Estonia crypto license
- Expected Revenue (2023): A Statista report suggests that the revenue in 2023 could reach a significant €14.91 million. This figure shows the great growth potential of the digital asset market in Estonia.
- Projected Development (2023-2027): The market is projected to grow at an approximate Compound Annual Growth Rate (CAGR) of 15.06% from 2023 to 2027. With this rate of expansion, the market’s valuation might potentially hit a remarkable €26.13 million by 2027.
- Revenue Per User (2023): In 2023, the average revenue per user in the digital asset market is expected to be €53.3. This figure points to the market’s profitability.
- Global Revenue Comparison: The United States is projected to lead with estimated revenue of €26.74 million in 2023. But, Estonia’s smaller market still has significant growth potential.
- User Growth Projection: The number of users in Estonia’s Digital Asset market is predicted to increase substantially. It’s estimated to reach around 342.7 thousand users by 2027.
- User Penetration Rate: The rate of digital asset use in Estonia is set to increase from 21.0% in 2023 to 26.0% by 2027. This growth shows a rising acceptance and use of digital assets in Estonia.
Estonia's Approach to Cryptocurrency
What is Estonia crypto license?
- Virtual Currency Wallet Service (Custody Services). An entity can provide clients with the ability to create or maintain encrypted keys. These keys can be used to hold, store, and transfer virtual currencies.
- Virtual Currency Exchange Service. An entity can enable the exchange of virtual currency against fiat money or one virtual currency against another.
- Virtual Currency Transfer Service. An entity can facilitate the electronic transaction of virtual currency. The purpose of this service is to transfer virtual currency to the recipient’s virtual wallet or account.
- Issuance of Virtual Currency: An entity can organize a public or targeted offering or sale for the issuer of a virtual currency. Or, they can provide related financial services on behalf of or in the interest of the issuer.
- Licensing. All VASPs must have a license. Getting the necessary licenses to do their business is a must. This rule helps make sure that VASPs’ operations are legal and responsible (Article 70 of Estonia’s AML Act).
- Disclosure of Information. VASPs have to share detailed financial and operational information. These include specifics about their assets, capital, income, expenditures, profits, and cash flows. Moreover, they must share the basic ideas behind their business model. This encourages openness and helps others better understand and assess their business model and financial health (Article 70 of Estonia’s AML Act).
- Compliance Requirements. VASPs should maintain strict transparency in their work, including ensuring that all key staff have no criminal records. Not following these rules can result in the loss of their operational license (Article 75 of Estonia’s AML Act).
- Cooperation with Authorities: VASPs are obligated to provide necessary information to the Rahapesu Andmebüroo (Money Laundering Data Bureau). This includes business secrets and data relevant to anti-money laundering and counter-terrorist financing. It’s essential to note that VASPs must follow these requirements within the set deadlines (Article 58 of Estonia’s AML Act). (Article 58 of Estonia’s AML Act).
Why should you choose fintecharbor.com to receive a crypto license in Еstonia?
How much does it cost to get a crypto license?
The strategy of starting a crypto business in Еstonia
The process to receive a crypto license in Еstonia. New legislation affecting the crypto industry
What are the taxes in Estonia?
- Tax on company profits – 0 – 20%;
- The taxable base is the positive difference between the sale price and the purchase price of the assets;
- Social security contribution: 33% + 0.8% unemployment insurance contribution.
- VAT basic rate – 20%.
Taxes on corporate income
- If a company in Estonia doesn’t distribute its profits, it doesn’t pay tax. This rule includes both types of earnings: those that come from direct actions like buying and selling, and those that are received indirectly like profits from investments, loan interests, and payment for use of assets.
- When a company distributes its earnings, it typically needs to pay a 20% corporate income tax. This means if a company gives out €100 as profit, it needs to contribute €20 as tax.
- If a company regularly shares its profits, it might qualify for a 14% tax rate.
VAT rates in Estonia
- 20% – the standard rate for most goods and services;
- 9% – reduced rate (applies to books, medicines, and tickets for concerts or performances);
- 5% – reduced rate (applies to physical and electronic publications in the press);
- 0% – for all exceptions provided for in the Estonian VAT Act.
Social Security contributions
- 33% of the employee’s salary – social security contribution;
- 0.8% of an employee’s salary – unemployment insurance contribution.
European case law on the application of VAT to cryptocurrency transactions
- Mr. Hedqvist wanted a clear interpretation from the Swedish Revenue Law Commission about how VAT applies to Bitcoin transactions.
- The main question in this case, was about how to understand Articles 2(1)(c), 135(1)(d), 135(1)(e), and 135(1)(f) of the EU VAT Directive.
- The court decided that Bitcoin is a type of payment contract. It lets direct transactions happen between parties that accept it.
- The court decided that trading traditional currencies for bitcoins is a service. It falls under Article 2(1)(c), as it includes the difference between the buying and selling price of the currency.
- Bitcoin transactions don’t meet the exemption criteria under this Article. Bitcoin doesn’t match the specific financial instruments described.
- The court said that Article 135(1)(e) covers transactions involving non-traditional currencies like Bitcoin. This is if they are an accepted alternative to legal tender. This means these transactions don’t have to pay VAT.
- As Bitcoin isn’t a security that gives a property right or a similar security, transactions involving it don’t fall under this Article 135(1)(f).
Impact on Estonia:
European case law on the application of VAT to cryptocurrency transactions
With an Estonia cryptocurrency license, you can execute these activities:
- Virtual Currency Wallet Service (Custody Services)
- Virtual Currency Exchange Service
- Virtual Currency Transfer Service
- Issuance of Virtual Currency.
To acquire a state license to operate with virtual currencies, you must first set up a firm in the territory. To do this, you should collect a bundle of documents, prepare a legal address, and pay authorized capital in the required amount.
Only then you can sign up for digital money consent in this Baltic State. The subsequent papers are essential to be presented to the Estonian Financial Intelligence Unit:
- The certificate number and business organization name.
- Corporate contact details.
- A brief description of the establishment operations.
- Internal procedures and policies intended to prevent money laundering.
- Personal information of a compliance officer (must be certified individual).
- Copies of passports of all related persons from all countries of citizenship.
- Information about the lack of criminal history of all related persons regardless of legal status.
- Professional resumes and scans of diplomas from all authorized individuals of the organization.
- Business plan and business projections for at least two years.
- Request for a virtual asset provider license.
- Remittance for payment of the government duty.
- Details on existing deposit accounts in an EEA country with cross-border functions.
- List of accounts opened on behalf of the corporation, together with an IBAN of each.
The petition for crypto empowerment takes place through a firm enlisted in the homeland or a registered branch of a foreign corporation.
- Legal Activity
By obtaining a license you can legally perform all activities permitted by VASPs in Estonia without undesirable consequences.
Section 70 of the Estonian Anti-Money Laundering Act states that a license is a must if you’re planning to provide virtual asset services.
So, what’s the fallout if a company providing these services doesn’t adhere to this rule? Well, they could end up facing a host of penalties. This could range from administrative punishments, like fines, to possibly even a halt in their operations. If the company’s infractions are significant, criminal charges might be on the table too. The exact penalties will hinge on the severity and nature of the infractions.
With a crypto license you can advertise your cryptocurrency services on platforms like META or Google. Having a license makes you a more reliable partner for the largest advertising service providers.
It’s crucial to know that if a company doesn’t own a crypto license, it can’t advertise its cryptocurrency services on platforms like META or Google. These platforms have strict rules businesses must obey. One rule is that any cryptocurrency business, like those offering crypto trading, needs to have a valid license. This license shows they follow the law. If a company lacks this crypto license, the platforms won’t let it advertise. META and Google do this to make sure businesses on their platforms are legal and ethical. This protects their name and their users from scams or illegal actions. So, a crypto license is vital for a company that wants to use META or Google Ads to reach more people and increase its customers.
For example, according to META’s rules, if you want to advertise anything to do with cryptocurrencies, such as trading platforms, software, or services that let people earn, resell, swap, or ‘stake’ cryptocurrencies, you can’t start advertising. You can’t place these ads unless you have got written permission before. To get this permission, you have to follow a specific process. As an advertiser, you need to first hand over a recognized license or registration. This document proves you follow the rules for your business type. After giving this, you need to get written permission from META. Once you have completed these steps, you can start advertising your products or services.
For Estonia, you need to provide the Virtual Currency Service authorization from the FIU.
- Bank accounts
Possibility to open a corporate account with a bank or PSP.
It’s against the law to offer virtual asset services without a license. That’s why banks and Payment Service Providers (PSPs) frequently ask for license proof before they open a corporate account. Cryptocurrency activities are viewed as high-risk. So, not having a license can lead to an outright denial to open an account.
Last but not least is trust. Having a license builds trust and credibility.
The FTX bankruptcy highlights the importance of reputation in the cryptocurrency world. This business relies on the trust of users, partners, and regulators, which can suffer in times of instability. Having a recognized crypto license, such as Virtual Currency Service Provider in Estonia, can help assure all parties of a company’s commitment to complying with financial regulations.
BUSD is a case in point. It’s a stablecoin, linked to the US dollar, and is issued by Binance. Paxos, the custodian of the US dollars backing BUSD, ran into issues in 2021. Part of BUSD’s reserves were frozen due to regulatory compliance issues. Also, the U.S. SEC has expressed concerns about the ability of Paxos, a Binance-affiliated company, to follow federal securities laws.
Both the FTX and Paxos cases remind us of the importance of trust and regulation in the crypto industry. A crypto license can play a critical role in bolstering a company’s reputation. This protects all stakeholders and fosters a sense of trust in an industry known for its risks and rewards.