Crypto-license is a commonly-used expression to identify those licenses, granted by the relevant public authorities of a State, that allow to operate a business related to cryptocurrencies. Estonian crypto licenses are our main focus. It is the case, for example, of those companies that manage wallets, or offer custodian services or operate crypto-exchange platforms.
Technically speaking, a so-called “crypto-license” is the formal authorisation to operate a crypto regulated-business.
Crypto-licenses in Estonia
Several reasons lead hundreds of crypto-companies to run their business from Estonia. In Europe, Estonia offers one of the most favourable business environments for them.
The National Financial Intelligence Unit (FIU, or Rahapesu Andmebüroo, RAB, in Estonian) is the authority responsible for granting a crypto-license.
Under the Estonian Money Laundering and Terrorist Financing Prevention Act, a license is required to operate a “virtual currency service.” Two different services fall within this category. In the past, they required two different licenses, which have now been merged into the Virtual Currency Service Provider License.
Management of crypto-wallets and custodian services
The first category of services includes both the generation of private keys and the safe-keeping of customers’ encrypted keys. These are the activities carried out by those companies that generate wallets or offer custodian services.
The second category of activities that require a crypto-license is the offering of services to exchange cryptocurrencies against fiat or vice versa, or a cryptocurrency against another cryptocurrency.
Which are the benefits of receiving a crypto-license in Estonia?
First of all, an Estonian crypto-company can benefit from a fair and precise regulation. The Estonian AML Act and related laws set the rules, which offer the licensed company the opportunity to know what is allowed, what is forbidden and, overall, how they have to operate to be and remain compliant with the law.
Further, the Baltic State offers a favourable business environment. Almost every aspect of establishing and managing an Estonian company can be done entirely online, from anywhere in the world, thanks to the e-residency programme. Recently, Statistics Estonia has revealed that Estonia’s e-residents around the world have now generated more than €1 billion of economic activity through their Estonian companies.
It must be mentioned, finally, that Estonia does not have a classic corporate income tax. Instead, only distributed profits are generally subject to the 20% corporate income tax (CIT) at 20/80 of the net amount of profit distribution. In other words, under the Estonian taxation scheme, a company can benefit from being able to reinvest its profit without it being taxed.
Finally, Estonian crypto-companies can be proud of offering their services under the auspices of a world-renowned jurisdiction.
How long does it take to receive a crypto-license in Estonia?
The Estonian FIU grants (or refuses to grant) a crypto-license no later than within 60 working days, starting from the submission of the application. During the process, FIU might request additional information or explanations about the planned activity. In this case, the time-limit set by the law can be extended to up to 120 days.
Of course, the time-frame depends mainly on the quality of the documents submitted with the application, and on FIU’s workload at the time the request is sent.
Which are the alternatives to Estonia?
Estonia is not the only EU country in which it is possible to offer crypto-related services. But still, the digital country is quite often the best one.
Malta, for example, is a quite well-known crypto-friendly jurisdiction. At the risk of sounding rude, in our experience the “Blockchain Island” has been more skilled in marketing itself than in offering a favourable environment for crypto-businesses. Malta’s capital requirements, times and costs of bureaucracy, the running costs that the Maltese companies incur, make Estonia a much better alternative and lead many Maltese entrepreneurs to relocate their business to the Baltic State.
Estonia is not sunshine and rainbows only
There are no countries in which a business doesn’t have to face some constraints. Estonia is no exception to this.
The AML Act has been recently amended, and laid down some stricter boundaries if compared to the previous version of the law for companies applying for Estonian crypto licenses.
For example, the minimum share capital of a crypto-company has been increased from 2,500 EUR to 12,000 EUR, and it’s now compulsory that it is fully paid before the business applies for the crypto-license. Even if we’re of the opinion that this amount is excessive, it’s clear that the share capital can be used to finance the company’s operations.
Further, an IBAN is now necessary at the time of the application. While it’s still almost impossible that an Estonian bank accepts an application to open an account from a crypto-business, it’s also true that an Estonian can have its account opened with an European electronic money institution and that the number of such financial entities is continuously increasing.
Finally, the board and the place of business must be in the country. That doesn’t mean that all the business operations must be carried out by Estonia, but it’s still a requirement that must be taken into consideration, with the support of a reliable consultant.
Moreover, the state fee to be paid to the Estonian Government has been raised from 345 EUR (or 690 EUR to apply for both the old licenses) to 3,300 EUR. A significant increase, but still an investment and not a mere cost, and it is still very competitive, considering the benefits of Estonian crypto licenses.