Estonia cryptocurrency exchange license

Starting a cryptocurrency company with exchange and wallet service provider license

Estonia has a clear and favourable legal and tax environment for cryptocurrency exchange and crypto wallet services provider companies (e.g. 0% corporate income tax). This small European Union country of just 1.3m people is regarded as one of the world’s most advanced digital nations, it is a widely recognised alternative to jurisdictions like Malta, Gibraltar or Switzerland, only with lower costs and simpler administration. Our legal team supports with end-to-end setup of blockchain and crypto company structures with a full range of support services, including licensing.

Currently the process of obtaining a cryptocurrency exchange license is a quite time-consuming process, that requires a thorough preparation and certain experience from the side of an applicant. As of today only few countries in the world are issuing crypto currency exchange licenses.

Our experts are ready to explain all advantages and disadvantages of possible jurisdictions, that currently issue licenses for crypto currency exchange.

Obtaining Estonia cryptocurrency license

In order to start up a successful cryptocurrency exchange business in Estonia entrepreneur is required to obtain a crypto currency exchange license. Estonian cryptocurrency exchange license applies to transactions with funds that are recognized by the society and can be converted into a fiat currency. For example, Estonian license allows you to carry out operations with Bitcoin cryptocurrency. With cryptocurrency exchange license, you may receive funds from third parties as well as transfer them.

Official crypto licenses in Estonia

Providers of a service of exchanging a virtual (crypto) currency against a fiat currency.
Official activity license covering services for exchanging fiat to crypto, crypto to fiat and crypto to crypto. 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.

Providers of a virtual (crypto) currency wallet service

Wallets are digital offline (cold wallet) and online tools (hot wallet) based on public-key cryptography used to securely send and receive crypto currencies. 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.

Both crypto activity licenses are issued by the Estonian Financial Intelligence Unit (FIU) and can be applied for separately or together. Our legal team assists in obtaining both the cryptocurrency exchange and wallet service licenses by preparing all required legal compliance documentation and managing the process on your behalf.

The full procedure to set up the company and obtain the license(s) can be carried out remotely with no visit required, it is safe to consider 30 days for completion of the full setup.

Requirements for obtaining a cryptocurrency exchange license

Regardless of the jurisdiction you plan on operating under you will need to obtain a cryptocurrency license in that jurisdiction. No matter where you obtain your license you will be required to supply the local financial services authorities with the relevant documents. We have listed the basic requirements for obtaining a Bitcoin license including corporate and personal documents.
What you need to provide:

  • A comprehensive business plan including all aspects of planned endeavours for the coming two years; the scope of the activities and the planned means to be employed in carrying out these projects.
  • A detailed description of operational, risk and compliance software.
  • Background information/CV for the principals of the company.
  • Specifics about the source of invested capital.
  • Website address.
  • Legal documents of each of the company’s principals including notarized copies of passports, latest utility bills, Police Clearance Certificates and other personal documents of the company owners.

New Estonian legislation

On November 27, 2017 the Estonian Parliament modified the Anti-Money Laundering Act and Terrorism Finance Act. Operating licenses are therefore issued by the Estonian Financial Intelligence Unit (FIU) – an independent unit operating under the supervision of the Estonian police department and the Border Guard Board.

When applying for a cryptocurrency exchange license in Estonia, the proper application form, along with additional documents and pertaining information, have to be completed and submitted to the Register of Economic Activities.

Advantages of a regulated cryptocurrency company

Transparency

No matter where your company is registered the jurisdiction regulators keep a record of all company operations including liquidity, legal status and more. Crypto Bitcoin traders can easily go online and verify the legitimacy of your company and check that it has no previous serious disputes with clients or the regulators or hidden agendas.

Security

Bitcoin licensed businesses are required to protect their clients’ funds by holding them in segregated accounts, independent from the company corporate bank account. By taking this precaution the company insures that:

  • Clients’ funds are protected, and the company will not be able to close their business and abscond with the clients’ funds.
  • The company is unable to use clients’ funds interchangeably – transferring one client’s funds to another client’s account.

Increased credibility

A company holding a cryptocurrency license from a reputable jurisdiction is conceived as more reliable and credible. Traders and employees alike view a licensed cryptocurrency company as more trustworthy.

Dispute center

Licensed cryptocurrency companies have to abide by the rules and regulations of the jurisdiction where they were registered. In the event of a dispute arising the regulator will investigate the complaint against the Cryptocurrency company and decide if the complaint is justified. If the complaint is found to have merit this can affect the status of the company’s license and even, in some cases lead to sanctions, fines and the cancelation of the broker’s license.

Key points for cryptocurrency company structure

In order to successfully set up the cryptocurrency exchange and/or wallet service license an Estonian limited liability company has to be set up.

This process can be carried out remotely with no visit required, it usually takes about 5 business days for the registry to process.

The Estonian entity is a regular private limited company which after the license approval will be regarded as a financial institution. However, there are no specific reporting and/or accounting requirements that would be different from managing a regular entity, only inquiries from the FIU may be made periodically about the activities of the company, especially in regard to following the predefined AML/KYC policies. We provide full on-going support, including certified accounting and legal compliance support.

Even though it is theoretically possible to apply for the license(s) with a foreign corporate entity then in practice an Estonian company should be set up. Furthermore, we recommend using private person shareholder(s) structure rather than corporate shareholder(s) for the Estonian entity, because the latter will make it more complex the setup, e.g. in case of corporate shareholder(s) the FIU may request non-criminal record extract also for the corporate shareholder, which may prove to be impossible to obtain in some jurisdictions (especially for offshore entities). Our legal team is available to consult in this matter according to the specific case, please contact us for further information.

General Information – key points

At least 1 shareholder (private person or corporate entity). No restrictions to citizenship or residence. For optimal setup structure please consult our legal team.

At least 1 director/management board member. Foreign residents are allowed, no restrictions to citizenship or residence. Can be same as shareholder.

No secretary nor local physical office required (only local registered office and registered agent – we hold the license to provide these services).

Beneficial owners’ details are disclosed to the authorities.

Taxation of cryptocurrency transactions in Estonia

Virtual currencies (e.g. Bitcoin and altcoins) exchange services are not subject to VAT.

Services invoiced (e.g. sales invoices) in virtual currencies are subject to regular VAT rules.

Corporate profits are not taxed (CIT=0%) until the profits are distributed (as dividends).

Income tax 20% is charged on gross dividends (calculated as 20/80 of the net dividend). Special conditions apply for a 14% rate (for legal entities).

Banking

The bank account is not required for the company formation and license application phase. Hence it can be addressed after the company and licenses are active, which is mostly the requirement also from the banks before approach. We work with several traditional banks and fintech payment service providers to ensure the opening of a business bank account for your Estonian crypto licensed company.

We do our best to support in the process but cannot provide a guarantee as the end-result will depend on your business model, background and co-operation during the KYC process. Still, most of our clients have been able to open an operational account in less than a month.

It is important to note that currently Estonian banks may prove to be very difficult to work with regarding crypto companies, but we suggest alternative banking options in Europe.

Please also note that for crypto companies’ higher level of AML/KYC principles are applied, which also means that the licenses have to be active before the approach for full compliance. We can support with appropriate banking solution consideration after we have full overview of the planned activities and financial forecasts to consider the best path forward.

Crypto license obtaining process

To apply for the license(s), it must be done via a company registered in Estonia or through a registered branch office of a foreign company in Estonia.
As a rule, we suggest to use a local company not a branch office, as branch registration is clearly a more complicated task. When a local company is registered and all required documents collected, a state fee of 345EUR needs to be paid at the time we apply for the license(s); please note that this specific fee is expected to be increased to 3,300EUR by the end of December 2019.

During the license application process we also assist in current matters, as authorities often have additional questions or they need some clarifications.

Expected timeframe

Company registration

Once we have obtained all the initial information from you, it takes usually about 1-2 days to create the company. In case you choose a ready-made company, it is already created and ready to be transferred to you.

To transfer a company to your name, you will need to visit Estonia for 1 day. During that day we transfer the company shares and board membership to you. Changes will be visible in the register in a few days (max 1 week).

In case you want to start a company remotely (without visiting Estonia) – it usually takes 2-3 weeks additional time and involves some additional costs.

Real results of license registrations

Currently we have succeeded to get above mentioned licenses registered in ca 2-3 weeks with a 100% success rate.

Specialists of TBA & Associates provide the following support:

  • Full consulting support during registration of the company.
  • Assistance in preparing and filing an application for a license.
  • Interaction with the state authorities in the process of considering an application for a license.
  • Registration of a legal address.
  • Payment of state duties.
  • Registration / transfer of powers of attorney.
  • Accounting and legal assistance.

Our company licensing services

— What we do and do not do

Our company is EXCLUSIVELY engaged in assisting worldwide clients, either individuals or corporate entities, to get duly and properly licensed with local Regulators and Financial Authorities to get respective official licenses to legally carry out their cryptocurrency or financial related business activities.

TBA & Associates Tax Business Advisors does not provide or carry out any sort of Cryptocurrency or Financial services!

Disclaimer: While TBA & Associates strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact TBA Customer Services for advice on your specific cases.

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