryptocurrencies in the world. It was the first country to offer a license for cryptocurrency exchanges and has clear guidelines for ICOs and cryptocurrency businesses.

• Low taxes: Estonia has a competitive tax system that is designed to encourage entrepreneurship. The corporate income tax rate is 20%, which is lower than the average in the European Union.

• Access to the EU market: Estonia is a member of the European Union, which provides access to a large and growing market of over 500 million consumers. This can be beneficial for a cryptocurrency business that wants to expand its reach.

Purchase existing shelf company with already-approved Estonia cryptocurrency license

The total estimated time frame to take over an existing Estonia company with an already-approved Estonia cryptocurrency license is 5 weeks. Thereafter, Tetra Consultants will open your corporate bank account within 4 weeks. Within 9 weeks, you can expect to begin your cryptocurrency business in Estonia.

How to get Estonia cryptocurrency license

The total estimated time frame to register an Estonia company and apply for an Estonia cryptocurrency license is 10 weeks. Thereafter, Tetra Consultants will open your corporate bank account within 4 weeks. Within 14 weeks, you can expect to begin your cryptocurrency business in Estonia.

Step 1: Application for e-residency in Estonia

• To register a company in Estonia, you will need either an Estonian ID card or a e-residency card. Tetra Consultants will apply for e-residency on your company’s behalf based on the information and documents you provide to us. You will need to send us your resume, business plan, a copy of your identity document and a recent photograph that meets the requirements for a document photograph.

Step 2: Reservation of company name

• Once we have successfully applied for e-residency, Tetra Consultants will check and reserve your company name through e-Business Register in the Estonia Company Registration Portal.

Step 3: Preparation and submission of relevant documents for company incorporation

• After Tetra Consultants has reserved your company name, we will proceed with the registration of your company through the Estonian Company Registration Portal. You are required to prepare the documents required for a foreign director for incorporation of the company. This includes the application form, notarized passport copies and proof of address of individual directors and shareholders.

• Tetra Consultants will also draft the Articles of Incorporation and other relevant corporate documents, based on your business activity and corporate structure.

• If you do not have an office in Estonia, Tetra Consultants will provide you a registered address in Estonia. Tetra Consultants will register your new Estonia Limited Liability Company (LLC) within 14 days.

Step 4: Registration for VAT

• Tetra Consultants’ accounting and tax team will then proceed to register for VAT with the Tax and Customs Board. Once VAT registration is completed, the Estonian company will receive a VAT number.

Step 5: Preparation and submission of relevant documents for license application

• Tetra Consultants will provide you a Power of Attorney for signature. The Power of Attorney is required to enable Tetra Consultants to apply for an Estonia cryptocurrency license on your company’s behalf.

• Tetra Consultants will then proceed with the application of your company’s cryptocurrency license. You will be required to send us documents such as passport, proof of address, CVs and non-criminal records of individual directors, shareholders, and Ultimate Beneficial Owners, as well as a copy of the certificate of incorporation, and a copy of the Memorandum and Articles of Association of corporate shareholder.

• Our team of experts will prepare the required AML/CFT procedures and company internal regulations for handling cryptocurrencies.

Step 6: Face-to-face interview

• Tetra Consultants will provide a local board member, compliance officer and office space for your company. These are qualified personnel who have experience in the industry and adequate education level. The local board member will attend the Estonia FIU on behalf of your company. As such, you are not required to travel to Estonia.

Step 7: Corporate bank account opening

• Upon successful application of cryptocurrency license, Tetra Consultants will open an international crypto-friendly corporate bank account for your company within 4 weeks.

Amendments under the Estonian AML Act with effect from 01 April 2022

• The Estonian law of Money Laundering and Terrorist Financing Prevention Act (Money laundering prevention and implementation of financial sanctions guidelines and legislation in Estonia and in the European Union | FSA), which governs cryptocurrency services provided by Estonian businesses, was amended on 15th March 2022, and these changes took effect on 1st April 2022. 

• With these modifications, the potential of money laundering and terrorist financing during cryptocurrency transactions within Estonian companies is to be more effectively reduced. Since further requirements are being placed on virtual asset service providers (VASPs) in order to do this, both licensed VASPs and new applicants must align their operations and supporting documentation with the changes with effect from 15th June 2022.

• Unfortunately, the new applicant, and especially the existing VASPs may not be able to understand the additional requirements brought by the recent amendment. The situation is definitely difficult for many business owners who are not well-versed with the legislative terms. So, if you have realized that these new requirements are something you cannot, unfortunately, follow then Tetra Consultants’ team of licensing experts is here to assist you. In the section below, we have outlined the new requirements posed by the regulatory authority in the recent amendments:

Summary of changes 

• Scope of virtual currency service: 

• Prior to the passing of the recent amendment, the term virtual currency services only referred to virtual currency exchanges and wallet services.

• According to the amendment, the definition of “virtual currency service” is enlarged to include services connected to the issuance of virtual money, such as the organizing of its public or directed offer, sale, or supply of associated financial services.

• The following services can be included: 
  • Any intermediaries between buyers and sellers, as well as services that connect buyers and sellers (brokerage services, order-book exchange services, etc.);
  • Decentralized platforms like P2P and Defi systems, are examples. In the absence of a formal corporation, the individual who established or created the platform, or who has additional rights or controls over the platform, is to be considered a VASP;
  • Services that outsource transactions to third parties (all business partners, in this case, will be considered VASPs);
  • ICO platforms and other equivalent services, such as ISO and TGE, are supplied by the issuer or any third party that assists in the marketing, sale, or distribution of virtual assets.

• Changes in share capital and license fee: 

• Previously, the minimum share capital requirement to apply for an Estonia cryptocurrency license was €12,000, and the cost of a VASP license was €3,300.

• With the recent amendments in the licensing regulation and norms, there has been an increase in licensing fees as well as some further provider expenses. Accordingly, the following has changed with respect to the licensing fee:

• A new VASP license will have an administrative fee of €10,000;

• A €4,000 administrative charge applies to each modification to crypto activity;

• Additionally, the amendment has further marked changes in the share capital requirements in order to apply for an Estonia cryptocurrency license. The requirements can be laid down as followed: 
  • If a VASP offers a virtual currency exchange service in which a person exchanges virtual currency for money or money for virtual currency or one virtual currency for another. at least €100,000 of share capital is required.  

• If a VASP offers a virtual currency transfer service that allows you to make a transaction at least partially electronically through the provider of virtual currency services on behalf of the initiator for the transfer of virtual currency to the virtual currency wallet or account of the recipient, at least €250,000 of share capital is required.

• Amendments with respect to management: 

• Previously, the FIU required confirmation of the board of directors’ education, professional experience, previous positions, and so forth.

• Following that, the new legislation outlines the requirements for the management board and contact persons. The following are the two primary demands:
  • Board members must have higher education and at least two years of professional work experience, and a member of the management board may not serve on more than two VASPs’ boards.

• Changes in the Estonia cryptocurrency license application requirements:

• The amendment requires the applicant to additionally provide and comply with the below-mentioned requirements when applying for a cryptocurrency license in Estonia: 
  • Financial data such as assets and share capital composition, as well as a summary of income and cash flows;
  • A two-year business plan outlining the nature of the applicant’s business operations, organizational and managerial structure, and so on;
  • Documents enlisting risk appetite and risk assessment information;
  • Information about the technological systems utilized to provide the intended services, including an overview of the security protocols, business resilience measures, and technical organization level;
  • Description of the information technology systems to be utilized for the tracking and identification of transactions, consumers, and their beneficial owners, as well as the transfer of information required to fulfill the Travel rule duty;
  • The applicant’s financial audit firm, which verifies their finances. Businesses should also appoint and submit information on an internal auditor who will review AML systems and processes, practice guidelines, and management decisions;
  • Data on the number of shares and votes purchased or owned by each shareholder.

1. Implementation of travel rule: 

• Under the new amendment, virtual currency service providers are obliged to implement extra due diligence and know-your-customer (KYC) processes that conform with the FATF’s ‘travel rule’ standards. This implies that operators are required to collect identifying data on the initiator of a virtual currency transaction and share it with the recipient’s service provider. Names, unique IDs, dates of birth, residence addresses, and register numbers are all to be included.

• Furthermore, virtual currency service providers will be obligated to request proof of funds and paperwork indicating the source of their funds, which is very hard to achieve in the DeFi realm due to the decentralized nature of the transactions involved. Even if a specific wallet is involved in an unethical transaction, following the money trail back to the culprit is hard since they may simply route their cash through multiple protocols across centralized exchanges.

• Conditions to refusal and revocation of license: 
• The new amendments give Estonian officials more power in refusing Estonia cryptocurrency license applications or revoking existing VASP licenses held by virtual currency service operators. Prior to the regulatory changes, license applications could only be denied if an operator lacked AML procedures, payment accounts in Estonia, or other operational procedures deemed necessary by the regulatory body; however, license applications can now be denied if it is discovered that an applicant does not intend to conduct sufficient operations in Estonia, if previous licenses have been revoked, or if the operator lacks sufficient rules and processes for conduct. Furthermore, the FIU has the authority to refuse a license application if it challenges the legality of the applicant’s share capital.

• There are also extra requirements for keeping a VASP license active. According to the amendment, an operator must actively do business in Estonia for six consecutive months and only provide authentic information about its commercial operations. The FIU will have reasons to revoke a VASP license if a license holder is discovered to have participated in money laundering or terrorist financing operations, or has selected Estonia merely to evade tighter AML standards in foreign countries where it actively operates.

Mandatory requirements that persist for Estonia cryptocurrency license

The requirements to meet in order to qualify for a cryptocurrency license in Estonia are minimal:

• Required share capital (as mentioned above)

• Economic substance required in Estonia – physical office, local management team and compliance officer

• Appointment of a local AML/CFT officer

• At least one director must be an Estonian citizen

• Non-criminal records for all members in the company regardless of citizenship

• Non-criminal background confirmation of all company officers (new requirements as mentioned above)

• Corporate bank account should be opened with a bank or Electronic Money Institution (EMI) in an EEA country

Benefits of obtaining Estonia cryptocurrency license

Well-regulated

• Estonia Financial Intelligence Unit (FIU) has in place a well-defined regulatory framework that includes regulatory reporting, strict KYC checks of board members as well as requirements for local substances. This allows cryptocurrency exchange license holders to conduct their business in a safe and regulated environment. In addition, this increases the trust from customers who know that they are trading cryptocurrencies with a regulated cryptocurrency exchange.

Convenient

• Previously, there were two cryptocurrency licenses which you can apply for in Estonia. In another words, you will need to apply for Estonia cryptocurrency exchange license and Estonia crypto wallet license separately. As of 2020, your company will only need to apply for one license, the Virtual Currency Service Provider license, which encompasses almost all services related to cryptocurrency.

Favourable Business Environment

• Registering a business in Estonia is relatively convenient because you are not required to travel for the whole company registration process. Estonia company registration can be completed within 1 week and the country houses numerous incubators and accelerators and provides monetary incentives to help new start-ups in managing their businesses.

European Union (EU) Member

• Since Estonia is part of the EU, a cryptocurrency license issued in Estonia can be applied to other states in the EU. You will not need to apply for another cryptocurrency license if you are operating in the EU. Hence, a crypto license in Estonia provides you with access to the large EU market.

How we can help you register new Estonia company and apply for cryptocurrency license

Tetra Consultants has more than a decade of experience in advising our global clients on securing cryptocurrency license in Estonia. Our team of experts will manage your cryptocurrency license application from the start to the end, including incorporation of a new Estonian company, opening of corporate bank account, drafting the legal documents required and securing the cryptocurrency licenses from Estonia FIU.

Contact us now to know more about how to attain an Estonia cryptocurrency license. Our team of experts will revert within the next 24 hours.

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